Transcript Know the Rules or Pay the Price: Firms and Competition Law

Know the Rules or Pay the Price:
Firms and Competition Law
Enforcement
Thursday 12th March 2009
A presentation by the ESRC Centre for
Competition Policy
An event in the ESRC Festival of Social Science
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Centre for Competition Policy
Funded by the Economic and Social Research Council, main
funding body for UK Social Sciences
Established at UEA 2004 – recently renewed until 2014
Research with real-world policy relevance without
compromising academic rigour
Interdisciplinary: Economics, Law, Political Science, Business
15 Faculty, 15 research students, 5 full time researchers
Role of Consumers, Institutions, Market Power and its
Regulation, Agreements and Tacit Collusion, Mergers
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The Questionnaire
Fourth time we run a questionnaire of this type
Aim is to gauge beliefs
Please take 5 minutes to fill in the questionnaire
We will return to the answers at the end
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Plan of the Afternoon
Cautionary Tales
Merger Law and Policy
Cartels and Other Agreements
Abuse of Dominance and Private Enforcement
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Cautionary Tales
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Too Little, Too Late
Linpac purchased Paxton on 7th September
2001; press release, but OFT not notified; told
late November
Had to decide whether to refer within 4 months
of purchase made public: did so 4th Jan 02
“If more time had been available this merger [might] not be
referred to the Competition Commission. However, the decision of the
parties not to inform the OFT of completion of the transaction means that
the … reference has had to be based on the evidence available.”
~ merger cleared on 13th May
Cost to company: at least half a million pounds, and further four
months delay in integrating
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The British Airways/Virgin
Atlantic Case
Between August 2004 and January 2006, a small
group of middle managers at British Airways phoned
their counterparts at Virgin and had a few brief
conversations about fuel surcharges
During that period, surcharges rose from £5 to £60 per ticket
Virgin reported these phone calls to the Office of Fair Trading
British Airways was fined £121.5m (UK) and $300m (US)…
Virgin incurred no fines
4 British Airways managers are pending trial in the UK and may
face imprisonment of up to 5 years. 1 is already in a US prison
The Virgin managers will not be prosecuted
BA and Virgin deny the conduct had any effect on surcharges
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The Sanctions in the UK
Fine of up to 10% of annual worldwide turnover in all
operations
Imprisonment of up to 5 years in UK (10 years in US)
Private actions for damages (treble the overcharge in the
US)
Any infringing agreement is void
Loss of reputation etc
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But we are the Public Sector!
OFT decision 18.11.08
Cardiff Bus engaged in predatory conduct intended to eliminate
a competitor, 2 Travel
Cardiff Bus responded to the introduction of a new no-frills bus
service by 2 Travel, by introducing its own no-frills bus services
Key facts
New service made a loss for Cardiff Bus
Shortly after 2 Travel's exit from the market Cardiff Bus withdrew its own no-frills
services
Note
Cardiff Bus is owned by Cardiff Council
Cardiff Bus had a very substantial share of the relevant market
Footnote
'The OFT did not levy a financial penalty in this case because Cardiff Bus
turnover did not exceed £50 million at the time of the conduct
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They Thought it Was All Over
2003: JJB part of cartel in 2001-02; fined
£6.7 million for fixing prices of England and
Man U football shirts
2005, 2006: JJB lose appeal to CAT and Court of Appeal
2007: Which? - a designated body - initiate case in CAT on behalf of
over-charged consumers
2008: Settlement - consumers offered coupons
2009: Costs not settled yet
Costs are thought to stand at approximately £1m
The case secured just £100,000 in compensation for consumers
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Merger Law and Policy
Catherine Waddams
ESRC Centre for Competition Policy and Norwich Business
School
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Merger Rules
Two stage process: UK and EU rules slightly different
unlike some other areas of Competition Law
Europe
If combined turnover more than €5bn worldwide and more
than €250m in EU and less than ⅔ from one Member State
Must notify Commission
Preliminary stage: is there a problem?
Companies often offer remedy
If so, secondary, both within DG Competition
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UK Stage 1: OFT
Can consult in advance for informal advice (Linpac did)
Value of turnover in UK of ‘target’ firm more than £70m or
merger results in at least 25% of market
May seek initial undertakings to prevent integration for
completed mergers
Invites comments from customers, suppliers, competitors
(often raise other issues e.g. collusion suspicions)
Merging parties have opportunity to respond to anonymised
version of others’ comments and encouraged to keep in close
touch with OFT
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Possible OFT Actions
Is there a ‘realistic prospect’ of a Substantial Lessening of
Competition (SLC)
Must refer if believes it more likely than not
If greater than ‘fanciful’ but less than 50%, at its discretion
May decide:
Clear the Merger or
De minimis or customer benefits outweigh any SLC or
Make a reference to the CC or
Accept undertakings in lieu of reference
OFT advice: consult a lawyer
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Stage 2: Competition Commission
Separate non-governmental organisation
Interim undertakings/orders, applies SLC criteria: more in
depth study: five and a half months
Higher standard of proof: has resulted or may be expected to
result in an SLC: more than 50%
Process: Site visit: Merging companies choose and set agenda
– opportunity for informal meeting
Two formal (transcripted) hearings with main parties
More consultation (some hearings) with third parties
If SLC: Provisional remedies soon after provisional findings
Opportunities (for all) to respond at each stage
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Overview of the Universe of
Merger Remedies
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Cartels and Other Agreements
Andreas Stephan
Norwich Law School and ESRC Centre for Competition Policy
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The Economics: Why Cartels
are Harmful
Raising prices above marginal cost (supernormal profits)
Higher prices and less output equals ‘deadweight loss’ to
economy
Little or no efficiency gains (unlike mergers)
Throwing a life line to inefficient firms
Wealth transfers from consumers to firms
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The Law: What is Illegal
Chapter I, Competition Act 1998 (Article 81 EC)
Coordinated conduct which appreciably restricts competition
Applies equally to agreements, decisions by associations of
undertakings and concerted practices between undertakings
(deliberately wide)
No agreement necessary – any behaviour which “knowingly
substitutes practical cooperation for the risks of competition” ~
Dyestuffs (1972)
Horizontal price fixing, output restriction, market sharing are per se
illegal (Object agreements)
Otherwise analysis of competitive effect of conduct must be carried
out (Effect agreements)
Article 81(3) permits an exception where restrictive conduct leads to
efficiency gains – unlikely for object agreements
S.188 Enterprise Act – criminal offence to ‘dishonestly agree’ to object
type agreements
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How Far Does the Law Go?
