Non-Appealing Cartelists Beware

Tucked away at the back of last week’s Supreme Court decision on time-limits for follow-on claims is a very important development for private competition actions.

The context is section 47A of the Competition Act 1998, a provision which has generated an extraordinary amount of litigation in view of the fact that it was intended to streamline private damages actions. The apparently dreary issue addressed in Deutsche Bahn AG and others v Morgan Advanced Materials Plc [2014] UKSC 24 related to the two-year time limit in which follow-on damages claims must be brought under section 47A. Anyone wanting more background might want to look here. The simple summary is that the law is now that:

  1. The start of the two-year limitation period will only be delayed by an appeal against liability – an appeal against penalty only does not suffice to delay the start of the limitation period. This was decided in BCL No.1.
  2. In a multi-party infringement, an appeal by one party will only delay the start of the two-year period for claims against that infringing party. It will not delay the start of the period in respect of claims against other parties. This was the Supreme Court’s decision last week in Deutsche Bahn.
  3. Once the two-year limitation period has expired, the CAT has no power to extend the time limit to allow claims to be brought late. This was decided in BCL No.2.

Now for the interesting bit.

One of the issues relevant to the argument in Deutsche Bahn was whether, if some cartelists (call them A and B) had successfully appealed against a decision that they had been party to a cartel, cartelist C, who chose not to appeal, would still be bound by the decision that A, B, and C had been members of a cartel. Could a claimant seek damages from C and contend that C is bound by the decision that it was in a cartel with A and B?

The Supreme Court held, in a single unanimous judgment, that the answer is yes. It held at paragraph 21 that as a matter of European law:

“a Commission Decision regarding the existence of a cartel constitutes a series of decisions addressed to its individual addressees, which remain binding or not according to the lodging and outcome of any individual appeals. A successful appeal by one addressee, establishing that there was no cartel, has no effect on the validity and effects of the Decision determining that there was such a cartel and levying a fine as against another addressee who has not appealed. This is so although article 81(1) (and now article 101(1)) applies to agreements and concerted practices (concepts which postulate the involvement of more than one party), and although a Commission Decision, such as that in question on this appeal, addresses in a single document all addressees by reference to one or more particular agreements or practices found to exist between all of them.”

In some ways, this is the mirror-image of the domestic law principle whereby non-appealing infringers are fixed with penalties even if other alleged infringers succeed in overturning the decision – a principle endorsed very recently by the Court of Appeal (see my blog). But the Supreme Court’s decision further raises the stakes: non-appealing parties may be stuck not only with penalties, but also with liability for all damages caused by the cartel, the existence and scope of which they cannot deny even if it has been disproved on appeal.

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Tobacco decision: the Court of Appeal emphasises finality

The Court of Appeal yesterday delivered a judgment that should finally draw a line under one of the Office of Fair Trading’s more troublesome cases – and which will presumably bring a great sigh of relief from the Competition and Markets Authority, the body that has now taken over the OFT’s functions.

The background is the OFT’s ill-fated decision on alleged pricing agreements between tobacco manufacturers and retailers. The OFT’s case collapsed on appeal to the Competition Appeal Tribunal (the “CAT”). That appeal, however, was not the end of the story. Two parties who had entered into early resolution agreements with the OFT, in which they admitted their participation in the alleged unlawful agreements, had decided not to appeal to the CAT. When the OFT’s case collapsed, those parties (Gallaher, a tobacco manufacturer, and Somerfield, a retailer) understandably felt that they had rather missed the boat, and so sought permission to appeal against the OFT’s decision out of time.

A year ago, I blogged on the CAT’s decision granting Gallaher and Somerfield an extension of time in which to appeal. The CAT’s judgment rested on the notion that, in entering into the early resolution agreements, Gallaher and Somerfield had a “legitimate expectation that the OFT would be able to defend (even if not successfully) its Decision on the merits” [93(6)]. Some observers have rather unkindly summarised the CAT’s decision as being that, whilst Gallaher and Somerfield must have known that there was a chance that the OFT would lose an appeal, nonetheless they had a legitimate expectation that the OFT would not completely cock it up.

