From Portsmouth to Swansea, to Liverpool: testing the limits of the Murphy judgment…

When in October 2011 the Court of Justice of the EU handed down the Murphy preliminary ruling few understated the significance of this decision for the protection of exclusive broadcasting rights across the EU.  The judgment was met with dismay by the Premier League and its licensees, who regarded it as marking the end of their ability to differentiate licence fee in each Member State and, in that context, to exact a “premium payment” in certain countries (see especially para. 96-100 and 115-117).  In the words of the Court, while “derogations from the principle of free movement can be allowed only to the extent to which they are justified for the purpose of safeguarding the rights which constitute the specific subject-matter of the intellectual property concerned”, this “specific subject matter” does not allow the right holder to extract “the highest possible remuneration” (para. 106-107); in light of the judgment, the holder of the right to broadcast football matches could only ask for remuneration that was “reasonable (…) in relation to the actual economic value” of the service, including the number of potential users (para. 107-109).
On their part, the “advocates for the single market” could only be pleased at the outcome: the Court of Justice took the view that an exclusive license agreement obliging “(…) the broadcaster not to supply decoding devices enabling access to that right holder’s protected subject-matter with a view to their use outside the territory covered by that licence agreement (…)” infringed Article 101 TFEU, on the ground that they eliminated all competition among providers of the same services in the areas of the single market on which they had taken effect (see para. 139, 142-144 and 146).  The Court of Justice in effect sanctioned the end of absolute territorial protection in the field of sports broadcasting as contrary both to the rules on competition–consistently with the common market imperative at the basis of much of its Article 101 case law–and on the free movement of services.  Once again, the Court of Justice sought to read the concept of “specific subject-matter” of intellectual property rights restrictively, so as to exclude a right to a “premium fee” for the licensor and thereby upholding the “completion of the internal market” as a fundamental goal for the Treaty.
However, the Court of Justice made clear that not all the “parts” of the broadcast would be subjected to these principles: certain elements of it, in as much as they were “the expression of the authors’ own intellectual creation”, such as the logo, the anthem and the “opening sequence” of match broadcasts, would remain within the “subject matter” of the rights enjoyed by the author–in this case, the FAPL.  In practice, therefore, cardholders would only be allowed to show the match, without being able also to show the Premier League graphics or play the League’s own anthem. (see para. 152 ff.; see especially para. 158-159): in the Court’s view, unlike the “main broadcast”, i.e. the broadcast of individual football matches, these “fragments” enjoyed legal protection under the applicable rules on copyright so long as it could be demonstrated to the satisfaction of the domestic court that they represented the outcome of their author’s creative endeavour (para. 153-159).  These “fragments” should have been, therefore, “effaced” from the “unauthorised” transmission of a match broadcast via a “foreign” decoder card: this restriction of the card-holder’s right to the free movement of broadcasting services was regarded as being justified in light of the need to protect the “subject-matter” of the copyright enjoyed by the authors of these elements of the transmission–in this case, the FAPL itself (para. 156-157; see also case case C-5/08, Infopaq, [2009] ECR I-6059, para. 39, 45-46).
Fast forward a few years… when Mr Anthony Luxton, the landlord of the Rhyddings Pub in Swansea was taken to Court by the Premier League on the ground of having “illicitly used” a foreign (in this case, a Danish) decoder card to show football matches in his pub.  IN light of the 2011 landmark preliminary ruling he could have been forgiven for thinking that he could have relied on the “Euro defense” affirmed in the Murphy decision.  However, the FAPL had other plans… no longer able to rely on the territorial exclusivity of its licenses within the UK, the Premier League resolved to relying on the “intellectual creation” exception recognised to it by the European Court of Justice to restrain pubs from showing not the “action” on the pitch, but rather the “graphics” and the other “broadcast fragments” which were the outcome of its “creative efforts” and on which it retained full copyright.  In FAPL v Luxton, Helen Davies QC successfully argued before the High Court that the defendant had infringed the copyright rules protecting these valuable “proprietary fragments” of the broadcast that were, in the words of the EU Court of Justice, the fruit of the “intellectual creation” of the Premier League and whose exclusivity could therefore have been maintained (see: http://www.bbc.co.uk/news/uk-wales-south-west-wales-25968200). The decision against Luxton was welcomed by the complainant as a victory for its effort to protect the value of the Premier League’s brand and goodwill in an era in which territorial protection is no longer an option after the Murphy judgment.  Importantly, it was made clear that this did not represent an isolated case, but rather it was the first of 100 new copyright prosecutions against those pub landlords and tenants who have opted to exercise their right to freedom of movement of services, as sanctioned by the ‘Murphy’ judgment without however “effacing” the proprietary images and logos from their broadcast.
And lo and behold, the First National Wine Bar in Liverpool City centre was next in line for a similar action: just as Mr Luxton, Mr Berry had shown Premier League matches via a foreign decoder card without, however, “effacing” the proprietary symbols on which the FAPL had registered a copyright.  Before the High Court the pub landlord had admitted to having infringed the applicant’s copyright and on that basis the Court awarded the premier league an interim payment over £60,000.  Commenting on the local Liverpool Echo (see: http://www.liverpoolecho.co.uk/news/liverpool-news/liverpool-city-centre-bar-fined-6832195), Mr Berry claimed that such a hefty legal bill would have landed his enterprise on the verge of bankruptcy:”“They didn’t like me showing the football because they’re not getting anything directly from it. I deal with legitimate suppliers. I think they’re pursuing me because I’m a sole trader. I’m one person with no money, and they want to make an example.” (from the same Liverpool Echo article: http://www.liverpoolecho.co.uk/news/liverpool-news/liverpool-city-centre-bar-fined-6832195)
In light of the forgoing and especially bearing in mind the clear resolve of the Premier League to protect its reputation as “embodied” in its logo and anthem, one could wonder what the future holds for any individual or business wishing to rely on his or her prerogatives as a “good EU citizen” and thereby enjoy his or her freedom of movement of services… thanks to a foreign decoder card allowing them to receive FAPL broadcasts.  It is clear that in Murphy the EU Court of Justice sought to strike a careful balance between securing the effet utile of this fundamental freedom and protecting the “essence” of the copyright insisting on those “proprietary” broadcasting fragments that constituted the outcome of the League’s creative efforts.  However, this outcome is likely, at the very least, to keep the English Courts (and perhaps their Scottish counterparts, since an interdict was granted by the Court of Session against Lisini Pub Ltd on petition by the Scottish Premier League in March 2013–see [2013] SLT 629) busy for considerable time.  While it is undoubted that the Premier League is seeking to enforce its prerogative as copyright holder at least as regards these elements of the broadcast, which it is possible to efface, it is also clear that invoking the right to freedom of movement of services ‘a la Murphy’ is going to be increasingly riddled with difficulties for individual drinking establishments who may face significant monetary liability, albeit on copyright grounds.
 

