Reforming UK Competition Law

Just off to a conference, organised by the Oxford Centre for Competition and Regulatory Policy at City University, which contains, among other things, a round table on the reform of UK competition law. BIS produced its consultation paper back in April 2011, with a closing date in June. Government practice is supposed to be to respond to consultation within three months of the closing date. I suggested in a recent article that this might be a challenge and so it has proven. Here we are in January 2012 and no sign of a response. A delay at this end is likely to put back the timetable for any reforms and further delays might push it all back into an election year. Just to complicate matters, reform of the OFT is also tied into reform of the consumer landscape, so the two policies need coordination.

Competition Law and the NHS

I struggled some time ago with the NHS white paper, Equity and Excellence: Liberating the NHS, which proposes a new role for Monitor, as an economic regulator and competition authority for health services. To summarise, crudely, the government is proposing that all purchasing of NHS services will be done either by GP consortia or a new NHS Commissioning Board. Service providers will be either foundation trusts or the private sector. Monitor will be turned into the economic regulator for health and social care, with the responsibility to promote competition, with powers to enforce competition law, price regulation and supporting continuity of services. Monitor will license the providers of publicly funded NHS services in England.

In terms of competition law, Monitor will be like the other economic regulators and have a concurrent power with the OFT to apply competition law in this sector. The immediate thought that strikes me is that competition law only applies to undertakings and an undertaking is an entity engaged in economic activity which means offering goods and services on a market. The White Paper starts by committing the government to an NHS available to all, free at the point of use and based on need, not ability to pay. Whatever this might be characterised as, it does not look like economic activity, rather a service based on solidarity (and the FENIN case would seem to back this up). FENIN also makes the point that purchasing cannot be viewed independently of the ultimate use of the goods or services. So it looks as if, outside private sector providers, competition law cannot apply and, because this is EU law, it cannot be amended.

A similar issue arises in relation to mergers as it is envisaged that the OFT and the Competition Commission will have the responsibility for investigating mergers in the health and social care services. Here the problem is that a merger situation occurs when two or more enterprises cease to be distinct and an enterprise is defined as the activities of a business. This can no doubt be sorted out by amendment of the legislation and a similar procedure put in place as exists for media and water mergers to allow the regulator to comment on the merger, and this is recognised in the consultation documents. Although I do wonder what merger analysis will look like, as applied to institutions which are not carrying on economic activity in any straightforward sense.

Farewell to the Competition Commission?

In its so-called bonfire of the quangos yesterday, the government and the Business Secretary, Vince Cable, made it clear that they are planning to merge the Office of Fair Trading (OFT) and the Competition Commission (CC). A consultation paper on this plan will be published early in 2011. The announcement itself was surrounded by farce, as the Cabinet Office website crashed under the volume of business and the proposed OFT/CC merger does not obviously meet the criteria set out by the Cabinet Secretary, Francis Maude. It is not obviously going to save money, or large amounts of it, and this is certainly an area where we would not want to see a return to ministerial decision making. There are a number of tricky issues and they can be examined by dividing the CC's functions into three: mergers, market investigations and other activities.

On mergers, the complaint seems to be that the CC takes a long time to make decisions. Folding the CC into the OFT will not remove the need for in-depth examinations of difficult cases. What it means is that the OFT will have to create an equivalent to the Phase II procedure that is operated by the European Commission. Although the OFT will undoubtedly do its best, this cannot be a fresh look at a problem by a new set of eyes, there will always be a suspicion of confirmation bias here, as there is with the European Commission. In order to investigate difficult cases properly, the OFT will need more resources, not matter what sort of approach they take. One danger is that the pressure will be on the OFT to decide cases and there will be greater incentive to accept undertakings to solve the problems, rather than go for a prohibition and we might end up with a position like that in the EU, where there have been only two prohibition decisions since 2001 (by contrast the CC came up with nine in the last five years).

Although market investigations have not worked as originally envisaged, I doubt whether the merger of the two bodies will improve matters. There is again the issue of confirmation bias – now the OFT will do an in-depth investigation of an area where it has decided that there is a problem. As regards timing, it is tempting to say, "Do you want it done right or quickly?" If you are going to investigate complex industries with multiple parties involved, this is going to take some time. Delays do not all emanate from the public authorities – I'm sure not all companies perceive it as in their interest to have a market inquiry decided quickly. There is another point on market investigations: the OFT has the power to apply Article 101 and 102 TFEU and the Chapter I and II prohibitions, which the CC has never had. Presumably evidence could come to light in a market investigation by the OFT which could set it off on an investigation under these provisions as well. This is yet another incentive for companies to be, let us say, careful in relation to the information that they provide.

Finally, the CC has a number of other activities that it undertakes, albeit intermittently. Although I can see the jurisdiction for Energy Code Appeals going to the CAT, it would seem difficult to dump all the regulatory inquiries on the OFT, not least because it has no expertise in this area. It would be odd because the OFT is seen as roughly at the same level as the other regulators, such as Ofgem, rather than a reviewing body.

Even odder is that outside assessments of the CC's decision making are very positive about it. It has begun to lose decisions in front of the CAT but these are often on remedial issues, rather than the substance of the decision. Nor can you any longer claim an accountability problem – both the CC and the OFT are more open in their operations than most government departments! In any event, all the functions that the CC carries out will have to continue, albeit in a different form. So here is a change that doesn't obviously save money, won't lead to an improvement in the quality of decisions and doesn't make the system more accountable. That doesn't meant that the system can't be improved but, as they say in Birmingham when offering directions, "If I were you, I wouldn't start from here."

