On 10 August 2011, the Office of Fair Trading (OFT) announced that it has imposed fines totalling £49.51 million for the exchange of pricing information in breach of the Competition Act 1998 (CA 1998) in relation to cheese and fresh liquid milk in 2002 and 2003.

The fines were imposed on a number of dairy processors and supermarkets, for coordinating increases in the prices paid by consumers.  The OFT noted that the coordination was achieved by supermarkets indirectly exchanging retail price intentions with each other via the dairy processors, so-called A-B-C information exchanges.

The consumer products sector has been a keen focus area of competition authorities across Europe for some years now, with the potential for A-B-C or “hub and spoke” information exchange, where retailers exchange information via a supplier (or suppliers learn each other’s strategies via a retailer) a particular concern.  Until today, the main UK decision on this point has been the Hasbro/Argos/Littlewoods OFT decision of 2003, which considered information exchange between retailers via a toy manufacturer.  Last year, the OFT concluded in its investigation into retailing of tobacco products that the relevant manufacturers had concluded a series of individual arrangements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer's brand, similarly restricting freedom to determine retail prices.  That case is currently under appeal.  At least one of the retailers covered by today’s decision has indicated that it is likely to appeal the OFT’s dairy decision.  The story is unlikely to be over yet.

Businesses will look forward to the OFT revealing the detail of the evidence on which it has relied and its reasoning on A-B-C information exchange in the publication of the full decision, scheduled for autumn 2011.  This will help businesses to understand and stamp out any suspicious behaviour in their organisations.

The progress of this case has been complex, given the multiple markets, multiple statements of objections, leniency applications and multiple early resolution agreements involved.  Early resolution agreements involve voluntary admission of involvement in competition law breaches in exchange for a significant reduction in fines which would otherwise be imposed.  The use of early resolution agreements has enabled the OFT to close its investigation into certain parties in certain markets sooner than it would otherwise have done.  However, the complexities noted above mean that while the OFT has doubtless conducted a very thorough investigation, this has not been a speedy process.  The first statement of objections was issued in September 2007, in relation to behaviour now dating back nearly 10 years. 

In announcing the decision, the OFT wanted to send “a strong signal to supermarkets, suppliers and other businesses that the OFT will take action and impose significant fines where it uncovers anti-competitive behaviour aimed at increasing the prices paid by consumers”.  It nonetheless acknowledged that “competition in the supermarket sector is generally intense and has delivered significant benefits to shoppers across the UK in terms of innovation, choice and improved value for money”. 

CMS Cameron McKenna LLP successfully represented various former directors and employees of Safeway in striking out a claim against them by Safeway for an indemnity against the penalty that was to be (and now has been) levied by the OFT in this decision.  The Court of Appeal held that under the CA 1998 the penalty was personal to the corporate undertaking and so could not be passed off onto directors, employees or their D&O insurers.