UK competition enforcement – progress and prospects
A year ago this week, when I was newly appointed in my job as the Competition and Markets Authority’s (CMA) Executive Director for Enforcement, I gave a talk at this conference on my vision and plans for enforcing competition law.
I’m very grateful to have been invited back. Or at least I was. When I got the invitation from the conference organisers, I flattered myself that the quality of my speech was such that you couldn’t wait to have me back again. As it used to say on the billboards about a certain performer at our local circus when I was a child: ‘Back by popular demand’. And then the sobering truth dawned on me: last year, new to the job, I set out some of the CMA’s plans for improving the enforcement of competition law in this country. I now appreciate that you wanted to call me back to ‘mark’ my performance to date – how has the reality, one year on, lived up to the promises? A kind of large-scale annual appraisal.
When you’re new in a job, as I was last year, you have the luxury of setting out a vision with broad brush strokes. One year on, people expect a bit more nitty-gritty: some hard facts about what’s actually been achieved. So I’ll try to give you some nitty-gritty – without, I hope, losing sight of the broader vision, which is the purpose of our efforts at the CMA.
Objectives of CMA enforcement policy
What I said a year ago, if I may summarise, is that the CMA’s enforcement work – using public money to take enforcement action against anti-competitive practices that harm consumers – has 2 main purposes. First, it puts an end to the specific wrongdoing. Second, it has a wider deterrent effect: sending a signal to other businesses that such anti-competitive practices will not be tolerated (and will give rise to sanctions and liabilities) so that those other businesses are encouraged and incentivised to be compliant with competition laws.
I said that this is good for consumers, because competition generally exerts a downward pressure on price and an upward pressure on quality and innovation for consumers, and anti-competitive practices tend to weaken those pressures. But it is also important for the health of businesses – not just the businesses who are ‘victims’ of anti-competitive practices, whether as downstream customers or excluded competitors, but also because competitive pressures act as a spur to business efficiency. And that, in turn, is good for the performance of the wider economy.
To underline the importance of this work in taking action against anti-competitive practices, last year I said something about the moral harm done by anti-competitive practices. I quoted Adam Smith’s famous description of collusion between businesses as “a conspiracy against the public”. And I also quoted the much more recent – and very graphic – language used by David Lewis, the first head of the Competition Tribunal in post-apartheid South Africa, when referring to a cartel he had dealt with which had had the effect of raising the price of bread in South Africa, so putting bread at the dinner table beyond the reach of millions of poorer South Africans. He described the cartel participants as “thieves at the dinner table”.
The title of my speech a year ago was ‘tough but fair’, and I saw – and see – this as a motto for what we at the CMA are trying to achieve in competition enforcement. We need to be tough on anti-competitive practices, in the interests of consumers, business and the wider economy – for the reasons just discussed. And I also saw – and see – fairness in our case handling as crucial; not a consideration to be balanced against toughness, but part and parcel of an effective and tough enforcement regime. It is only if we are fair – if we are rigorous in assessing all the evidence and open to hearing all the arguments (including those that go against our initial impressions) – that we will achieve the right results, ie outcomes that clamp down on anti-competitive behaviour, but do not ‘chill’ legitimate business activity. And I think we owe a huge debt to my predecessors at the CMA, and before that at the Office of Fair Trading (OFT), for making great strides to improve the fairness and rigour of our processes: robust ‘quality assurance’ by way of internal checks and balances; the strengthening of the role of the Procedural Officer; and the new Case Decision Group system which ensures that the officials and the panel members who make the final decision on the case are a different set of people from those who undertook that investigation and drew up the allegations of infringement in the Statement of Objections. That way we hope to minimise the risks of ‘confirmation bias’. To a greater extent than many other competition authorities worldwide which apply similar laws, we have avoided the situation where (in the oft-quoted phrase) the same officials are ‘investigator, prosecutor, judge and jury’. And of course that’s in addition to the parties’ right to a ‘full merits’ appeal in the Competition Appeal Tribunal (CAT), which many commentators regard as among the world’s most stringent checks on a competition authority’s decisions.
The work done in the past few years by the OFT and then the CMA in strengthening fairness and rigour has been commendable. The improvement in our processes was already recognised by the judge in the galvanised steel tanks criminal trial last year. We hope that it will also be recognised in appeals before the CAT against some of our Competition Act decisions which we are facing, or are likely to face, in the coming months and years.
But, as I said a year ago, the improvement in fairness and rigour needs to be matched by increases in the volume and the speed of our case work. To put it crudely, we need to do more cases, and more quickly:
More cases – because that way we protect consumers: by putting a stop to more harmful practices, and by strengthening our deterrence.
