Update: competition

The last few months have seen a number of interesting developments in the UK courts and the Competition Appeal Tribunal, as well as an announced legislative change to remove an existing exclusion for land agreements. There have also been developments in Europe with the entry into force on 1 December 2009 of the Treaty of Lisbon, which alters the structure of the EU institutions and how they work. While the treaty does not materially impact the substantive competition rules, some terminology has changed with the EC Treaty becoming the Treaty on the Functioning of the European Union (TFEU) and articles 81-88 EC now becoming articles 101-108 TFEU respectively; the Court of First Instance becomes the General Court. Furthermore, a new commission took office in February with Joaquín Almunia of Spain replacing Neelie Kroes as the competition commissioner.

Ticketmaster and Live Nation merger

In February the CAT quashed the CC's decision clearing the merger between Ticketmaster (a ticketing agent) and Live Nation (a venue operator and live music promoter) and has referred the case back to the CC for further consideration.

The CC issued a final decision in December 2009 clearing the merger unconditionally. However, this represented a change in position from its provisional decision issued two months earlier in which it had found that the merger would be likely to result in a significant lessening of competition in the market for the retailing of tickets for live music events in the UK. The CC's initial concern was that the merger would have been likely to lead to the loss of CTS Eventnim as an effective competitor, but further evidence submitted following its provisional decision led the CC to change its view.

Eventnim appealed on a number of grounds, including that it had been denied the right to a fair hearing and in particular was deprived of the chance to comment on the CC's adverse provisional findings. The CC recognised that the above ground of appeal was 'arguable' and agreed that its decision should be quashed and that the matter should be referred back to the CC, thereby avoiding a full review by the CAT. The CAT has issued an order giving the CC a further three months, until 11 May, to issue a new final report, although the CC has indicated that it is aiming to do so sooner. The CC will be treating its decision as further provisional findings and is seeking views in accordance with usual practice. Since the final decision, the transaction has completed in the US and the parties have given hold separate undertakings pending the final outcome.

This case is interesting because of the CC accepting that the appeal had merits and agreeing at the outset that its decision should be quashed. Having been on the wrong end of a number of appeal judgments recently, the CC clearly felt that its interests were better served by spending its time and resources conducting a further review of the transaction, which may well ultimately result in the same conclusion, rather than fighting the case and face the prospect of suffering yet another defeat at the hands of the CAT.

BSkyB/ITV judgment

The Court of Appeal (CA) has recently handed down judgment in BSkyB's latest appeal relating to its acquisition of a 17.9 per cent stake in ITV, seemingly bringing the matter to a close.

In early 2008, BERR published a decision of the secretary of state (implementing a report from the CC) concluding that the transaction would give rise to adverse effects on competition (through Sky's ability to materially influence the policy of ITV) but that it was not contrary to the public interest on media plurality grounds. On appeal the CAT had supported the CC's approach to the review of the competition case but overturned the CC's findings on media plurality (see 'Update: competition', Solicitors Journal 152/44, 18 November 2008).

Sky appealed to the CA on both the competition and media plurality issues. The CA has dismissed the appeal in so far as it related to the CAT's review of the competition case and agreed with the CAT that the CC had not acted irrationally in rejecting the alternative remedies proposed by Sky. However, the CA overturned the CAT judgment in so far as it related to the application of the media plurality test which requires there to be 'sufficient plurality of persons with control of'¦ media enterprises'. The CA held, in accordance with the CC's original decision, that the actual extent of control exercised and exercisable should be taken into account, whether it was a case of deemed control resulting from material influence or one of actual ownership or control. In other words, a qualitative, rather than merely quantitative, assessment of control should be undertaken.

This case has provided useful guidance on both the concept of the ability to materially influence (in the CC's decision) and now the application of the media plurality rules. An appeal to the Supreme Court appears unlikely given that, on 8 February, BIS announced that the secretary of state had accepted final undertakings from BSkyB to divest part of its shareholding in ITV down, and on the same day Sky announced that it had sold 10.4 per cent in accordance with those undertakings, but intended to retain its 7.5 per cent for the medium term.

Land agreements

The government has announced that it is revoking the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004, with effect from 6 April 2011.

Under the provisions of that order, land agreements (defined as 'any agreement which creates, alters, transfers or terminates an interest in land', which includes transfers of freeholds, leases, assignments of leasehold interests etc.) have benefited from an exclusion from the application of the chapter I prohibition in the Competition Act. The exclusion, which has been in place since the introduction of the Competition Act in 1998, was introduced primarily for practical reasons in that it avoided the OFT having to deal with a large number of precautionary notifications to approve unproblematic agreements under the old notification system.

