United Kingdom: Cartel Enforcement

The UK Competition and Markets Authority (CMA) is the primary enforcement authority for civil cartels under article 101 of the Treaty on the Functioning of the European Union (TFEU) and section 2 of the UK Competition Act 1998¹ (CA98) and criminal cartels under section 188 of the Enterprise Act 2002 (EA) in the UK. After a relatively quiet second half of 2015 in enforcement terms, the CMA opened several new investigations in December 2015 and in the first quarter of 2016 as well as taking further procedural steps in several long-running cases.

The CMA has faced recent criticism from the National Audit Office (NAO), which in its 5 February 2016 report of its audit of the UK competition regime² expressed concern that the number of cartel enforcement cases brought by the CMA and the eight UK regulators with concurrent enforcement powers in civil cases³ was much lower than their German or French counterparts ‘despite similar levels of resourcing for enforcement work and similar-size economies.’ The NAO recommended that the CMA should ‘[t]ake further action to step up the flow of successful enforcement cases.’

Civil enforcement under article 101 TFEU/section 2 CA98

The second half of 2015 saw only one concluded investigation: CESP, resulting in a decision imposing penalties.⁴ CESP was settled rather than contested and is part of the CMA’s drive to increase the ‘pace’ of investigations (the case was concluded in 12 months). However, in late 2015 and early 2016, the CMA commenced a number of further investigations in the sports equipment, online sales of discretionary consumer products, furniture, leisure and pharmaceutical sectors as well as taking further procedural steps in its ongoing investigation into conduct in the modelling sector.

Consultant Eye Surgeons Partnership (CESP)

In August 2015, the CMA imposed a fine of £500,000 on CESP Limited, a membership organisation of private consultant ophthalmologists, for infringements of section 2 CA98 and article 101 TFEU. CESP settled the case by admitting the infringements and agreeing to pay the fine, which was reduced to £382,500 in recognition of efficiencies following CESP’s settlement and cooperation with the CMA and the adoption by CESP’s board of a comprehensive compliance programme.

CESP admitted to a number of competition law infringements during the period September 2008 to May 2015 which included: recommending that its members refuse to accept lower fees offered by an insurer, and that they charge insured patients higher self-pay fees; circulating among its members detailed price lists for ophthalmic procedures such as cataract surgery to be used with insurers; and facilitating the sharing of consultants’ future pricing and business intentions, such as whether to sign up to a private hospital group’s package price, which enabled members to align their responses.

Following its decision in CESP, the CMA sought to amplify the impact of it, without having to open further investigations in the sector. It did this by sending warning letters to limited liability partnerships who were CESP’s members, noting that similar infringements were also capable of being committed by other groups on behalf of their consultant members and by individual members when acting as sole traders. In addition, the CMA published an open letter to private medical practitioners to raise awareness of why the actions of CESP were illegal and what other medical practitioners working in private practice needed to know to make sure they did not engage in similar anticompetitive activity.⁵

Conduct in the modelling sector

On 25 May 2016, the CMA issued a statement of objections to the model agencies FM Models, Models 1, Premier, Storm and Viva alleging that they had agreed to exchange confidential, competitively sensitive information, including future pricing information, and in some instances agreed a common approach to pricing. The CMA further alleged that these five model agencies controlled the council of a trade association, the Association of Model Agents (AMA), and that they used the AMA and its council (which managed the AMA’s business) as a vehicle for their coordination. The alleged coordination included regularly and systematically circulating to its members emails, known as ‘AMA Alerts’, encouraging model agencies to reject the fees being offered by specific customers and to negotiate a higher fee. The alleged overcharges, resulting from the collusion between the five model agencies, applied to a range of customers, including high street chains, online fashion retailers and consumer goods brands.

The investigation is the first competition enforcement case taken forward by the CMA in the creative industries. The case is also of interest given the separate alleged liability of the AMA itself. Third-party or accessory liability is an area where UK and EU law is ripe for development following the recent judgment of the Court of Justice of the European Union (CJEU) in AC-Treuhand.⁶ In its judgment, the CJEU upheld fines imposed by the European Commission on a consultancy firm that was found to have facilitated a cartel. The facilitation comprised organising a number of meetings which it attended and in which it actively participated, collecting and supplying to the producers concerned data on sales on the relevant markets, offering to act as a moderator in the event of tensions between those producers and encouraging the latter to find compromises, for which it received remuneration.

