EnforcementComplaints procedure for private parties
Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
Yes. The CMA has published a notification form that parties can use to lodge complaints. Receipt of complaints will be acknowledged but the CMA preserves its discretion to act - or not act - on receipt of a complaint.Regulatory enforcement
How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
In the years from 2005 to 2014, the CMA/OFT published details of decisions (or other, lesser, enforcement actions) of an average of around two vertical restraint cases per year. In 2015, the CMA issued one decision concerning vertical restraints (Residential Estate Agent Services) and, following the agreement of undertakings in other jurisdictions addressing practices that were also of concern to the CMA, closed the investigation in Hotel Online Bookings. The CMA also published open letters in respect of three markets. In addition, the UK Office of Rail Regulation, which has concurrent jurisdiction with the CMA, accepted undertakings in one case to end RPM (see question 16). This focus on RPM continued in 2016, with publication in March of a report on vertical restrains, two CMA decisions in May concerning price restrictions designed to limit online discounts, and commencement in July of a project to monitor the use of MFN clauses in the online hotel bookings sector.
In 2017, the pace of the CMA’s enforcement increased. The CMA issued infringement decisions in the Light Fittings case regarding online RPM and in the Ping Europe case regarding online sales bans, and opened an investigation into the use of MFN clauses by price comparison websites in the home insurance sector. Following the publication of the results of its monitoring project, the CMA opened a further investigation into the online hotel bookings sector under its consumer protection powers, focusing on pricing transparency and ranking methodology. The CMA considers on a case-by-case basis whether an agreement falls within its administrative priorities so as to merit investigation.
In 2018, the CMA announced that it had taken enforcement action against a number of online hotel booking websites, and sent a statement of objections to Compare the Market in connection with the website’s use of contractual terms that the CMA considers may prevent home insurers from offering lower prices on rival websites and other sales channels. The CMA also issued an infringement decision in respect of a lease agreement between Heathrow Airport and the operator of the Sofitel Heathrow, which restricted the latter from offering non-guests using the Sofitel Heathrow’s car park prices that were lower than the prices charged in the car parks operated by the lessor, Heathrow Airport. The CMA subsequently published guidance on land agreements and competition law.
What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
Under section 2(4) of the CA, any agreement that falls within the Chapter I prohibition and does not satisfy the conditions for exemption under section 9(1) of the CA (or does not benefit from a parallel exemption by virtue of section 10) will be void and unenforceable. However, where it is possible to sever the offending provisions of the contract from the rest of its terms, the latter will remain valid and enforceable. As a matter of English contract law, severance of offending provisions is possible unless, after the necessary excisions have been made, the contract ‘would be so changed in its character as not to be the sort of contract that the parties entered into at all’ (Chemidus Wavin Ltd v Société pour la Transformation). Such assessment will depend on the exact terms and nature of the agreement in question.
May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
The CMA’s enforcement powers are set out in sections 31 to 40 of the CA. The CMA can apply the following enforcement measures itself:
- give directions to bring an infringement to an end;
- give interim measures directions during an investigation;
- accept binding commitments offered to it; and
- impose financial penalties on undertakings.
Where the above measures are not complied with by the parties, the CMA can bring an application before the courts resulting in a court order against the parties to fulfil their obligations. Where any company fails to fulfil its obligations pursuant to a court order, its management may be found to be in contempt of court, the penalties for which in the United Kingdom include imprisonment. Under sections 9A to 9E of the Company Directors Disqualification Act 1986, the CMA also has the power to apply to the court for a disqualification order to be made against the director of a company that has breached competition law, or to accept a disqualification undertaking from such a director, for a maximum of 15 years. The CMA first exercised this power in December 2016, following its decision concerning a cartel among the online vendors of posters and frames, and again exercised the power in April 2018, following its decision concerning a cartel among estate agents in Somerset. In July 2018, the CMA consulted on amendments to its guidance on director disqualification orders that would allow the CMA, in determining the length of the disqualification period, to take into account a director’s cooperation with the investigation. A final version of the guidance is expected in 2019.
Where the CMA has taken a decision finding an infringement of the Chapter I prohibition or article 101, it may impose fines of up to 10 per cent of the infringing undertaking’s worldwide revenues for the preceding year. In practice, however, fines in vertical restraints cases have tended to be well below the 10 per cent maximum. In May 2017, the CMA fined three companies active in the light fittings sector, as well as their common parent company, £4.9 million (reduced to £2.7 million for leniency and settlement) for online RPM, while in August 2017, the CMA imposed a fine of £1.45 million on Ping Europe (reduced to £1.25 million on appeal) for preventing two UK retailers from making online sales. Many of the other cases involving vertical restraints in which higher fines have been imposed have included both horizontal and vertical elements. Examples include: the OFT’s December 2003 decision to impose a penalty of £17.28 million on Argos (reduced to £15 million on appeal), £5.37 million on Littlewoods (reduced to £4.5 million on appeal), and £15.59 million on Hasbro (reduced by the OFT to nil for leniency) for RPM and price-fixing agreements for Hasbro toys and games; and the OFT’s 2010 decision imposing fines totalling £225 million in relation to its finding that 10 retailers and two tobacco manufacturers had either linked the retail price of one brand of cigarettes to the retail price of a competing brand or had indirectly exchanged information in relation to proposed future retail prices (note, however, that the UK Competition Appeal Tribunal quashed this decision in relation to the five retailers and one manufacturer who appealed).