A tall order for the “new kid on the block”–the forthcoming market investigation reference in the energy market will keep the CMA busy from the start!

The energy market has been at the forefront of the political, legal and media debate for a considerable time: concerns at high prices, “suspicious” market transparency and a considerable degree of concentration have characterised the retail market segment of the industry (see e.g. http://www.bbc.co.uk/news/business-26734203). In addition, the trend toward significant vertical integration, with the “big six” active in the generation and wholesale as well as in the retail supply side of these markets have increasingly been regarded as a factor contributing to the opacity of prices and profits. Undoubtedly the last year or so has seen more customers switching suppliers; however, at the same time more complaints against energy companies have been lodged, many of which concerned the lack of clarity as to energy prices. The main energy suppliers have been repeatedly accused of limiting the best deals to new customers and to apply significantly higher tariffs to their existing ones (see inter alia http://www.bbc.co.uk/news/business-24238708). More generally, despite the efforts on the part of OFGEM to inject greater transparency in the area of billing, consumer organisations continue to denounce that customers find bills confusing and as a result, according to a very recent Which? survey, only 35% of the adults surveyed are able to identify the “best deal” (see http://www.bbc.co.uk/news/business-26566667).
Against this background, it is not surprising that OFGEM announced today its decision to refer the energy market to the Competition and Markets Authority for an investigation. The CMA will become officially operative, replacing the OFT and the Competition Commission and working closely in partnership with sector regulators through the UK competition network on the 1st of April; this reference is therefore going to offer it a prime opportunity to act upon one of its strategic priorities, namely to to promote strong and fair competition in all markets, including regulated ones, so that consumers can feel “empowered, confident and able to exercise informed choice” (see CMA, Vision and Values Strategy document, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/274059/CMA13_Vision_and_Values_Strategy_document.pdf, p. 1).

