Antitrust: restrictive agreements and dominance
The prohibition in Chapter I of the CA98 captures a range of restrictive agreements, including cartels (see above) and those agreements (both vertical and horizontal) that do not constitute hardcore cartels but nevertheless restrict competition.i Significant casesResale price maintenance cases
In recent years the CMA has issued millions of pounds in fines to firms preventing retailers from offering discounts online, a form of anticompetitive behaviour known as resale price maintenance (RPM). In an effort to address this, the CMA updated its advice for retailers in June 2020.25 Following several RPM cases in 2020, there was a marked downturn in such cases in 2021, with the CMA bringing just one case in the lighting sector, which is summarised below.Lighting cases
On 15 December 2021, the CMA issued a statement of objections to Dar Lighting Limited (Dar) alleging that Dar had breached Chapter I of the CA98 by restricting retailers' freedom to discount the online retail prices of domestic lighting products supplied by Dar.26 The CMA provisionally concluded that requiring the retailers to sell at, or above, minimum prices amounted to RPM. The CMA notes that this is the second time 'in recent years' it has investigated a company in the lighting industry in relation to RPM. The findings are provisional and pending a consideration of Dar's representations in 2022 before reaching a final decision.
Dar Lighting follows a previous finding of RPM in the sector in 2017, wherein National Lighting Company was fined £2.7 million.27Other Chapter I and II CA 98 casesMobile ecosystems
In December 2021, the CMA issued its interim report into mobile ecosystems.28 The study was aimed at concerns that Apple and Google might have too much control over operating systems (iOS and Android), app stores (App Store) and web browsers (Safari and Chrome) that together the CMA classes as 'mobile ecosystems'. The interim report found that Apple and Google have been able to leverage their market power to create largely self-contained ecosystems, that make it 'extremely difficult for any other firm to enter and compete meaningfully with a new system'.29 The final report is due for publication in June 2022, but, in the meantime, the CMA has also opened narrower investigations into both companies.
In March 2021, the CMA initiated an investigation into Apple following both the CMA's own work in the digital sector and several complaints that the company's terms and conditions for app developers are unfair and anticompetitive.30 The case is examining a potential Chapter II infringement on grounds that Apple may have leveraged a dominant position to impose unfair or anticompetitive terms on developers in a manner that may have resulted in lower consumer choice or higher prices for apps and add-ons.
Google also attracted CMA attention back in January 2021, with another Chapter II investigation into Google's proposals to remove third-party cookies and other functionalities from its Chrome browser – the 'Privacy Sandbox' proposals. Again the CMA's investigation was partly prompted by complaints that Google may have been abusing a dominant position. Specifically, the CMA was concerned that the Privacy Sandbox proposals might have caused online advertising spending to become even more concentrated on Google, potentially weakening competition and so harming consumers. The CMA was also concerned that the proposals could undermine the ability of online publishers, such as newspapers, to generate revenue and continue to produce valuable content in the future – reducing the public's choice of news sources.31 Following a formal investigation, including two formal public consultations, the CMA accepted commitments from Google in February 2022.32 These commitments ably demonstrate the CMA's interventionist approach in digital markets regulation and include requirements that the CMA and the Information Commissioner's Office be directly involved in the development and testing of the Privacy Sandbox proposals to ensure that they achieve competition and privacy objectives. A monitoring trustee is due to be appointed to work alongside the CMA to ensure the commitments are monitored effectively.Electric vehicle charging
In July 2021, the CMA issued its final report33 into electric vehicle charging. With the government bringing forward the ban on new petrol and diesel vehicles to 2030, the switch to electric is gaining pace. The CMA study looked at how to develop a competitive sector for electric charge points and how to ensure people using electric vehicle charge points have confidence that they can get the best out of the service provided. The final report found that while some parts of the sector are developing relatively well (such as rapid charging at destinations like shopping centres and charging at home or work), this is not the case across the entire sector. In particular, the CMA found that there were greater challenges in rolling out charging along motorways, remote locations and on-street. The CMA also found drivers of electric vehicles face other difficulties that make charging more difficult. For example, drivers may encounter issues finding and accessing working charge points and comparing costs for charging.
Based on its findings, the CMA made a number of recommendations. These include speeding up grid connections and lowering connection costs, rolling out a 'Rapid Charging Fund' to increase competition along motorways, targeting additional funding at remote areas where charging points are not readily available, ensuring local authorities take a more active role in managing on-street charging, and setting open data and software standards for home charge points.
