Saturday, 12 July 2008

Price-fixing penalties

I remember when the Competition Act 1998 was just about to come into force, attending a breakfast briefing with the then Director-General of Fair Trading, John Bridgman, at Le Manoir aux Quat'Saisons - a rare extravagance. He told us that the Act would carry penalties that would make transgressors' eyes water. Originally, the maximum penalty for a breach of one of the prohibitions was ten per cent of UK turnover, for up to three years (if the infringement had been going on so long), but in 2004 with the modernisation reforms of EC and domestic competition laws the measure became ten per cent of global turnover but only over a twelvemonth. (An excellent expression, that, which Alan Clark used extensively in his book, The Tories, which I am in the middle of reading: I first remember hearing it used back in 83 during the general election campaign, by the Readheads shiprepair guys - reminding me of perhaps my greatest, though largely unacknowledged, claim to fame: surely the only Conservative parliamentary candidate ever to hire a meeting room and invite an audience of unemployed shipyard workers along for a discussion.)

Anyway, I digress. Perhaps I should post some of that, and a further digression that has now occurred to me, on My point is that the Office of Fair Trading has settled a price fixing case against Gallaher and five retailers for a payment of £132 million. The papers today - well, the FT - call it a "fine", but in fact the OFT can only impose a civil penalty, not a fine in the strict sense of the word: but newspapers don't seem to worry about the nuances. There is still a case pending against another manufacturer, Imperial, and other retailers are also in the frame. Tesco maintain that they have done no wrong, and Sainsbury have done a deal under the leniency programme that encourages whistle-blowing. The companies that have settled have been given a "discount" of £40 million off the maximum penalty (surely not the whole ten per cent?) reported to be £173 million.

The law seeks to encourage whistle-blowing, without which it is hard to detect cartels - they are by their very nature secret organisations. So the OFT is pleased with the way this has turned out, with a major saving in the costs of carrying on investigating which they think justifies the discount given to the companies involved. The OFT is certainly getting more and more active, and teh FT reports today that: "Senior executives within the retail , construction and banking sectors have complained that John Fingleton, the OFT's chief executive, appears to be on a "personal crusade" to crack own on perceived wrongdoing, whether justified or not". That sounds to me like an extraordinary proposition, as the OFT has to justify its actions by reference to the Competition Act. Are the unnamed senior executives saying that the Competition Act itself is not something to which we should attach too much importance?

I don't think so. Rather, they are probably referring to something that I have noticed in acting for clients in competition matters, and which I advise delegates on my courses on the subject to bear very much in mind: the mere fact that an investigation is taking place is damaging in itself, perhaps not to the tune of £173 milllion but possibly to an extent representing a large part of that. Years ago, actually before the Competition Act came into force, I advised a group of clients who took a price-fixing complaint to the OFT. I imagine that the OFT's investigation of that matter caused consternation in the offices of the company about whose activities we had presented evidence, but I am sure that it paled into insignificance when the OFT published the result of their probe. The story made the front page of the FT and the BBC news to my certain knowledge, and I am sure other parts of the media also picked up on it. The damage to the reputation and the business of the company concerned must have been significant. It certainly gave my clients satisfaction. And the beauty of it was that, a few weeks later, the Competition Act came into force and the OFT publicised it by bringing up the same case again, saying something like "if this happened now, this is what we could do about it." In other words, with Competition Act matters, just being suspected of infringing so the OFT carries out an investigation is just as bad as having a penalty imposed on you in the first place.

The FT today also reports that the Serious Fraud Office is in trouble again, after a judge threw out charges it had brought against five pharmas over price-fixing. This case pre-dates the Enterprise Act 2002, which created criminal offences concerning being involved in a cartel. The SFO was therefore obliged to find another head under which to prosecute, and was running with conspiracy to defraud. The House of Lords held in Norris v Government of the United States [2008] UKHL 16 that mere price-fixing was not conspiracy to defraud - hard luck on the SFO that they were 8 years and £25 million into an investigation into the activities of the drug companies when their Lordships bowled that one at them, and commentators think it might be fatal to the future of the SFO as we know it.

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