So, what are the live issues that the CMA may wish to consider in its Market Investigation?

In an interview with BBC Breakfast (for an extract see: http://www.bbc.co.uk/news/business-26734203), the OFGEM Chief Executive, Brendon Nolan, was very clear in saying that no evidence of cartel behaviour had been established so far.  However, the OFGEM report highlights the big six’s practice of regular price announcements, taking place more or less at the same time and likely to be followed by price increases: while announcing prices may, to an extent, be justified in light of the characteristics of the industry, it can also act as a “signal” for competitors who may then choose to replace healthily competitive pressure on fellow rivals with the “quiet life” of coordinated behaviour (see chapter 4 of the report).  The challenge for the CMA, therefore, seems to be in assessing the extent to which this may amount to conscious parallelism which, without going as far as to meet the ‘concurrence of wills’ requirement, characterising an ‘agreement’, can be regarded as a concerted practice.

Vertical integration is also singled out as a challenge for the competitiveness of the energy markets: the OFGEM report (available at: https://www.ofgem.gov.uk/ofgem-publications/86804/assessmentdocumentpublished.pdf) emphasised that the fact that the big players are active not only on the retail but also on the wholesale/generation market for energy is liable to represent one of the explanations of the weak position of smaller players on the customer segment, thus preventing them to reach a greater slice of retail demand (see chapter 5 of the Report).  In addition, trading in energy at wholesale level has proven to be opaque and any revenues accruing to the big six from this activity difficult to “decouple” from retail profits (see chapter 6 of the report).  In light of the forgoing, it may legitimately be queried whether allowing the more powerful companies, including a former statutory incumbent, to act on both market segments may represent an obstacle for entry as well as for the expansion of smaller firms: in this respect, it may be especially probed whether evidence of margin-squeeze type behaviour could be gathered from the market investigation.  The ostensible difficulties in identifying and separating out revenues from retail and generation activities has also complicated the picture in respect of energy prices and the calculation and actual appraisal of profits: OFGEM pointed out that while profits have increased there is no clear evidence that operating costs have gone down (see chapter 6 of the Report, especially pp. 100-110).  Accordingly, it can be questioned whether the big six suppliers may have achieved this outcome by cross-subsidising between the two market segments: while the evidence is not sufficient to found a conclusion that these profits may be excessive (see Summary of the Report’s market outcomes, sections 1.6-1.8) it could be interpreted as an indication of the ability of the major suppliers, shielded from significant pressure from the other 18 small rivals, to “hedge” their returns thanks to their ability to rely on the supply of power that they themselves generate.  This, however, is also liable to have an adverse impact on non-integrated competitors, who not only have to put out significant capital in order to trade on the wholesale market, but are also dependent on their very rivals on the retail market (see Summary, sections 1.30-1.34).

Overall, the OFGEM report paints a bleak picture indeed for the energy industry: weak competition with a trend toward conscious parallelism; high barriers to entry, much of which derive from the vertically integrated nature of these markets (especially the one for electricity); low consumer confidence, based on the evidence of high profits coupled with the opacity of cost and pricing structures.  All of these outcomes are likely to provide a lot to think about for the CMA.  However, there is much to be gained in dealing with this industry quickly and effectively: energy expenditure is a key figure in family and industry budgets (especially for SMEs). The MIR in the energy markets represents certainly a challenge but also brings opportunity, namely, the opportunity of truly empowering consumers to make informed choices in their purchases: it is therefore in the interest of the economy and of society as a whole to identify the drivers that may cause consumer harm in these markets.  Holding the big six to account, especially by making their cost, profit and pricing structure clearer is also likely to increase the switching rate in a more sustained way overtime.