More quickly – because it is important not to allow harmful practices to endure any longer than is necessary, because it is important to minimise (so far as possible) the period of uncertainty for all the businesses involved in an investigation, and because if we finish a case more quickly that can release resources to tackle new anti-competitive practices.
And I emphasised then – and emphasise now – that the effort to do more cases, more quickly, must not be at the expense of the fairness and rigour we have worked so hard to achieve. We will not be taking shortcuts with fairness and rigour.
Progress in the past year
So – one year on – how are we doing?
Well, in the year since then, we have had some fairly harsh comments made about our record in competition enforcement, in 2 reports which were otherwise generally complimentary about the CMA’s work. In February, the National Audit Office (NAO) published a report on the UK competition regime which didn’t mince its words. While acknowledging that the CMA had “strengthened processes with the aim of increasing the robustness of its work to legal challenge”, the NAO also said that “the regime faces big challenges in increasing the low number of enforcement decisions to date” (1). It noted that there were only 3.6 infringement decisions a year (2), and only £65 million of fines in total, in the 3 years 2012 to 2014, much lower than those imposed by comparable national competition authorities elsewhere (3).
And in July, the respected Global Competition Review survey of competition enforcement authorities worldwide said that 2015 was “a slow year for behavioural enforcement” at the CMA and that “the general verdict is that the CMA simply needs to do more in 2016”.
Comments like that focus our minds at the CMA. They are in line with our own insights, as set out in my speech to this conference a year ago: in competition enforcement, we need to do ‘more cases, more quickly’, but consistently with fairness and rigour.
So, what has changed since this time last year? The NAO report looked back on our performance from 2010 to 2015. The Global Competition Review, although published only this July, related to the calendar year 2015. When I spoke at this conference last November, I was setting out my plans for 2016, and beyond. Let me outline what we have achieved since then.
If I were to summarise, it would be to say that there are no grounds for complacency but that, thanks to the effort and dedication of the enforcement teams at the CMA, we are moving in the right direction.
Competition Act cases
Just to take the basic statistics:
In the 5 years April 2010 to March 2015, we opened an average of 6.8 Competition Act cases a year. In the year since last November, we have opened 14 new Competition Act cases.
In the same 5 years, we issued an average of 2.8 infringement decisions a year. Since I spoke to you last November, we have issued 4 infringement decisions, and, in a fifth case, relating to galvanised steel tanks – the ‘civil’ version of the cartel that was the subject of criminal proceedings last year – we announced that 3 parties have admitted an infringement and agreed to pay £2.6 million in fines, but we are holding back issuing a final decision until we have reached a conclusion on a separate but related alleged infringement in the same sector.
The NAO made a point of saying that we’d issued fines of only £65 million in the 3 years 2012 to 2014 – that’s an annual average of just under £22 million. Personally, I am somewhat wary of using the levels of fines as a measure of successful enforcement – I think that there is a danger that it creates bad incentives, and our approach to fining has to be fair and rigorous, in line with CAT judgments and our own guidance. But, for what it’s worth, in the year since I spoke to you we have imposed just over £48 million of fines – or, if you count the fines already agreed in the galvanised steel tanks case, £50.7 million. I should add that by far the largest of those fines were in our ‘pay-for-delay’ pharmaceuticals case, which is currently the subject of an appeal against our decision.
So much for ‘more cases’. What about ‘more quickly’? We are making real efforts internally to streamline our processes and make them more efficient – but always without compromising on fairness and rigour. Some of you will have noticed that in one case this year – concerning price coordination between online suppliers of posters and frames on Amazon Marketplace – we launched the investigation on 1 December 2015, and issued our infringement decision on 12 August 2016, the parties having admitted their infringement – and, in the case of the non-leniency party, agreed to pay a fine – in a settlement with us. That’s just over 8 months from launch to final decision. Of course, some cases are considerably more complex – and our commitment to fairness and rigour requires us to consider voluminous evidence in great detail, to listen carefully to and reflect on the arguments, and to give the parties sufficient time to respond and ourselves sufficient time for proper consideration of their responses. More complex cases inevitably take longer. Our pay-for-delay case took 4 and a half years to reach a decision. You will know that investigations conducted by other competition authorities, including the European Commission, often take even longer. But it is not ideal and, consistently with fairness and rigour, we are exploring ways of streamlining our processes. An example of this is that our work on giving parties ‘access to the file’ will now be undertaken by a specialist registry, as in some other countries, allowing the specialists to build on experience and expertise while freeing the case teams to focus on other aspects of the case.
