Antitrust Liability for the Actions of Third Parties
It is a long-established principle that a company can be liable for the anti-competitive behavior of a third party. Compliance programmes and training, as well as contracts with third parties, need to take this into account.
A recent judgment of the EU’s highest court, the European Court of Justice (ECJ), provided very important guidance in this area. On 21 July 2016, the ECJ ruled on the conditions for a company's liability for anti-competitive conduct by an independent service provider it hired.
The court held that a company may be held liable for such conduct, provided one of the following conditions is met:
- The service provider was in fact acting under the direction or control of the company concerned. (This will include outside contractors, which are in fact employees in disguise, as well as genuine outside contractors.)
- The company was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct.
- The company could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which these entailed.
This wide approach to liability means that all companies need to consider how to ensure that third parties comply with competition law. This means at least suitable contractual clauses, compliance training and audits.
Cartel Activity Implemented Via the Amazon Marketplace Website
Illegal cartel activity can be implemented in many ways. A recent UK case shows that regulators are alive to the possibilities brought about by technological developments. Companies need to ensure that their compliance programmes stay up to date.
The case was brought by the UK Competition and Markets Authority (CMA). In order to settle the case, Trod Limited admitted agreeing with one of its competing online sellers, GB eye Limited (trading as “GB Posters”), that they would not undercut each other’s prices for posters and frames sold on Amazon UK’s Marketplace website. The agreement was implemented through the use of automated repricing software which the parties each configured to give effect to the illegal cartel.
Amazon Marketplace is an online retail platform that allows retailers to sell their products directly to end consumers via Amazon’s websites. Amazon was not involved in the cartel and was not investigated.
Trod agreed to accept a fine of £163,371. Showing the benefits of an internal investigation and a subsequent leniency application, the other party to the cartel, GB eye, reported the cartel to the CMA under the CMA’s leniency policy and was not fined.
There are other interesting angles to this case. The CMA’s investigation included a search of the domestic premises of one of its directors in the UK. The CMA’s searches were also coordinated with searches by the UK West Midlands Police on behalf of the U.S. Department of Justice in connection with a separate criminal investigation regarding sales of wall decor in the U.S.
Another Investigation into Restrictions on Online Sales
Recent years have seen numerous cases in the EU concerning restrictions imposed on distributors making online sales. One of the latest, investigated by the German regulator, concerned restrictions arising out of a variable discount system operated by LEGO.
Under LEGO‘s discount system, retailers could obtain the highest number of discount points only through sales in offline stores because several criteria applied exclusively to the brick-and-mortar trade, e.g., number of metres of available shelf space. This meant that in many cases even retailers which fulfilled all of LEGO's conditions concerning online sales obtained lower discounts than those retailers which were active exclusively in offline sales.
No fine was imposed, but LEGO undertook to operate its discount system in future in such a way that online retailers will be able to obtain the same level of discounts as brick-and-mortar retailers. LEGO will introduce alternative or additional discount criteria for online sales which will be adapted to the particular features of this form of distribution.
This case makes it clear that, while a manufacturer can set quality standards for the distribution of its products and also grant its retailers different levels of discount for different services, it may not put the online sales distribution channel at a structural disadvantage. In this case, the German regulator appears to have classified the LEGO system as a type of dual pricing for online and offline sales, which is well-known to be unacceptable under competition law.
Companies which use third parties to distribute products in the EU need to be aware that EU competition law requires online sales to be permitted and that, broadly, there can be no discrimination between distributors selling online and those selling offline.
Damages Awarded in UK Competition Law Private Claim
Private competition law litigation in the UK continues to develop apace. Companies of any size (including small and medium-sized enterprises, or SMEs) should consider its availability when evaluating options for responding to the activities of third parties, including suppliers and competitors.
A recent judgment of the UK Competition Appeal Tribunal (CAT) shows the possibilities. On 14 July 2016, the CAT handed down its first final ruling in a competition law damages case, awarding damages to Sainsbury’s following its claim against MasterCard (a ruling which Mastercard is seeking permission to appeal).
Sainsbury’s had alleged that a payment scheme operated by MasterCard was anti-competitive and therefore infringed Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) and/or the equivalent UK domestic provision. The CAT agreed and awarded significant damages to Sainsbury’s.
This was a particularly high-value and high-profile (as well as complex) case, so at first glance it may not seem relevant to most potential claimants. However, it demonstrates several points, including that private competition law cases do not need to rely on a regulatory decision and that “effects” cases (in which the competition law infringement needs to be shown and cannot be assumed due to its egregious nature) can be successful.
The case also shows that UK courts are willing and able to award damages in appropriate cases and also that, to do so, they will engage in detailed analysis (including of the counterfactual — what would have happened in the absence of the infringement), and whether, despite an infringement, an exemption should be available. (It was not in this case.)
Potential litigants should also note the rapid development of fast-track litigation in the UK. On 17 December 2015, the first fast-track competition claim was filed before the CAT under new rules brought into law in October 2015. Showing the potential impact of the rules, the case was settled at an early stage, with the defendant agreeing to various behavioural undertakings. There have subsequently been other fast-track claims, most recently an abuse of dominance case involving the Law Society.
Additional European competition law news coverage can be found in our news section.