In its Vision and Values Strategy document the CMA expressed a clear commitment toward “using the market regime to improve the way competition works where evidence shows it can most benefit consumers” (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/274059/CMA13_Vision_and_Values_Strategy_document.pdf, p. 1-2). The energy market investigation reference is definitely likely to test its willingness to do just this.

 

When is an anti-competitive practice truly “of serious concern”? The Google commitments decision leaves this and other questions open…

When the EU Commission opened its investigations on Google’s business practices on a number of market segments, related to search services and online advertising, it was clear that it was embarking in a complex and potentially long-running investigation, which could potentially turn controversial.  At the time the Commission had alleged –on account of Google’s market power on the marker for online search and advertising services run via search engines–that Google had infringed Article 102 TFEU in respect of four different practices: two related to the advertising space’s supply deals concluded by Google with a number of partners and alleged that the latter were limited in the freedom to select and place certain types of advertisements on their websites; the Commission also suspected Google of using similar clauses in order to force software vendors to “privilege” its own search services to those provided by rivals. The other allegations related more directly to Google’s provision of internet search services: the Commission had accused it of privileging links to “paying” services’ providers (e.g. those websites providing price comparisons) to links to websites that were not paying Google for its services, by lowering their ranking on the retrieving webpage.  And finally the search engine was accused of granting preferential treatment to the results of its own vertical search services vis-a-vis rivals on the market for the provision of similar services.

As is well known, Google is the leader in the provision of internet search , with a market share of just over 71% worldwide (see: http://www.netmarketshare.com/google-market-share), something which in and of itself represents evidence of dominance on this market;  Against this background it is not surprising that the Commission, in its March 2013 Communication following the preliminary investigation, expressed serious concerns that the undertaking may have disregarded its special responsibility by affording preferential treatment to its own as opposed to other websites’ services for “vertical search”.  This position appears to be consistent with well-established precedent under Article 102 TFEU, starting from the SeaLink/Stena Line decision (Commission decision 94/19/EC, Stena Sealink/Sea Containers (Hoyhead), [1994] OJ L15/8) and going all the way to Telemarketing (case 311/84, Telemarketing v Compagnie Luxemburgeoise de Telediffusion SA and another, [1985] ECR 3261).  While it could be argued that Google is no Holyhead, its prominent market position, coupled with the network effects characterising the market and steering demand and users toward the “leading search platform” raises serious concerns that its practices may have an adverse impact on competition on these market segments, by diverting consumer choice away from rival providers on to Google’s own services for reasons that have very little to do with competition on the merits.  Broadly similar remarks can also be made in respect of Google’s allegedly anti-competitive exclusivity supply deals concluded with publishers wishing to avail of the services offered by the leading search engine. It is well established that a dominant company that ties its own customers to itself in a regime of exclusivity, even if it does so at the customer’s own request, infringes Article 102 TFEU, on account of the foreclosure effect that the arrangement is likely to have on other rivals (see e.g. case 85/76, Hoffmann LaRoche v Commission, [1979] ECR 461, para. 89-90); on this basis, and especially taking into account the ubiquity of Google and the associated value of using its services as a means of reaching out to the public, it is not surprising that the Commission looked at these practices with considerable concern.

Fast forward almost a year–February 2014 (SPEECH/14/93): in a statement the Competition Commissioner, Joaquim Almunia, announced that the Commission had adopted a commitments decision with which it had sought to exact changes in the way in which Google had been managing both its search services, including “vertical services”, and its supply arrangements on the market for the provision of advertising services.  As a result of this decision, Google will be obliged to display links to rival websites in the same way and with the same “visual aids” as to the manner in which it displays its own; furthermore, in relation to specialised search services, Google will choose and rank paying customers on the basis of an auction processes, with the “free access” links being ranked on the basis of their “natural priority”.  As to the supply of advertising services, the Commissioner announced the removal of exclusivity clauses both for publishers seeking to advertise on Google’s search pages and for the advertisers themselves, who will be able to rely on its own and on other providers’ services.