The Court of Appeal records at paragraph 30 that no party sought to defend the CAT’s novel use of the legitimate expectations doctrine. However, Gallaher did continue to argue a similar point, namely that it was entitled to assume that, in entering into an early resolution agreement, the OFT had “some proper evidential basis” for its theory of harm. I said in my earlier blog that one oddity of the CAT’s reasoning was that it overlooked the fact that parties who enter into early resolution agreements make admissions about their own conduct, and that they presumably carry out their own investigations into what they have done rather than relying simply on an “expectation” that the OFT’s factual case is robust. The Court of Appeal put the point more forcefully at paragraph 51:

“To put the matter bluntly, the Respondents are grown-up commercial parties. They knew what evidence was relied upon in the Statement of Objections. They knew what evidence was available to them as to their own infringements. They could evaluate both when they concluded the ERAs. It would be quite impossible for the OFT to conduct such an investigation and bring it to a timely conclusion if it were to be taken as representing at the time of an early resolution agreement that it would in the future have a “proper evidential basis” for its decision. Of course, it would be expected to have such a basis, but litigation sometimes proves otherwise. In any event, it may be asked rhetorically: how could it be decided whether the OFT had such an evidential basis? No doubt it thought it did, even though it turned out it did not.”

Apart from the “evidential basis” point, the main argument before the Court of Appeal focused on the apparent disjuncture between the nature of the infringement which Gallaher and Somerfield admitted in their early resolution agreements and the nature of the agreement actually found in the decision. The Court held that, whilst there was a difference between the two, that did not amount to “exceptional circumstances” so as to justify extending time for an appeal, since Gallaher and Somerfield were free to read the decision; to realise that it was not quite what they had admitted; and to appeal in time if so advised. The key consideration was the desirability of finality and legal certainty.

The Court of Appeal recognised that the outcome in this case is somewhat “uncomfortable” – Gallaher and Somerfield are bound by a decision that they committed an infringement, even though that decision crumbled under appeal. But that is always the case when one party chooses not to appeal whereas another succeeds in its appeal. It is unlikely to make any difference to the position of the non-appealing party whether the successful appellant just about secures a victory even though the case could have gone either way, or whether he succeeds in comprehensively defeating the authority’s case.

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Pay TV: Court of Appeal sends message to the CAT

In its recent decision in British Sky Broadcasting Ltd v Office of Communications [2014] EWCA Civ 133 the Court of Appeal has sent a strong message to the CAT, criticising the Tribunal for its failure to properly consider the reasons underpinning Ofcom’s original decision to impose licence conditions on British Sky Broadcasting Ltd (“Sky”).

In March 2010, Ofcom published a “Pay TV statement” concerning Sky’s right to broadcast the content of major sporting events, including Premier League football. The statement contained two principal conclusions: first, that Sky had developed a “practice” which consisted of a “strong reluctance” to negotiate wholesale deals for core premium sports channels with retailers. Secondly, that to the limited extent that Sky would enter into any discussion on wholesale pricing, it would be on the basis of a “rate card price”, which was, in effect, a price that would not enable other retailers to compete with Sky’s rates to consumers. Ofcom took the view that this would be likely to reduce incentives to innovate and so be an impediment to competition.

As a consequence of these conclusions, Ofcom declared that it would, pursuant to its powers under section 316 of the Communications Act 2003, impose a number of licence conditions on Sky. That decision was appealed to the CAT.

In a lengthy judgment, the CAT concluded that Ofcom did have jurisdiction under s.316 to impose the licence conditions. However, it held that Ofcom’s primary concern was unfounded and that Sky did, on the whole, negotiate wholesale deals for core premium sports channels with retailers. In light of its findings on this issue the CAT took the view that it was unnecessary to go on to consider Ofcom’s second conclusion, regarding the “rate card price” and the extent to which this may be an impediment to competition.

There were two issues before the Court of Appeal. The first was whether Ofcom had power under section 316 to impose conditions in Sky’s broadcasting licences. The Court adopted a wide construction of the words “in the provision of” and held that it must encompass not only provision to other broadcasters, but also the public on both wholesale and retail bases (at [79]). Hence, section 316 was not concerned solely within competition between providers of content for TV services, but with fair and effective competition more generally.

The second issue related to the CAT’s failure to address, at all, the issue of whether Ofcom was right to conclude that Sky’s practice in relation to the “rate card price” itself constituted an impediment to fair and effective competition. This total failure of consideration was notwithstanding the fact that “[t]he CAT’s conclusion that Ofcom was wrong, on the facts, to find that Sky was not prepared to negotiate for the wholesale of the [core premium sports channels] left open the issue of the price at which these channels could or would be supplied wholesale to competitors” (at [95]). The Court of Appeal considered that “the CAT should have addressed each of Ofcom’s competition concerns in detail” (at [120]) and that the failure to do so constituted an error of law (at [100]-[101]).

