In this Competition law update we will be discussing the CMA’s first use of its long held power to apply for a director to be disqualified for a competition law breach, Ofcom’s decision that Openreach will have to be spun off a separate entity within the BT corporate structure and the EU Commission’s opening of an investigation into Czech railway operator České dráhy.
CMA secures first director disqualification order for competition law breach
The CMA has had the power to apply to the court for a director’s disqualification order following a competition law breach since June 2003. It has taken thirteen and half years, but now Daniel Aston, formerly managing director of the online poster supplier Trod Ltd, has the dubious honour of being the first person disqualified under these rules.
Technically speaking, Mr Aston has undertaken not to act as a director of any UK company for 5 years (section 9B Company Directors Disqualification Act 1986). These undertakings can be given in advance of proceedings being raised and will normally result in a discounted disqualification period. The maximum period could have been 15 years.
The circumstances were that the CMA found that Trod breached competition law by agreeing a competing online seller to not undercut each other’s prices for posters and frames sold on Amazon’s UK website. The agreement was implemented using automated re-pricing software. Trod were fined £163,371 for the breach.
This case highlights that competition law breaches can have serious financial consequences for businesses, but also for their directors. The loss of £163k is not something any business would wish, but the loss of livelihood for the director for a five year period is even worse.
The CMA seems to be taking a tough line on competition law breaches and so these issues should be at the forefront of any diligence or risk management procedures.
Ofcom notifies BT that its Openreach business must become a separate legal entity
This is another demonstration of the consequences of failing to satisfy the competition concerns of a regulator. Ofcom has notified BT that its Openreach business will have to be separated out into a distinct legal entity, with an independent board of directors. However, the new Openreach entity will be a wholly-owned subsidiary of BT and will therefore remain within the group structure.
Despite BT’s protestations that their proposals to Ofcom were “fair and sustainable”, Ofcom felt they did not go far enough to fulfil their aim of improving broadband and telephone services across the UK.
While this is not the nuclear option of full separation that BT had feared, it is nonetheless a lesson that Ofcom has teeth and can use them.
EU Commission to investigate Czech railway operator
The Commission has begun an investigation into whether České dráhy (ČD) charged prices below costs with the aim of shutting out competition in rail passenger transport services, in breach of EU antitrust rules.
ČD is the main railway operator in the Czech Republic and until 2011 it was the only rail company active on the Prague – Ostrava route. Competitors RegioJet and LEO Express entered the market on the Prague – Ostrava route in 2011 and 2012. This led ČD to slash prices.
While this form of price competition would seem to be what the Commission should be encouraging, their concern is that the prices were so low that ČD was abusing its dominant position to drive out the competition by charging uneconomically low fares.