Importantly, the statement seemed to suggest that the requirement of proportionality may have played a decisive part in framing these commitments: the fact that the commitments were limited to the way in which search results are shown and do not go as far as, for instance, to prevent Google from advertising its own services; and additionally, the circumstance that access to the search engine’s space on the part of advertisers would be open to all via an auction mechanism would ensure greater equality of opportunity, thus preventing foreclosure in this neighbouring segment–both sets of commitments seem to confirm the willingness of the Commission to assuage concerns for market rivalry and openness without interfering with Google’s “search algorithm” or indeed with its own ability to compete with others ‘on the merits’.

So, can one be justified in saying that “all is (more or less) well” again on the market for the provision of internet search and online advertising services? The Commission clearly seems to think so: although he acknowledged that these behavioural commitments may require significant monitoring efforts (hence also requiring the appointment of an independent trustee for this purpose), Commissioner Almunia expressed the view that the new practices to which the Commission has now subscribed are going to provide an appropriate and effective response to the need to restore competition on a fast-moving, innovation and compatibility driven market in which the investigated company is an almost unavoidable trading partner. In his view, adopting a “proper infringement decision” would not be appropriate in view of the need of providing a speedy and “tailored response” to the concerns arising from Google’s behaviour–in fast moving markets such as these time is of essence and so is the need to make the response of the competition agencies appropriate and well-suited to addressing the concerns for maintaining rivalry.  It is submitted that this approach should be welcome, since it denotes greater awareness of the sometimes peculiar dynamics of the new economy markets and consequently, a greater responsiveness to the demands of maintaining rivalry therein.

It is however the choice of relying on Article 9 in order to close this investigation that gives pause for thought.  In the words of the Commissioner, concerns for users being able to “benefit from competition on the merits as soon as possible” and for ensuring an immediate response to competition concerns justified extracting commitments as a means of terminating the infringement.  Nonetheless, it is undeniable that the pervasiveness of Google’s presence as supplier of internet search services and the nature and the significant impact (especially in terms of foreclosure of neighbouring markets) of the denounced practices had all the hallmarks of a serious infringement of Article 102 for which, according to the 2009 Guidance, action on the part of the Commission and potentially the imposition of fines could have been justified.  The Commissioner’s statement, by contrast, appears to place the demands of “swift” action ahead of deterring similar, future infringements: this, as was stated above, is undoubtedly positive, at least in its face, since it shows greater “realism” and a commitment to assessing carefully the impact of these practices on fast-moving markets.  However, it is equally clear that adopting an Article 9 decision, which contains no “official” finding of infringement and, perhaps most importantly, relies on purely behavioural obligations, comes at a considerable risk and perhaps more importantly, cost–in terms of uncertainty as to the future behaviour of the undertaking being investigated and in particular of the costs associated with monitoring the observance of these obligations.  It is acknowledged that the type of response taken vis-a-vis Google will be met with relief among the IT business community–no lengthy and invasive investigations, no infringement decision, no potentially sizeable fine.  However, shortly after the Commissioner’s Speech news outlet reported “unease” both within the Commission and among Google’s rivals at the perspective of the leading search engine to be able to “get away” without having to admit liability for the infringement (see for instance reports in The Register, 14 February 2014, http://www.theregister.co.uk/2014/02/14/ec_officials_voice_doubts_about_almunia_planned_settlement_deal_with_google_on_search_biz); more generally, it may be wondered why, in the face of potentially serious competition breaches, Google could be regarded as being treated “more benevolently” than other IT undertakings, such as Microsoft (see e.g. the report in Bloomberg, 12 February 2014: http://www.bloomberg.com/news/2014-02-12/google-deal-with-almunia-said-to-be-criticized-by-eu-officials.html).