Online sales of discretionary consumer products

On 1 December 2015, the CMA conducted searches at the headquarters of a UK company, Trod Limited, as well as the domestic premises of one of its directors. Trod limited also trades as ‘Buy4Less’. The CMA’s searches were coordinated with searches carried out by the West Midlands Police on behalf of the US Department of Justice, in connection with a separate criminal prosecution in the US District Court for the Northern District of California in San Francisco. In that case, Daniel Aston, a director and part owner of Trod Limited is charged with fixing the price with co-conspirators of certain posters sold online through Amazon Marketplace. According to the charge, Aston and his co-conspirators discussed the prices of certain posters sold in the United States through Amazon Marketplace and agreed to adopt specific pricing algorithms for the sale of certain posters, with the goal of offering online shoppers the same price for the same product and coordinating changes to their respective prices. This prosecution arose from an ongoing federal antitrust investigation into price fixing in the online wall décor industry.⁷ The CMA’s civil investigation is ongoing.

Other civil enforcement action

In late 2015 and early 2016, the CMA commenced a number of further investigations in the online sales of discretionary consumer products,⁸ furniture,⁹ leisure,¹⁰ supply of precast concrete drainage products¹¹ and pharmaceutical sectors.¹² Aside from the investigation into the precast concrete drainage products case, which is the parallel civil case to the ongoing criminal prosecution, there is no public information as to the nature of the conduct being investigated in these other recently opened cases.

Future civil enforcement

The CMA has already responded to the NAO’s criticism as to lack of case flow by recently opening a number of new investigations. We can expect to see this trend to continue perhaps involving lower-profile and local-targeted cases as the CMA is also committed to promoting deterrence, particularly among small and medium-sized enterprises (as evidenced by its use of warning letters following CESP). We can also see a trend in an increased pace in investigations (some of the recently opened investigations may be resolved within 2016 or early 2017).

Criminal enforcement under EA section 188

Following the conclusion of Galvanised Steel Tanks,¹³ the CMA currently has only one open criminal investigation. That investigation concerns an alleged cartel in the supply in the UK of precast concrete drainage products (there is also an ongoing parallel civil case). This case is subject to the law as it applied to conduct before April 2014, under which the cartel offence was only committed where the individuals concerned acted dishonestly. Following a change in the law, for conduct after 1 April 2014, it is no longer necessary for the CMA to prove that individuals acted dishonestly to commit the cartel offence – this has effectively created a strict liability offence which is expected to make successful prosecutions easier.

Galvanised Steel Tanks

This case concerns cartel conduct in respect of the supply in the UK of galvanised steel tanks for water storage and was initiated by the CMA’s predecessor, the Office of Fair Trading (OFT) in 2012. This was the first contested criminal cartel case since R v Burns, which concerned an alleged cartel in fuel surcharges for passenger flights in May 2010. The prosecution in that case of several current and former BA executives collapsed due to procedural failings by the OFT.¹⁴ As such it was an important test of the CMA’s ability to learn from and build on the experience of the OFT in bringing contested criminal cartel prosecutions.¹⁵

In the event, the CMA had mixed results: three individuals were charged with the criminal cartel offence of whom one pleaded guilty (Nigel Snee) and was sentenced in September 2015 to six months’ imprisonment, suspended for 12 months, and ordered to do 120 hours’ community service within 12 months, while the other two were acquitted by the jury in June 2015. In sentencing Snee, the judge noted that ‘the economic damage done by cartels is such that those involved must expect prison sentences’ and indicated that his starting point in this case was that a prison sentence of two years was appropriate but reduced and suspended Snee’s sentence on account of his early guilty plea, his personal mitigation and the extent of his voluntary cooperation as a witness.¹⁶

While the judge did commend the CMA case team on its ‘very thorough and comprehensive’ review on disclosure,¹⁷ it is clear from the result of the case that the requirement in the pre-April 2014 law of dishonesty continues to be a high hurdle for a successful prosecution (several of the CMA’s criminal cases under the pre-April 2014 law were closed following the outcome in Galvanised Steel Tanks). Furthermore, the willingness of juries to convict in contested cases remains unclear.¹⁸

Precast Concrete Drainage Products

The CMA is about to face a further test on both these points as it is continuing with another investigation under the pre-April 2014 law commenced by the OFT in March 2013. Seven individuals were arrested in connection with investigation – the first to face charges was Barry Cooper, a director of a company that manufactured precast concrete drainage products in the UK, who on 7 March 2016 was charged with dishonestly agreeing with others to divide supply, fix prices and divide customers in the supply in the UK of precast concrete drainage products between 2006 and 2013. On 21 March 2016, Cooper pleaded guilty to one count under section 188 EA.¹⁹

Future criminal enforcement

The CMA has stated that it is ‘working on a number of intelligence leads, with a view to opening further cases in due course’.²⁰ Given the NAO’s criticism and recommendations and the heavy investment in new personnel, procedures and digital and forensic resources made by the CMA, more criminal investigations can be expected. The success or otherwise of the CMA’s prosecution of Precast Concrete Drainage Products will be an important milestone in its criminal cartel enforcement record. However, it will not be until there is a prosecution under the post-April 2014 law, and then one in particular with parallel international civil or criminal aspects, or both, that any future prospects of criminal litigation may become clearer.