Object agreements and information exchanges

Just back from a very good session at the British Institute of International and Comparative Law (BIICL) which featured excellent presentations on agreements with the object of restricting competition and information exchanges from: Christian Ahlborn (Linklaters), Matthew Bennett (OFT) and Cristina Caffarra (Charles River Associates), ably chaired by Christopher Vajda, QC. A lot of criticism directed at Case C-8/08 T-Mobile [2009] ECR I-4529 in particular the passage in para 43 where the ECJ says that "A concerted practice pursues an anti-competitive object for the purpose of Article [101] (1) where, according to the content and objectives and having regard to its legal and economic context, it is capable in an individual case of resulting in the prevention, restriction of distortion of competition." As Christian Ahlborn pointed out, if taken literally, this formulation would not leave any room for the effects cases. He did go on to point out that the English translation, of what was originally in German in AG Kokott's opinion is a poor one and suggests something wider than the original language. Whether this logic will be followed is another matter, and an alternative interpretation was put forward that really the case was about whether or not one infringement could lead to a finding of concerted practices and the quote should be read in that context.

On information exchanges, Matthew Bennett, talking in a personal capacity, outlined some of his own thinking in advance of an OFT discussion paper. (More detail can be found in a paper he did with Philip Collins in the August issue of European Competition Journal.) He argued that the most harmful exchange of information was disaggregated, confidential information on future intentions exchanged between competitors in private (and would most likely be in the object box), whilst past aggregated public information between companies was least likely to provide net harm. It was pointed out from the floor that it is possible to think of examples of where problems can be caused by available aggregated public information, so it is perhaps not a completely clean bill of health. In between these two areas Matthew Bennett thought that there was a grey area involving current pricing and public prices on which it would be hard for a competition authority to provide precise guidance but that perhaps the public/private distinction might provide some clarity.

The next BIICL competition event is on 15^th November on hub and spoke arrangements: details on http://www.biicl.org/events/

Disqualification orders in competition cases

As part of my catching up process, I've been reading the OFT's revised guidance on disqualification orders for directors in competition cases (available at: http://www.oft.gov.uk/news-and-updates/press/2010/68-10). Some of the significant changes are that the OFT are now saying that they may, in exceptional cases, bring proceedings for a disqualification order, even if there has been no prior decision that there was a breach of competition law. In other words, the question of the breach of competition law will be argued in front of the, non-specialist, court. Secondly, proceedings for a disqualification order may be brought even if no financial penalty has been imposed. Thirdly, the OFT may also apply for such an order against a director who has ceased being a director because of a breach of competition law. Finally, the OFT says in its press release that it will be just as concerned to take action against those directors who ought to have known of the breach of competition law, not simply those who were responsible for the breach or had reasonable grounds to suspect that there was a breach.

It is welcome to see the OFT toughening its stance on a number of issues but, given that they have not yet used this power, a certain amount of scepticism is in order. The proposal to bring disqualification proceedings, even when there is no prior decision of a breach in competition law does seem odd. The OFT gives as examples cases where the undertaking is insolvent or in the course of being wound up, where there is an appeal simply on the quantum of a fine and where no action is taken because the undertaking is subject to a limited immunity from fines. As the OFT emphasises that action will only be taken in exceptional circumstances, this presumably means cases where the OFT feels that the director's behaviour has been very bad, but short of meeting the test for criminal liability (because you don't want to have to prove the case in two courts). This makes sense of the insolvency example, although not the immunity one, because presumably the OFT would want to order the undertaking to cease its behaviour, even if it could not impose a fine, and then follow up with disqualification proceedings. Although logical, it would seem to be a waste of resources to pursue an individual, when it was not worth making a decision on the undertaking's behaviour.

What seems to be going on here is an exercise in symbolic toughness, in order to try and improve the deterrent effect of the provisions. This is, indeed, state to be one of the reasons for bringing disqualification proceedings even if no financial penalty is imposed. The problem is that tough messages have to be backed up by tough action at some point. So far, the OFT has not had much luck outside the relative comfort zone of Competition Act proceedings.

Returning

I'm back having surfaced from marking, exam boards and some holiday. Lots to catch up on.

Oh, and two very good conferences. One from CCP at East Anglia on vertical restraints http://www.uea.ac.uk/ccp/events/pastevents/2010annualconference

And one hosted by ACCAN (Australian Communications Consumer Action Network) (their first annual conference). Photos here http://s758.photobucket.com/albums/xx223/ACCANaust/2010%20National%20Conference%20and%20Consumer%20Congress/

All I can say is if you think consumer service for telecommunications is bad in the UK, be thankful you don't live in Australia.

British Airways price fixing trial collapses

The high profile criminal trial of four BA executives has collapsed today when the prosecution offered no evidence. The problem arose over disclosure of relevant material to the defence, to be precise some 70,000 e-mails in the hands of Virgin Atlantic, of which 12,000 were sent or received by the central prosecution witness. According to the Press Association, "The court was told the missing emails were in corrupted files which had been dismissed as irrelevant during the initial investigation. But last week it emerged the corrupted files could be repaired and contained the "large quantity" of emails."

To put it mildly, this is highly embarrassing for the OFT. The issue is whether this is one-off prosecutorial incompetence or represents a more systemic problem. Andreas Stephan of UEA wins the prediction guru prize (http://competitionpolicy.wordpress.com/2010/04/11/the-trial-that-will-make-or-break-the-uk-cartel-offence-begins-today-the-british-airways-four/#more-305), although probably not in the way he thought he would. More comments form him are promised once the UK has a government!

A link to the Press Association report is at: http://lawprofessors.typepad.com/antitrustprof_blog/ Daily Telegraph has a bit more: http://www.telegraph.co.uk/travel/travelnews/7705592/British-Airways-price-fixing-trial-collapses.html