On 14 December 2006, the Competition Appeal Tribunal (the "CAT") ruled that Casting Book Limited's appeal against the Office of Fair Trading's (the "OFT") decision to close its investigation into alleged collective boycott was inadmissible.

This decision has significantly increased the OFT's margin of discretion on whether to pursue a case that involves potentially significant competition issues. In essence, it allows the OFT to prioritise certain cases at the cost of discontinuing non-priority cases.

Background to OFT investigation

Casting Book, which is a supplier of unofficial celebrity merchandise, submitted a complaint to the OFT in December 2004 alleging that the association "Trade Marks and Rights Holders Against Piracy" ("TRAP") and/or certain of its members had threatened several distributors that they would cease supplying them with official celebrity merchandise unless they stopped supplying unofficial celebrity merchandise.

The OFT informally gathered information and at the end of June 2005 decided to commence a formal investigation into a possible infringement of Chapter I of the Competition Act 1998.

Using its statutory powers, the OFT then obtained detailed information from TRAP, its members and various third parties in July and August 2005.

On 5 January 2006, the OFT informed Casting Book of its provisional decision to close the investigation and wrote to Casting Book on 20 February 2006 stating that it had taken the decision to close its investigation.

Casting Book thereafter lodged an appeal against this decision with the CAT on 28 April 2006. The key issue for the CAT was whether or not the OFT's decision to discontinue its investigation amounted to an appealable non-infringement decision.

Arguments before the CAT

The three main planks of the OFT's argument were that:

  • Its decision to discontinue the investigation was taken on the basis of administrative priority (evidenced by fact that it wished to divert the resources to other major cases then open which were more compelling candidates for use of limited resources, the consumer detriment was significantly smaller than previously thought and taking into account legitimate role of TRAP in preventing illegal infringement of intellectual property);
  • further steps in the investigation were required before it would have been possible to reach a view on infringement; and
  • to the extent that the OFT reached any view on the merits, the provisional view tended towards infringement rather than non-infringement.

Casting Book argued on the other hand that the OFT did come to a non-infringement decision. It submitted that, relying on past case law, there are no 'exceptional circumstances' such as to dislodge the inference that the OFT has reached a non-infringement decision by closing an investigation. It therefore argued that the logical conclusion to be drawn from the decision letter is that the OFT had concluded that there was not infringement.

The CAT's decision

The CAT followed previous case law by finding that the question of whether the OFT has adopted a non-infringement decision was primarily one of fact, that it is a question of substance, not form. The CAT decided that a distinction had to be drawn between merely exercising administrative discretion without proceeding to a decision and reaching a decision on the question of infringement.

It also cites Aquavitae which held that if the outcome of an investigation is to close a file, it will normally be inferred that this is because there is insufficient evidence of infringement and the drafting of a case closure letter is unlikely to deflect findings if the substance of the matter is a finding of insufficient evidence of an infringement.

However, the CAT was also satisfied that the OFT had closed its file on the TRAP investigation for reasons genuinely independent of the merits of the case and without having reached any conclusion on the merits of the case. It also held that it was satisfied that none of the OFT's reasons for closing the case related to its view of the merits of the case and that the OFT had not reached the stage of taking any decision as to whether the Competition Act had been infringed (either expressly or by necessary implication).

The CAT therefore concluded that the OFT did not make a non-infringement decision and rules that the appeal is inadmissible.

This issue of admissibility will again be considered in the Cityhook case in which we expect a ruling later this month. The facts of Cityhook are very similar in that the case also concerns a complaint into an alleged collective boycott (and also collective setting of fees) and a subsequent OFT decision to close the investigation due to administrative priorities. We would expect that the CAT is moving towards allowing the OFT a wider margin of where it places its administrative enforcement emphasis.