Notes

1. Article 3(1) of Council Regulation 1/2003 provides that the CMA has to apply article 101 TFEU where the CMA applies section 2 of the Competition Act 1998 (national equivalent to article 101 TFEU) to conduct which may affect trade between EU member states.
2. Available at www.nao.org.uk/wp-content/uploads/2016/02/The-UK-Competition-regime.pdf.
3. These are OFCOM (communications); OFGEM (electricity and gas); OFWAT (water and sewerage); CAA (civil aviation); ORR (railway services); Monitor (healthcare services in England); the Financial Conduct Authority (financial services) and the Payment Systems Regulator (payment systems). Another enforcer with concurrent powers (not covered in the NAO’s Report) is OFREG NI (energy and water and sewerage in Northern Ireland).
4. CE/9784-13 – Conduct in the opthalmology sector, CMA Decision of 20 August 2015 available at https://assets.publishing.service.gov.uk/media/55d5989f40f0b609ff000009/Conduct_in_the_ophthalmology_sector_decision_v2.pdf.
5. CMA open letter to private medical practitioners, 3 December 2015, available at www.gov.uk/government/uploads/system/uploads/attachment_data/file/482193/Open_Letter_to_private_medical_practioners.pdf.
6. AC-Treuhand AG v European Commission, ECLI:EU:C:2015:717.
7. See DOJ press release of 4 December 2015, ‘E-Commerce Exec and Online Retailer Charged with Price Fixing Wall Posters’, available at www.justice.gov/opa/pr/e-commerce-exec-and-online-retailer-charged-price-fixing-wall-posters.
8. 50223 – Online sales of discretionary consumer products, investigation opened on 1 December 2015. Case information available at www.gov.uk/cma-cases/online-sales-of-discretionary-consumer-products.
9. CE/9882-16 – Supply of products to the furniture industry: suspected anti-competitive arrangements, investigation opened on 30 March 2016. Case information available at www.gov.uk/cma-cases/supply-of-products-to-the-furniture-industry-suspected-anti-competitive-arrangements.
10. Leisure sector: anti-competitive practices, investigation opened on 15 December 2015. Case information available at www.gov.uk/cma-cases/leisure-sector-anti-competitive-practices.
11. 50299 – Supply of precast concrete drainage products: civil investigation, investigation opened on 15 April 2016. Case information available at www.gov.uk/cma-cases/supply-of-precast-concrete-drainage-products-civil-investigation.
12. Pharmaceutical sector: anti-competitive practices, investigation opened on 8 March 2016. Case information available at www.gov.uk/cma-cases/pharmaceutical-sector-anti-competitive-practices.
13. CE/9623/12 – Supply of galvanised steel tanks for water storage: criminal investigation. Case information available at: www.gov.uk/cma-cases/criminal-investigation-into-the-supply-of-galvanised-steel-tanks-for-water-storage.
14. R v George, Crawley, Burns and Burnett [2010] EWCA Crim 1148, on 10 May 2010.
15. See Project Condor Report of 17 December 2010 summarising the findings and recommendations of an OFT board-led review into the events leading up to the collapse of the criminal trial in R v Burns and others, together with the response of the OFT’s management available at https://assets.publishing.service.gov.uk/media/556876fce5274a1895000008/Project_Condor_Board_Review.pdf.
16. R v Nigel Snee, sentencing hearing, 14 September 2015, [R v Dean and Stringer].
17. See speech by Michael Grenfell, CMA Executive Director of Enforcement, available at: www.gov.uk/government/speeches/michael-grenfell-on-the-cmas-approach-to-competition-enforcement.
18. See speech by Stephen Blake, CMA Senior Director – Cartels and Criminal Group, available at: www.gov.uk/government/speeches/stephen-blake-on-the-uk-steel-tanks-criminal-cartel-case.
19. CE/9705/12 – Supply of precast concrete drainage products: criminal investigation, investigation opened on 12 March 2013. Case information available at: www.gov.uk/cma-cases/criminal-investigation-into-the-supply-of-products-to-the-construction-industry.
20. See speech given by Sarah Cardell, CMA General Counsel, at the IBC UK Competition Law Conference 2016 in London, available at www.gov.uk/government/speeches/sarah-cardell-speaks-about-the-cmas-enforcement-priorities-and-approach.