The CMA’s remedies can require positive action, such as informing third parties that an infringement has been brought to an end and reporting back periodically to the CMA on certain matters such as prices charged. In some circumstances, the directions appropriate to bring an infringement to an end may be (or may include) directions requiring an undertaking to make structural changes to its business. Positive directions were given to Napp Pharmaceutical Holdings in a 2001 dominance case. Similarly, in relation to compensatory measures, the OFT agreed in its 2006 decision in Independent Schools a settlement that included the infringing schools paying a nominal fine of £10,000 each, reduced in the case of six of the schools by up to 50 per cent for leniency, and contributing £3 million to an educational trust for the benefit of those pupils who had attended the schools during the period of infringement.
In August 2017, the CMA launched a consultation on proposed revisions to its published guidance on the setting of penalties in Competition Act 1998 cases. The proposed revisions are based upon the CMA’s decisional practice since the last change in 2012. The new guidance, which was published in April 2018, provides additional detail in relation to aggravating and mitigating factors, and the financial indicators used in order to assess proportionality and deterrence. Further guidance in relation to the CMA’s Competition Act procedures, on which the CMA consulted in June 2018, was published in January 2019.Investigative powers of the authority
What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
The CMA’s investigation powers are set out in sections 25 to 30 of the CA. In outline, where the CMA has reasonable grounds for suspecting an infringement of either the Chapter I prohibition or article 101, it may by written notice require any person to provide specific documents or information of more general relevance to the investigation. The CMA may also conduct surprise on-site investigations, requiring the production of any relevant documents and oral explanations of such documents.
In relation to vertical agreements not involving allegations of resale price fixing, the CMA is more likely to investigate a case by means of written notice. In exercising these powers, the CMA must recognise legal professional privilege and the privilege against self-incrimination under the European Convention on Human Rights.
In previous cases, the OFT has obtained information from entities domiciled outside the United Kingdom (eg, Lladró Comercial SA).Private enforcement
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
Private actions for damages for breaches of the Chapter I prohibition or article 101 may be brought in the UK High Court or in the UK’s specialist competition court, the Competition Appeal Tribunal, regardless of whether an infringement decision has been reached by the CMA, another sectoral regulator or the European Commission. Several actions have been brought including the ground-breaking case of Courage v Crehan in relation to which, on reference, the CJEU confirmed that a party to an agreement infringing article 101 must be able to bring an action for damages if, as a result of its weak bargaining position, it cannot be said to be responsible for the infringement (see the European Union chapter). In addition, non-parties to agreements can challenge their validity directly before the courts (see, for example, Football Association Premier League Ltd & Others v LCD Publishing Limited). Though relatively few cases have proceeded to final awards of damages, many private damages actions brought in the United Kingdom have been settled out of court. The High Court, in January 2017, rejected claims by a number of UK retailers in respect of alleged overcharges in the card payments sector, following a judgment by the Competition Appeal Tribunal in July 2016 in similar proceedings brought by Sainsbury’s. Appeals in the two cases were heard alongside a third in the Court of Appeal, which, in July 2018, upheld the retailers’ claims and remitted the cases to the CAT for further directions. Applications by Mastercard and Visa to appeal the judgment were granted by the UK Supreme Court in November 2018.
Following the Consumer Rights Act 2015, which entered into force on 1 October 2015, the number of private damages cases in the United Kingdom is expected to rise, owing to its creation of an opt-out collective redress scheme as well as the expansion of the UK Competition Appeal Tribunal’s jurisdiction to hear a wider range of private actions. The first such opt-out collective action was brought in May 2016 in respect of the CMA’s decision in Mobility Scooters II, a decision that concerned a vertical agreement prohibiting online advertising of prices below the manufacturer’s recommended retail price. The largest such action to date was brought in September 2016 in respect of alleged overcharges in the card payments sector, but was dismissed by the Competition Appeal Tribunal at a preliminary stage in July 2017. The Court of Appeal will hear arguments in relation to the proposed class representative’s appeal in February 2019.
Outside the opt-out collective redress scheme, the Consumer Rights Act also created a ‘fast track’ procedure for more straightforward cases brought by individuals and small and medium-sized entities before the UK Competition Appeal Tribunal. The second such case before the CAT, brought in February 2016 by a supplier of certain lands to Tesco, concerned a restrictive agreement against the supplier in respect of its use of retained lands, including a prohibition on sales to the buyer’s competitors (on seller restrictions, see question 44).
In March 2017 the UK formally implemented the EU Damages Directive through the Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017, which amended the rules on limitation periods, disclosure, and the passing-on of overcharges to indirect purchasers.
(For more detail on private enforcement more generally, see Getting the Deal Through - Private Antitrust Litigation.)