The Court of Appeal has remitted the matter to the CAT for further consideration “in order that further findings and conclusions may be made in light of [the] judgment” (at [102]). In circumstances where the Tribunal made no findings on what is now the central issue in the case, it remains to be seen, as a matter of practice, how this will be achieved.

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Sharing Risk in Collective Actions

With legislation to introduce collective actions currently making its way through Parliament (see our previous blog here), we are pleased to welcome a guest blog from Elaine Whiteford of King & Wood Mallesons  LLP and Oliver Gayner of Burford Capital (UK) Ltd. They highlight a litigation funding problem which will arise under the proposed new regime, and suggest an ingenious solution.


Readers of this blog will be familiar with the Government’s announcement, following the conclusion last year of its consultation on private actions in competition law, that it intends to introduce an “opt out” regime for collective competition law actions.  In brief, unless they specifically choose to opt out, UK-domiciled consumers and businesses will automatically be included as claimants in collective actions, provided they satisfy the criteria for membership set by the Competition Appeal Tribunal when it certifies the class.  One of the particular policy objectives behind this proposal is to empower small businesses and consumers to seek redress in respect of anti-competitive behaviour.  The combination of the complexity and cost of seeking such redress is seen currently to form an almost insurmountable hurdle to all but the largest claims.

What may be less familiar is one of the finer points of detail in the proposals, namely, that lawyers will not be permitted to enter into any form of contingency arrangement in respect of any opt-out actions.  Consequently, if a collective claimant group wants to enter into any risk sharing arrangement with its lawyers, it will have no choice but to operate on an opt-in basis.  However, that is precisely the mechanism that has been found wanting in the past.

The result is an unusual paradox: the Government introduces legislation permitting lawyers to act under DBAs (damages based agreements) to help address the otherwise potentially prohibitive costs of embarking on litigation, but at the same time excludes from these proposals one type of claim that it is policy to seek to encourage.

The issue is further complicated by the Jackson Reforms, since ATE insurance premiums and CFA success fees must be paid by claimants and can no longer be recovered from opponents. Thus, the damages pool at the end of a successful claim will be reduced by any such costs, which has the knock on effect of reducing the headroom for third party litigation funders to make a return.  In opt-out cases where the economic margins are tight, claimants may already find it hard to attract funding, and now will be restricted from asking their lawyers to step into the breach.

The result is that the effectiveness of this policy may well be undermined before it has even been implemented. Many small businesses faced with the prospect of paying for expensive litigation and limited prospects of sharing that risk may simply decide that it is not worth the bother. The anomaly will need to be addressed if the (otherwise laudable) policy aims are going to succeed.

In the short term, synthetic risk sharing arrangements may offer a solution.  In a hybrid arrangement, a litigation funder enters into a separate private agreement with the law firm to share a pre-agreed portion of its proceeds in the event the claim succeeds; such arrangements are in principle not caught by the DBA Regulations which only apply to agreements between “client” and “representatives” (i.e. the lawyers).

Clearly though it would be preferable for the issue to be properly addressed in legislation, rather than simply allowing the Law of Unintended Consequences to take its course.  According to the Government’s consultation paper, the fear is that if contingency fees are allowed in opt-out claims, the floodgates of frivolous and unmeritorious claims will be opened, and the UK will be plunged into a US-style class action culture.  Similar arguments were used against the introduction of litigation funding; however, a decade of practice has shown that funders will only support meritorious claims, and so tend to act as a filter for frivolous cases, as Jackson LJ found in his Report.  The same applies to lawyers when considering whether to act on a contingency basis: few would be willing to risk their firm’s money on claims with poor prospects.  Further, the comparison to the US seems specious, given that that US courts do not provide for the shifting of cost risk onto losing parties, and so attitudes to risk are fundamentally different.

Some safeguards for the new collective action regime are clearly appropriate: excluding the lawyers from sharing in risk and reward is, in our view, not one of them.

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“What’s in a Commission Decision?” and other lessons for national courts

In a decision of 13 February 2014, the Court of Justice of the European Union (“CJEU”) added a little gloss to an otherwise well-trodden path in relation to the binding aspects of a Commission Decision. For instance, it is well established that assessments made in recitals to a decision “are not in themselves capable of forming the subject of an application for annulment” unless they are “the necessary support for its operative part” (see Case T-138/89 Nederlandse Bankiersvereniging and Nederlandse Vereniging van Banken v Commission [1992] ECR II-2181 at [31]). What of statements of position by the Commission subsequent to its Decision, e.g. in order to facilitate its enforcement at national level?