Alongside publication of its final report, the CMA also launched an investigation into suspected breaches of the Chapter I and Chapter II prohibitions in respect of the supply of electric vehicle charge points on or near motorways.34 The investigation relates to long-term exclusive arrangements entered into by the Electric Highway Company Limited (owned by Gridserve), Ecotricity Group and three motorway service operators (Moto Hospitality Limited, Roadchef Limited and Extra MSA Holdings (UK) Limited). Gridserve has offered legally binding assurances that it will not enforce its exclusive arrangements,35 but the CMA has not yet reached a view on whether there is sufficient evidence for it to issue a statement of objections.Pharmaceutical casesNortriptyline
Pharmaceutical cases continued to be a focus for the CMA. In March 2020, the CMA imposed fines of £3.4 million for competition law breaches with respect to the supply of nortriptyline, a drug used to relieve symptoms of depression.36 The CMA found that King Pharmaceuticals and Accord-UK (formerly Auden Mckenzie) had engaged in market sharing and collusion to fix quantities and prices for the drug. As a result, King and Accord-UK were fined £75,573 and £1,882,238 respectively. As in previous cases, the CMA extracted a commitment from the parties to make a payment to the National Health Service (NHS), in this case for £1 million. The CMA also fined King, Lexon (UK) Ltd and Alissa Healthcare Research Ltd £1,470,868 for illegally sharing commercially sensitive information about prices, volumes of supply and Alissa's plans to enter the market. King and Alissa both admitted to competition law breaches in these respects, which resulted in reduced fines. Additionally, a number of director disqualifications can be credited to this investigation. Lexon appealed the £1,220,383 fine imposed upon it by the CMA. However, the CAT unanimously rejected Lexon's appeal in a judgment delivered on 25 February 2021.37Liothyronine
In the past year, there were further developments in the CMA's investigation into suspected abuse of dominance with respect to the sale of liothyronine tablets. The CMA opened the investigation in 2016. In January 2019, it issued a supplementary statement of objections provisionally finding that Advanz had engaged in anticompetitive behaviour with respect to its practices between January 2009 and July 2017. During this period the price paid by the NHS for liothyronine tablets rose from £15.15 to £258.19, an increase of 1,605 per cent, while production costs remained broadly stable. During that period, Advanz was the only supplier of liothyronine tablets in the UK. The High Court rejected a judicial review application on procedural grounds from Advanz in July 2019. On 10 July 2020, the CMA issued a second supplementary statement of objections alleging that Advanz had abused its dominant position in breach of the Chapter II prohibition and Article 102 of the Treaty on the Functioning of the European Union. The statement addresses issues arising from the Court of Appeal's judgment of 10 March 2020 in the Phenytoin litigation – a case that also relates to excessive and unfair pricing in the pharmaceuticals sector, in this instance by Pfizer and Flynn. The CMA's issued an infringement decision in July 2021 finding that Advanz had breached the Chapter II prohibition from at least 2009 to 2017 by charging excessive and unfair prices for liothyronine tablets in the UK.38 Advanz and three of its subsidiaries, and HgCapital and Cinven were required to pay a total penalty of £101,442,899. The companies filed appeales with the CAT against the CMA's findings in the infringement decision. The appeals are scheduled for September/October 2022.Hydrocortisone
Another recent investigation is the CMA's investigation into Auden McKenzie and Actavis UK (now Accord-UK), which resulted in the CMA's finding that both companies had charged the NHS excessively high prices for hydrocortisone tablets for almost a decade. This and the Advanz investigation, constitute the CMA's two largest competition act investigations into the pharmaceutical sector. The CMA found that Auden and Accord-UK had increased the price of 10mg and 20mg hydrocortisone tablets (which are used by 'tens of thousands of people in the UK' to treat adrenal insufficiency) by over 10,000 per cent compared with the original branded version of the drug.39 The CMA imposed fines totalling over £260 million on the companies in July 2021, including a £66 million fine on Accord-UK and Allergan (a former parent company) for paying two 'would-be competitors to stay out of the market'. Auden and Actavis have appealed the decision to CAT. The appeals are scheduled for November/December 2022.ii Trends, developments and strategies
With five cases in 2020, it is clear that RPM (particularly as it relates to online pricing restrictions) remains a top priority in the CMA's enforcement agenda. While historically, the enforcement of RPM has related to manufacturers, the CMA has fined a specialist retailer participating in this type of practice, indicating the possibility of retail-focused RPM enforcement.