Against this background, can the commitments decision addressed to Google be regarded as a suitable and effective response to the nature of the practices and to the demands of addressing their anti-competitive effects on the market? It is suggested that due to the length of the investigation, the decision can hardly be regarded as a knee jerk reaction to the traditional plea that ‘something must be done’ to prevent Google from interfering with any remaining competition on the markets affected by its position of market power.  Yet, one cannot help but doubting whether the costs associated with monitoring its compliance with the decision and, perhaps more significantly, the message that an article 9 decision in this area sends to other players in this and other markets that are compatibility- and network effect-driven are likely to outweigh any of the allegedly positive implications of not resorting to a fully fledged investigation and, potentially, to adopting an infringement decision.  For many years, the EU Commission has sometimes been criticised for relying perhaps too often and in too heavy-handed a manner on financial penalties without perhaps pausing to consider whether “less intrusive” sanctioning responses could have been more appropriate.  However, in the face of the Google case it may legitimately be queried whether the Commission may have chosen to adopt an approach to these issues that is more “responsive” to the nature of the market and to the demands of consumer welfare in a case which could have warranted a less “expensive” (especially in monitoring terms) and perhaps more forceful solution, if only to stigmatise the seriousness and the wide anti-competitive impact of the practices for which Google had been investigated.

The future of the UK competition enforcement regime–more food for thought for the CMA?

Spring 2014 is getting closer and closer: this is the time in which, according to the UK Government timetable, the Competition and Markets Authority will be fully operational.  The change will be momentous and very challenging: combining the functions hitherto performed by two bodies, i.e. the OFT and the Competition Commission will be no doubt fraught with difficulties, if anything in terms of internal organisation and workload.  However, this far-reaching reform is not the only one that is mooted for the competition public enforcement framework in Britain.  The recent consultation paper on ‘Streamlining regulatory and competition appeals’ (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/229758/bis-13-876-regulatory-and-competition-appeals-revised.pdf) touches upon a key aspect of the public enforcement mechanism established by the Competition Act 1998, namely the scope of the power of judicial review that the Competition Appeals Tribunal (CAT) can exercise on infringement decisions.  As is well known, the Tribunal enjoys powers of judicial control on the merits when it comes to these measures: this means that it can conduct a full inquiry, extending to all aspects of the decision being challenged and most importantly encompassing the merits and the facts of the decision.  This feature of the UK public competition enforcement machinery has enjoyed widespread recognition as a strong safeguard of the due process rights of the parties subjected to OFT investigations: the jurisdiction ‘on the merits’ represents perhaps the most effective tool with which the fairness of “composite” criminal proceedings–i.e. proceedings in which the judicial control of a decision adopted in respect of a substantially “criminal charge” follows an administrative phase before an “integrated agency”–can be secured.  In a recent speech (see: http://catribunal.org.uk/247-8158/Reforming-the-UK-Competition-Regime–assessing-the-impact-of-new-legislation-and-challenges-ahead-for-the-CMA.html) Sir Gerald Barling, chair to the CAT, emphasised the importance of the “full review on the merits” and in particular highlighted how this standard of review had received a full seal of approval from Government itself just a year ago, in the response to the Consultation on competition damages and collective redress.

Against this background, it is certainly surprising that in the recent consultation document on regulatory and competition appeals the Government has brought this issue of the opportunity and necessity of a “review on the merits” back in discussion: the Consultation Paper suggests that bringing the scope of review of competition decision “in line” with appeals in other sector and thereby limit the review on the merits only to the part of the decision fixing a penalty would be beneficial for “consistency” across regulatory sectors.  It also hints at the fact that appeals should focus more on identifying decisions marred by “material errors” and be informed by principles of cost effectiveness and accessibility.  Perhaps more importantly, and more worryingly in fact, the Consultation seems to suggest that the rules governing appeals before the CAT should restrict access to the tribunal only in cases in which “new evidence” that has just become available at appeal stage has would have justified a different outcome at administrative level. But is removing the “review on the merits” the best way of achieving these goals? And more generally, is the appeal process all about ensuring that the facts are correctly stated, or should it pursue wider and more overarching goals, such as securing fairness for the parties and the sound exercise of public powers?  It is further argued, as the chairman of the CAT suggests, that the Government’s proposal seem to overlook the fact that the Tribunal itself enjoys incisive case management powers and consistently exercises them to admit any evidence which was not available to the administrative authorities and which “the interest of justice” justifies introducing at appeal stage.  So who is right? Is the Government justified in pursuing these goals of consistency across the regulatory spectrum, purportedly to “streamline” and make more accessible the competition appeals route, even if these outcomes are de facto achieved at the cost of limiting rather drastically the right of the investigated parties to see that criminal charges made against them are dealt with fairly?