Case C-69/13 Mediaset SpA v Ministero dello Sviluppo economico, concerned a state aid which had been granted by the Italian Republic to Mediaset (the main commercial broadcaster in terrestrial television). In essence, the scheme consisted of a State subsidy granted to consumers for purchasing or leasing a digital decoder. Following complaints by Centro Europa 7 srl and Sky Italia srl that this amounted to a selective advantage in favour of the terrestrial and cable pay-TV operators, the European Commission investigated, and by its Decision 2007/374/EC, declared the scheme a state aid incompatible with the common market (Article 1). It ordered Italy to “take all necessary measures to recover from the recipients the aid” (Article 2(1)), “in accordance with the procedures of national law provided that they allow the immediate and effective execution of this Decision” (Article 2(2)). That should have been that.

However, given the scheme’s complexity, the Commission did not quantify the aid to be recovered and simply offered some “guidelines” on how this could be achieved at recitals 196 to 205 of the Decision. It also “invite[d] Italy to submit to the Commission for consideration any problem that it may meet in implementing this Decision” (Recital (207)). Cue a number of exchanges between the Italian authorities and the Commission in which the latter set out its position on the approach to be taken. This process eventually led to a number being found and recovered from, among others, Mediaset. Mediaset unsuccessfully brought an action for annulment of the Decision (which ended up as Case C-403/10 P Mediaset v Commission [2011] ECR I-117) and it then challenged the domestic Order recovering the aid in national proceedings.

In those proceedings, the Tribunale civile di Roma was faced with an expert report which suggested that there was no evidence that the aid in question had actually influenced the sales of decoders during the period examined – the quantum would thus be nil. As such, it referred two questions to the CJEU: (1) whether subsequent statements of position by the Commission after it had reached a Decision were binding on a national court and (2) whether a national court could find a quantum of nil when national authorities had been ordered to recover aid by the Commission.

The CJEU responded in brief form. As to the second question, the Court simply restated the principle that national procedural law governs recovery of state aid so long as it satisfies the requirements of effectiveness and equivalence (at [34]) but otherwise, “without calling into question the validity of the Commission’s decision or the obligation to repay the aid declared unlawful and incompatible with the internal market, the national court may fix an amount of aid equal to zero” (at [37]). As to the first question, the Court was clear that “the statements of position made by the Commission in the context of the execution of Decision 2007/374 cannot be regarded as being binding on the national court” (at [28]). Nonetheless, its analysis did not stop there.

Noting that the “application of the European Union competition rules is based on an obligation of cooperation in good faith between the national courts, on the one hand, and the Commission and the European Union Courts, on the other” (at [29]) and that a national court entertaining doubts or encountering difficulties can “contact the Commission for assistance” (at [30]), it concluded (at [31]) that:

“to the extent that those statements of position, as well as the Commission opinions which may be sought by the national court […] are intended to facilitate the accomplishment of the task of the national authorities in the immediate and effective execution of the recovery decision and, having regard to the principle of cooperation in good faith, the national court must take them into account as a factor in the assessment of the dispute before it and must state reasons having regard to all the documents in the file submitted to it” (emphasis added)

Thus, the Court saw Mediaset as a chance to trace another feature of the uncharted and sometimes nebulous terrain of the principle of sincere cooperation of Member States under Article 4(3) TEU (as to which see my post on the Ryanair saga here). This is particularly relevant in the post-Pfleiderer era when national legal systems are struggling with how to deal with follow-on damages claims while respecting the Commission’s procedures.

The CJEU’s approach in Mediaset invites the Commission and national courts to become more active discussants when seeking to simultaneously (or sequentially) enforce competition law. Indeed, despite a Notice to that effect which is almost a decade old, it is only a fairly recent trend for Commission involvement in national competition law proceedings (see, e.g. National Grid Electricity Transmission Plc v ABB Ltd [2012] EWHC 869 (Ch), where Nicholas Khan intervened in writing on behalf of the Commission).

The CJEU has also pointed national courts to additional material which they “must take [] into account” when deciphering the meaning and effect of Commission Decisions – subsequent communications which contain “statements of position”. This could have far-reaching consequences, where – for instance – the Commission provides further detail about the territorial scope of anti-competitive conduct which it has found to be proven, or clarifies the position of non-addressees. One would imagine that the latter situation would lead to caution as was the case when the General Court of the European Union held the Commission to standards of “professional secrecy” so that it cannot make findings or allude to an undertaking’s culpability in the non-operative parts of a Decision (see T-474/04 Pergan Hilfsstoffe für industrielle Prozesse v Commission [2007] ECR II-4225 at [73] and [80]).