In oligopolistic markets, it is very difficult to distinguish between
conduct which is collusive and conduct which is natural result of
market structure
All firms may raise prices at same time, by same amount
independently of each other
It is the method and not the result that is important
It is lawful to act intelligently in response to another’s conduct
(or anticipated conduct)
It may be unlawful to act with knowledge of another’s conduct
– key is mutual contacts. Directing information towards
competitors
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Establishing an Infringement
The Competition Authority may:
1.
Prove infringement by analysis of the market
Problematic
Woodpulp (1985) – other explanations for observed behaviour
2.
Collect physical evidence
Most infringements established in this way
Leniency programme induces self reporting
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Reasons why Cartelists Meet
Reaching agreement
Implementing
Monitoring for cheats
Changes in cost and demand
International Arbitrage
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Evidence: Beware of Emails
from Competitors
“Ian…This is a great initiative that you and Neil have
instigated!!!!!!!! However, a word to the wise, never put
anything in writing, its highly illegal and it could bite you
in the arse!!!!” ~ Hasbro, Argos, Littlewood (2003)
“Confidential please, so we aren’t accused of being a
cartel.” ~ British public school fees (2005)
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How to Stay Out of Trouble
Internal compliance programme
Competent competition lawyers
Report an infringement. Why? The first firm to self-report
gets immunity from fines and criminal prosecution. Second
and Third also get reduced fines
Remember that the boundaries of markets and legal
jurisdictions do not usually coincide
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Abuse of Dominance
Morten Hviid
Norwich Law School and ESRC Centre for Competition Policy
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Chapter II, Competition Act
1998 (Article 82EC)
… any conduct on the part of one or more
undertakings which amounts to the abuse of a
dominant position in a market is prohibited if it may
affect trade within the United Kingdom
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Dominance is?
Formally
A position of economic strength enabling a firm to behave to
an appreciable extent [profitably] independently of its
competitors and customers
Reality
Assessed mainly on market share
50% generally enough but can be lower
Can be local (e.g. Cardiff buses)
It is not “having” it, it is “abusing” it!
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Abuse
It is not “having” it,
Success through hard work and by providing consumers
with what they want is good
It is “abusing” it!
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Examples of Abuse from the Act
Exploitative
a)
Excessive pricing
b)
Predatory pricing
c)
Discriminatory terms including pricing
Exclusionary
a)
Discounts and rebates
b)
Tying
c)
Refusal to supply
d)
Essential facilities
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Consequences of Breach
Fines of up to 10% of group global turnover
Conduct can be stopped by court injunction
Exposed to actions from third parties who can show
they have suffered loss as a result of the anti-competitive
behaviour
Disqualification from being a company director
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Private Enforcement
Morten Hviid
Norwich Law School and ESRC Centre for Competition Policy
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If you Have Been Harmed…
…by someone breaching competition law, you can seek:
Compensation for the loss you have suffered
An injunction against the harmful act
Strong push for this additional enforcement from the
European Commission
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Timing?
You can potentially pursue the case either through
The Chancery Division of the High Court, or
The Competition Appeals Tribunal (CAT)
CAT only if the case follows on from a decision by a
relevant competition authority
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It May Not Happen
Costs
Competition cases are likely to be costly in terms of experts
Risky
Disproportionate to the likely damages
Funding
Legal aid? CFA? ATE?
Repercussions
You may have to deal with the people you are suing in the future
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Group Action
To spread costs/risks, versions of the “class action” have
been proposed
Designated body
Consumer Association in the JJB sports case
Possible that other bodies can be granted this status
Proper class action?
In the news in Scotland triggered by financial crisis
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Overall Conclusion
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Compliance Programmes
Firms should have a compliance programme and
associated training
Inattention to competition law could harm you whether
you are the infringer or the victim
Knowing the rules may
Prevent you from infringing the law
Help you protect yourself against others
Help you deal with strategic claims by others
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Questionnaire Results and
General Discussion
Morten Hviid
Andreas Stephan
Catherine Waddams
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