At the same time, as I said in my speech a year ago, we will be alert to attempts by parties to an investigation to exploit our commitment to fairness and rigour by ‘gaming’ the system through spurious procedural challenges or delaying tactics. In one case, in April this year, we used our new powers to impose a £10,000 fine for failure, without reasonable excuse, to respond on time to an information request; full details of this may be seen on our website (4).
Criminal cartel offence
As you know, we also have powers to take criminal proceedings against individuals directly involved in the most ‘hardcore’ kinds of anti-competitive agreements, such as price-fixing and market-sharing cartels, under the criminal cartel offence. Last year, in the galvanised steel tanks cartel case, we brought a criminal prosecution against 3 individuals. We secured only one conviction of the 3, of an individual who pleaded guilty; the other 2 were acquitted by the jury following a trial in which they based their defence on the fact that they had not acted ‘dishonestly’; as you will know, under the old law, it has been a requirement on the prosecution to prove ‘dishonesty’ in order to secure a conviction under the criminal cartel offence, but, in respect of cartels occurring since April 2014, that will no longer be a requirement.
In the light of that case, last autumn we reviewed our 3 open investigations into criminal cartels – all of which related to pre-April 2014 cartel activity, for which it is necessary to prove ‘dishonesty’. We decided to close 2 of the 3 investigations. The one which we kept open relates to price-fixing and market-sharing in the supply of precast concrete drainage products – essential for the building industry – and, in March this year, at Southwark Crown Court, we secured a conviction as one individual pleaded guilty. At this stage, I cannot say anything further, other than that this criminal investigation is continuing. And, needless to say, ‘beneath the radar’ our intelligence and investigation teams are looking at other suspected cartels.
I said at the beginning that an important part of our enforcement activities is to encourage businesses to be compliant with competition laws. The NAO report in February said that “business awareness … of competition law is low, potentially harming compliance”. (5)
Part of getting this right is doing more cases, more quickly – and increasing our deterrence.
But we have also been active in assisting businesses to become aware of the requirements of competition law and how they can be compliant. We have focused our efforts on those sectors where compliance appears to be lowest – which, according to our survey evidence, is among small and medium-sized businesses, and of course in those sectors where we have found infringements through our casework.
In the past year, we launched a suite of materials to help small businesses on this. These included written ‘at-a-glance’ guides and short animated videos. They are available on our website, and on our YouTube channel. They emphasise compliance with competition law as an essential part of doing business.
But we have also taken steps to follow up our infringement decisions with targeted activity involving the sectors concerned, including written materials and talks to trade associations and groups of relevant businesses. Examples include follow-up to our infringement decisions in:
The bathroom fittings and catering equipment cases, which highlighted the need for product manufacturers and suppliers to avoid resale price maintenance, particularly as regards attempts to prevent discounting on internet sales channels.
Price coordination in the online supply of posters and frames on Amazon Marketplace, where we are working with online marketplace providers to help make suppliers aware of the need to avoid price coordination and other anti-competitive collusion when selling online.
Interestingly, it has happened that some of our compliance efforts with industry have led to new evidence of anti-competitive activity being brought to our attention, in at least one case enabling us to open a new Competition Act investigation – a ‘virtuous circle’ of compliance and deterrence, all in the interests of preventing anti-competitive activity in our society, to the benefit of consumers, business and the wider economy.
And, to assist compliance, we are now publishing a register of our warning and advisory letters which relate to cases where we have not prioritised resources to open a formal investigation, but where we have concerns that there may be an infringement of competition law. These are letters intended to alert businesses to the issues that cause us concern, and so assist them to be compliant; we are considering ways of making this information more explicit and helpful.
Dealing with concerns
And a message that I cannot emphasise strongly enough: if your business – or the business you advise – has a complaint or concern about anti-competitive practices, we want to hear about it. We are very much open for business.
I’ve heard that some businesses have had bad experiences in the past of UK competition authorities being a bit off-hand or dismissive of complaints brought to us. Let me be clear on this: although of course we need to prioritise our resources, and we cannot launch a full formal investigation on the back of every complaint we receive, we welcome complaints and take them seriously. They are the ‘lifeblood’ of our enforcement activity. We hope that some of the reforms we have introduced to our ‘pipeline’ processes mean that we look at these as fully, effectively and quickly as practicable – and that we certainly don’t convey any impression of being offhand. Sometimes, it may be that one complaint in isolation does not give us sufficient grounds to take further action, but when other information comes to us that original complaint will be a value to us in deciding on action to take. It is emphatically not a waste of time or effort for people to raise with us their concerns about anti-competitive practices.