The duty of co-operation nevertheless seems to require national courts to conduct thorough and extensive exercises in order to see through the crystal ball into the consequences of Commission Decisions. In Mediaset the Court failed to take the opportunity to explain to national courts in any further detail what “taking into account” might mean, or to circumscribe the scope of Commission Decisions so that such an exercise might be targeted and clear. Further uncertainty remains with only the general guidance of Article 4(3) TEU….a penny for the soothsayer?

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Abuse of dominance: no commercial gain, no abuse?

Is it necessary for there to be some commercial benefit to be gained by a dominant undertaking from its conduct before that conduct can be condemned as abusive?

No, says Mrs Justice Rose in Arriva the Shires Ltd v London Luton Airport Operations Ltd [2014] EWHC 64 (Ch).

The case involved a claim by Arriva against Luton Airport. Arriva had operated a bus route from the airport to London Victoria for 30 years. On each occasion that Arriva’s contract expired, it had been rolled forward. Some changes in management took place at Luton. Luton decided not to roll forward Arriva’s contract upon its expiry in April 2013. Instead, they invited coach operators to bid for the right to operate the route. Arriva submitted a bid, but the right was won by a competitor, National Express.

National Express was granted the exclusive right to operate a route from Luton to London.

Arriva claimed Luton had abused its dominant position in the market for the grant of rights to use the airport land and infrastructure to operate bus services from the airport. Deciding only on the issue of abuse (the question of dominance had been assumed in Arriva’s favour, but remains now to be determined), Rose J held that Luton had committed an abuse.

Luton submitted that the case didn’t fall into any of the established categories of exclusionary behaviour so far identified by the Commission or the Courts. It argued that there could only be an exclusionary abuse in two categories of cases: first, where the dominant undertaking is competing on the downstream market and acting to foreclose that market to its own advantage (the classic Commercial Solvents v Commission situation); second, where the dominant undertaking distorts competition between itself and its customers on the downstream market by entering into contracts with customers which require them to buy their supplies only from the dominant undertaking.

Luton argued there was in this case a complete absence of a competing downstream interest because Luton did not itself operate any coach service. Furthermore, the exclusivity arrangement was not one which tied Luton’s customers into only contracting with Luton airport: this was a very different scenario in which Luton was essentially tying its own hands by saying that it would only contract with one customer.

Rose J rejected these arguments. Of particular interest, she held that the Aéroports de Paris v Commission decision [2000] ECR II-3929 applied not only in the context of discriminatory pricing but also in the context of refusal to supply. Appling it, she held it was not necessary for there to be some commercial benefit to be gained by a dominant undertaking from its conduct for it to constitute an abuse.

However, she did not hold the absence of commercial gain was entirely irrelevant in a Chapter II case, but considered that it “may well be highly relevant” on the issue of objective justification. She reasoned: “[i]f a dominant undertaking can show that it has nothing to gain from refusing to supply a customer, that would support its contention that, as a matter of fact, the refusal was based on an entirely legitimate objective justification – why else would it forgo the sale?”.

That potential relevance was, however, of no assistance to Luton in this case. Rose J held that in any event Luton did derive an important commercial and economic benefit from granting an exclusive concession to a bus operator, because they shared in the revenue by reason of receipt of a fee based on a percentage of the bus operator’s revenue and a substantial minimum guaranteed payment. She held that Luton’s reason for granting exclusivity to National Express was to protect National Express from competition in the downsteam market, in the expectation that this would maximise the fees that National Express was prepared to pay Luton for the rights to operate the bus service.

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“Unfair advantage” under the Trade Marks Directive

Readers over the age of 24 do not fall into Jack Wills’ core target market, and may therefore be unfamiliar with the clothing brand’s “Mr Wills” pheasant logo:


On the other hand, those readers who are Jack Wills devotees may want to check when you get home that you have not got confused and accidentally purchased, for about the same price, a House of Fraser product adorned with this equally delightful but nonetheless different bird:


If you did get confused, it is perfectly understandable. After all, they’re both silhouettes of birds “equipped with accessories associated with an English gentleman”, as Mr Justice Arnold explained last week in Jack Wills Ltd v House of Fraser (Stores) Ltd [2014] EWHC 110 (Ch). Continue reading

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