The review of the order was instigated by the CC's recent investigation into the grocery market which concluded that land agreements entered into by supermarkets were capable of having an anti-competitive effect by restricting the ability of competitors to enter markets. In reviewing the order, the government considered whether the withdrawal of the exclusion should be limited to agreements concerning grocery retailing. However, it ultimately concluded that such an approach would be unduly complicated and problematic and that the order should be revoked in its entirety (a position supported by the OFT). The benefit of the exclusion will be removed from both existing and future agreements.

The result is that for the first time companies will have to conduct self assessments of the compatibility of their land agreements with the chapter I prohibition. The government has, however, allowed a one-year transition period to allow sufficient time for assessments of current agreements to be undertaken and it is thought that the OFT is likely to provide some targeted guidance in order to assist business in such assessments. It may be that in practice many land agreements are found not to have an appreciable effect on competition, but it will be interesting to see the level of scrutiny such agreements are subjected to once the revocation takes effect.

Competition infringement by former employees

Safeway is suing a former chairman and other employees to recover fines to be imposed for the company's participation in anticompetitive activity. The case relates to the OFT's investigation into an alleged price-fixing cartel in respect of dairy products.

Following receipt of a statement of objections in 2007, Safeway entered into an early resolution agreement with the OFT admitting its involvement in the exchange of commercially sensitive pricing intentions.

Safeway's claim is that by participating in and facilitating the initiatives, the defendants were in breach of their employment contracts and/or in breach of fiduciary duties owed to Safeway and/or negligent. It is claiming for resulting loss and damage suffered by the company. The principal loss is the OFT penalty to which Safeway is exposed. The OFT has yet to make its decision but has indicated that the penalty will be £16,449,893, which could potentially reduce to £10,692,431 if a full discount for cooperation is granted. Safeway is also claiming damages to the tune of £200,000 to cover its costs of the OFT investigation.

The defendants recently applied to the High Court for summary judgment against Safeway, or alternatively for the claim to be struck out, arguing that the claim was barred as a matter of public policy for two reasons: (1) a person who commits an illegal or unlawful act cannot maintain an action for indemnity against the liability which results (known as the ex turpi causa rule); and (2) it was fundamentally inconsistent with the UK competition regime. The court, however, rejected both arguments, finding in the case of the former that while in theory the acts were sufficiently serious to engage the ex turpi causa rule, in practice they could not be said to be wrongful acts of the claimants (Safeway was only liable as a result of the acts of its employees/directors). It was judged that there was a sufficiently strong case to go to trial.

The case is only in its very early stages and it will be fascinating to watch its progress in the courts. Sanctions against individuals are already seen as having the greatest deterrence value, and, although targeted at the individuals' liability insurance in this instance, if ultimately successful this claim will leave individuals participating in anti-competitive activity, who already face the prospect of imprisonment, fines and disqualification from acting as directors, at risk of yet further action.

UK-focused mergers

The European Commission has recently considered and cleared (albeit, in both cases, subject to conditions) two mergers with a strong UK focus: Cadbury/Kraft and Orange/ T-Mobile.

The former led to considerable public outcry in the UK involving as it did the sale of one of the UK's best-loved brands. Both Kraft (with its Milka, Cote d'Or and Toblerone brands) and Cadbury (market leader in the UK and Ireland) are strong players in the chocolate confectionary business. However, despite the market-leading position of Cadbury, the commission found no competition concerns in the UK and Ireland due to UK customers' preference for traditional British chocolate as opposed to 'continental types' of chocolate. Competition concerns were, however, identified in Poland and Romania where the parties had high market shares and competed closely and, as a result, the parties agreed to divest the chocolate confectionary businesses of Cadbury in those countries.

The European Commission has also cleared the proposed merger of Orange UK and T-Mobile UK (subsidiaries of France Telecom and Deutsche Telekom respectively), conditional upon the amendment of an existing network sharing agreement with Hutchison 3G UK (Hutchison) to ensure that there remained sufficient competitors on the market, and the divestiture of a quarter of the combined spectrum of the merging parties in the 1800MHz frequency band, due to the parties' combined strength in that frequency (via which next generation mobile data services are transmitted). The OFT had expressed concerns about the potential for the merger to significantly affect competition in UK mobile telecommunications (because of the possible elimination of Hutchison and the possibility that it might result in just one operator offering full speed national long term evolution technology). It therefore made a request to the commission to refer the UK aspects of the proposed joint venture back to the OFT under article 9 of the EU Merger Regulation. The commission cooperated closely with the OFT and Ofcom in reviewing the transaction and the OFT withdrew its notification following the commission's decision as it was satisfied that the commitments offered by the parties would fully address its concerns.