Complaints: the role of the Competition Appeal Tribunal
One dimension that we should not forget is that people and companies who believe they are victims of anti-competitive practices now have an alternative to bringing a complaint to the CMA. Since October last year, it has been possible for a party suffering losses as a result of alleged anti-competitive practices to seek redress from the CAT, Britain’s specialist competition court, without there first having been an infringement decision by the competition authorities. The CAT can now make its own rulings, at the suit of a complainant, on whether there has been an infringement and, if so, it can award remedies by way of compensatory damages, or an injunction which orders the practice to halt. There is also the possibility of interim relief in cases of urgency. Some might say that this introduces a healthy degree of competition into the system: 2 alternative specialist competition bodies to address concerns about anti-competitive practices. Certainly, competition lawyers will be able to advise clients on the relative advantages and disadvantages of either option.
But it is important to bear in mind that there is a fundamental conceptual difference between the two. The CAT is a forum for private redress: its caseload or ‘portfolio’ is determined solely by the private interests of the people who choose to litigate – their interest in obtaining compensation for themselves, or in stopping a practice that hurts their particular business interests. It is perfectly proper and legitimate that this should be so. One might add, also, that a factor will be whether the complainant has deep enough pockets to afford the very considerable costs of litigation. The role of the CMA is quite different: we are a public agency, and it is not our business to provide redress or compensation for any particular person or business, but rather according to what is in the public interest – having regard, in the words of our Prioritisation Principles, to the likely effects of our intervention on consumer welfare, the deterrent effect, the effects on efficiency and economy and productivity growth, and the overall strategic significance of our intervention. Sometimes that will coincide with the private interests of a complainant, but not always.
That said, there is an interrelationship between these 2 competition processes. We say in our prioritisation principles that, in considering whether we should take on a case, we have regard to whether private enforcement is a viable and realistic alternative: if any case is going to be adjudicated as a result of private litigation, it may not be the best use of public resources to duplicate this with a CMA investigation. And, looking at it the other way, even where there are CAT proceedings, and we ourselves are not investigating, we may choose to submit to the CAT an intervention where there is an important public interest at stake – for example, a point of competition policy principle.
Of course, while complaints are one way we hear about anti-competitive agreements, so-called leniency applications are another. These occur where the party to a cartel – ie the most serious type of anti-competitive agreements, such as where competitors agree between themselves to fix prices or to carve up markets – approaches the CMA to ‘blow the whistle’ on the cartel. For the applicant, the reward for doing so is immunity from, or a reduction in, any fines for the infringement – what we call ‘leniency’. For us, the benefits of offering leniency are, first, that it gives us evidence of a cartel we wouldn’t otherwise have known about and which we can then investigate, and, second, the fact that when cartel participants know that any of their fellow participants has an incentive to ‘shop’ them to the authorities, that acts as a good reason not to join the cartel in the first place.
The recent NAO report on the UK competition system, which I referred to earlier, said:
The CMA receives a comparable number of applications to its European peers, but few leniency applications have been converted into successful cases. The reasons for this are not currently well understood. (6)
So let me try to enhance understanding on this. In the year 2015/16, the CMA received 22 leniency applications – on the basis of which only 2 Competition Act cases were opened by the CMA. That doesn’t sound like a very high ‘hit rate’, and it may lead some people to think it’s not worth submitting a leniency application to the CMA.
That would be the wrong conclusion to draw. For, apart from the 2 cases we opened, 11 of the 22 leniency applications we received had also been submitted ‘in parallel’ to the European Commission under the EU competition law regime, and the European Commission has precedence over the CMA in taking competition cases, at least so long as the UK remains within the EU. Four cases were taken on by the European Commission, and 2 by other national competition authorities. Of the remaining 11, 6 were potentially subject to the jurisdiction of the sector regulators which have concurrent competition law jurisdiction in their sectors concurrently with the CMA; indeed, in addition to the 2 Competition Act cases we opened, a third case based on one of these leniency applications was opened by one of the sector regulators. A fourth case resulted in our sending a ‘warning letter’ to the parties. The remainder, just 5 cases, were not taken forward by us because either there was insufficient evidence or they did not meet our prioritisation principles.
So in total 8 of the 22 cases resulted in some remedial action being taken, either by the CMA or another competition authority. All were taken seriously and duly considered. It is emphatically not the case that it’s not worthwhile to submit a leniency application where appropriate. As with complaints, we are very much open for business.