Furthermore, with the introduction of the CMA's novel price monitoring tool, which will 'be used to monitor pricing and detect suspicious activity', it is expected that the CMA will be even more readily primed to, in its own words, 'clamp down on' sectors showing signs of RPM, 'allowing [it] to prioritise enforcement in those areas'.40 It should be noted accordingly that, as suggested in a CMA blog post dated 29 June 2020, the future enforcement of RPM could entail director disqualifications as well as fines.41 This would indeed be a significant move, with personal sanctions usually reserved for cartel behaviour between direct competitors. The message is clear: the CMA will enforce competition law against the practice of RPM with all the powers available to it.
The CMA has discretion as to whether it investigates alleged breaches of the CA98. Even where the CMA does not open proceedings, either because the facts are not sufficiently clear to establish whether there may have been a potential infringement or on the grounds of administrative priorities, it seeks to encourage compliance with the law. One way of doing this is through the sending of warning or advisory letters and according to a publication in February 2021, the number of competition warning letters issued by the CMA in 2020 nearly quadrupled compared with the previous year, rising to 97 from 27.42 The regulator also issued 14 advisory letters in 2020 compared with two in 2019.43 Advisory letters simply require acknowledgement of receipt whereas warning letters require the recipient to report back on how they will address the issues raised in the letter. Of those 97 warning letters, 12 related to RPM. Details of the number of such letters issued in 2021 are awaited, but the use of warning and advisory letters can be expected to continue.iii Outlook
Key areas of interest for 2022 in terms of enforcement are likely to continue to be pharmaceuticals and the digital commerce sector, the latter of the two having grown exponentially as a result of the covid-19 pandemic. The CMA is also likely to strengthen its enforcement where it suspects breaches of consumer rights. For example, in connection with the publication of its IVF guidance on 10 July 2021 (which seeks to ensure patients understand their main consumer rights when considering and undergoing fertility treatment), the CMA stated: '[w]e will be closely monitoring the sector and will consider enforcement action if we believe businesses are not complying' with the guidance.44 Further, as discussed above, the CMA's renewed focus on RPM also looks set to continue, particularly in the area of online sales restrictions. More generally, the CMA's new DMU will no doubt come into its own, with more investigations into big tech to come once it gets into full swing.
The BEIS consultation on Reforming Competition and Consumer Policy proposes some substantial reforms to Chapter I and Chapter II enforcement, with the aim of making CMA investigations 'faster and more flexible so that anticompetitive conduct can be stopped sooner'.45 These would include, inter alia, expansion of the territorial scope of Chapter I to include agreements that 'have, or are likely to have a direct, substantial, and foreseeable effects within the UK',46 and the extension of the Chapter II prohibition to cover abuse of a dominant position in a market 'regardless of the geographical location of that market' where such conduct either takes place in the UK or is likely to have direct, substantial and foreseeable effects in the UK.47 BEIS is also considering some practical changes to the enforcement process, including the reduction of the threshold for immunity from penalties under Chapter I (currently available to companies with annual turnover of £20 million or less)48 and Chapter II (available to companies with turnover of £50 million) to a common threshold of £10 million.49 The CMA 'strongly supports' this proposal, noting that it has already encountered cases in small markets where these thresholds meant it could not impose financial penalties, further proposing that the Chapter I threshold be applied to parties' combined turnover.50
In terms of improving the enforcement regime for Chapter II investigations, the BEIS consultation considers a 'new settlement tool' for abuse of dominance investigations.51 This would be realised by creating an option for parties to enter into an 'early resolution agreement' with the CMA in Chapter II investigations. This would have all the features of settlement agreements under the status quo except that an early resolution agreement would not require the business to admit to an infringement of competition law and would not be binding as to matters of fact and liability in any follow-on damages claims against that company. There is also potential for settlement payments to be reduced compared with the fines that would have been applicable in the event of a full infringement decision.52 The CMA has expressed some reservations around this proposal, including with respect to penalty calculation and the impact on affected parties' avenues for redress.53 Whatever the outcome of the consultation it is at least clear that there is an appetite to balance an enhanced enforcement agenda with the expedition and simplification of enforcement procedure.
A final word on the outlook for 2022 should be dedicated to the 'green initiatives' increasingly being considered by competition regulators. On 27 January 2021, the CMA published guidance on environmental sustainability agreements and competition law.54 As stated by the CMA's Senior Director for Strategy, 'supporting the transition to a low carbon economy is one of the CMA's strategic objectives and [the guidance is designed to] help businesses to achieve their sustainability goals without breaching competition rules'.55 Notably, the guidance stresses that although the UK is no longer a member of the EU, a number of the EU Block Exemption Regulations have been retained as domestic law and, as such, sustainability agreements may well benefit from these. Where agreements do not fall under any of the existing block exemptions, individual exemptions may be given 'provided they generate benefits which are deemed to outweigh the disadvantages of restricted competition'.56