Whenever I or my colleagues speak to businesses or their advisers, they are – quite understandably – interested to know which sectors we will be focusing our enforcement efforts on.
The prosaic truth is that we cannot say for sure. Much of our casework is driven by what others bring to our attention – whether by way of complaints, or leniency applications, or people who contact our cartels hotline to blow the whistle. In the nature of things, we cannot control or predict what comes in.
That said, we can – and must – prioritise, and there are a number of points I would make here.
The government, in its strategic steer to the CMA last December, said that we should continue to focus on “developments in new emerging markets, such as online digital market places”. That makes sense – digital markets are a significant, and growing sector of the economy, in 2014 representing 7% of UK total ‘gross value added’. More to the point, digital activities underpin almost all other parts of the economy. Digitalisation raises new, and difficult, antitrust issues – for example, about market definition, about how much one should allow lower-cost ‘online’ sales channels to ‘free-ride’ on the investments of bricks-and-mortar retail outlets, and about how one deals with the market power conferred by owning a digital platform. You will see that much of what we have been doing is in this area:
The case about online sales of posters and frames that I mentioned earlier.
Cases about resale price maintenance in online sales – such as in the bathroom fittings and catering equipment decisions we issued in May.
On online sales bans such as that in the golf clubs case, on which we issued a Statement of Objections in June.
We are also concerned about anti-competitive practices that might weaken the stimulus to competition that comes from price comparison websites and other digital comparison tools. You will know that at the end of September we launched a market study into digital comparison tools, but there may also be scope for competition law enforcement in this area.
Also, the strategic steer expressed concern about competition in “markets for public services”. One aspect of this you already know about – we have taken action in respect of anti-competitive practices involving the supply of pharmaceuticals to the NHS, which we think increase costs for the NHS and ultimately taxpayers – for example, in the pay-for-delay decision we issued in February this year, and in the excessive pricing case on which we issued a Statement of Objections in August last year. This is an issue which, quite properly, is of immense public concern, and we will continue to monitor this; just 2 weeks ago, we launched another investigation into an alleged instance of this practice. More generally, we are concerned about practices which frustrate competition in the supply of goods and services procured by central and local government; it is as important to protect taxpayers from anti-competitive practices as it is to protect individual consumers.
When I spoke to you last year, I noted a criticism that had been made of the CMA that we seemed to have prioritised small-scale, local cases, which have limited impact and a weak deterrent effect. I don’t think anyone would say that the pay-for-delay decision which we made earlier this year – involving £45 million of fines on GlaxoSmithKline and a number of generic drug suppliers – counts as small-scale. But there has to be a mix and, as I said last year, people in local markets are entitled to the protection of competition law, and it is in no one’s interest that small businesses (which are an important part of our economy) should be immune from competitive pressures or from the reach of competition law. So we need to mix our big cases with some of those smaller cases – not least because, as I said, our survey suggested that many small businesses are unaware of competition law and the need to comply with it.
And when it comes to local cases, we try to achieve a reasonable geographical spread; we need to protect consumers from anti-competitive practices across the UK, including in the devolved nations.
The elephant in the room
Of course, perhaps the biggest thing that has happened since last year is one that I have not mentioned so far, which you might regard as the ‘elephant in the room’: the voters’ decision in last June’s referendum that the UK should leave the European Union. Clearly, that has implications for competition law enforcement – and, quite properly, it is a subject for discussion by other speakers at today’s conference.
I apologise that there is a limit to what I can say, as government policy in this area is still being developed. Clearly, the implications will depend on the nature of any future arrangements that our country has with the EU – on, to use the journalistic term, how ‘hard’ or ‘soft’ Brexit will be. That in turn will determine the extent to which we co-operate in policy development and in the sharing of information, with the European Commission and with national competition authorities in EU member states. That will also determine the extent, if any, to which UK competition policy is free to diverge, where appropriate, from EU legal precedent and policy, which both Regulation 1/2003 and section 60 of our own Competition Act currently constrain.
One thing I can say is that, if this past year has – as I have described – seen some significant changes in competition enforcement, we can be sure that the coming year and beyond will see even more. I hope that gives you a reason to invite me back next year.
NAO, ‘The UK competition regime’, HC 737, 5 February 2016, paragraphs 14 and 15 of the summary.
As above, paragraph 2.12.
As above, paragraph 2.11 and Figure 14.
CMA, Penalty notice under section 40A of the Competition Act 1998 – addressed to Pfizer Limited, 12 April 2016.
NAO, ‘The UK competition regime’ (as above), paragraph 12 of the summary.
NAO, ‘The UK competition regime’ (as above), paragraph 2.14.