Sir Barling is certainly right to be concerned at these proposals: the experience of the CAT has shown that competition appeals can be heard efficiently and quickly as well as fairly.  In this respect, the proposals tabled by the Government itself at the start of 2013 (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/70185/13-501-private-actions-in-competition-law-a-consultation-on-options-for-reform-government-response1.pdf) and concerning private antitrust claims should have been seen as a vote of confidence for the Tribunal.  The BIS response, in fact, called for a wider jurisdiction being recognised to the CAT, by allowing it to hear standalone claims and (except in Scotland) grant injunctions.

It should also be emphasised that since its inception the Competition Appeals Tribunal has been heralded as an example of how the demands of effective enforcement, ostensibly pursued by the “integrated agency” model, can be reconciled with the need to respect the requirements of due process enshrined in human rights principles and especially in the right to a “fair trial” and to a “fair non judicial procedure”, protected by, inter alia, the European Convention on Human Rights.   Antitrust infringements are “criminal in nature”–this much is now established.  And this brings with it as an inevitable consequence that each decision finding such infringements should be subjected to a “full review”, encompassing matters of fact and of law, including a review on the merits.  This is exactly what the CAT has been doing since its creation: according to the 1998 Competition Act, the Tribunal has the power, inter alia, to “remake any decision” that the OFT could have made and to review afresh impugned infringement measures.

Against this background, it is difficult to explain why the CAT, which should become “a major venue” for competition cases and so far has acted as the lynchpin of the overall fairness of the UK competition enforcement structure, should see its review powers significantly curtailed.  It is argued that generic references to the need to maintain “uniformity” in appeal powers across the overall regulatory spectrum do not seem to provide a sufficiently strong justification for this choice.  Furthermore, it may legitimately be queried whether a similar choice would be compatible with the Convention requirements, as incorporated in domestic law by the Human Rights Act.

Not long ago, the later Marion Symmons, a former chair to the CAT, defined the “jurisdiction on the merits” enjoyed by the Tribunal as a means through which the overall competition enforcement framework established in 1998 could be “Convention-proofed”.  Today, the Government seems to be rather unconcerned at the possibility that this guarantee of conformity could be done away with: it is however rather doubtful that a justification based on “administrative efficiency” could support such a radical and criticisable choice.

Britvic/Barr: sparkling times… if it had not been for the regulator!

They say that time is of essence in business… and the proposed merger between Britvic (producer of famous beverages) and the very Scottish brand Barr, purveyor of Irn Bru seems to confirm how true this say is! It is also a cautionary tale for merger systems in general and also for the future Competition and Markets Authority, which is going to exercise both merger review and competition enforcement powers in the UK.  the drinks’ industry is not new to mergers: any Merger control student has studied the Nestle’/Perrier decision, adopted by the Commission.  Carbonated soft beverages are big business in the United Kingdom: this industry turns out slightly over £14,500 million and its key players are The Coca Cola Company (TCCC) and, you would not guess?, Britvic and Barr.  It was therefore not unexpected that a merger between two of the three main incumbents would attract the attention of the OFT–however, given the size of TCCC, one could have been forgiven for thinking that rivalry would not have been significantly affected, with the market leader well able to countervail any headway that the merged entity may have been able to make.

In the decision to refer (see: http://www.oft.gov.uk/news-and-updates/press/2013/14-13#.Uh8Xa3fO63Y) the Office had expressed concerns that the acquisition of Britvic by Barr would have left, in substance, the latter in a position of relatively unconstrained leadership on the market for soft drinks: it was held that as a result of the concentration the competition constraints otherwise existing on Irn Bru and Orangina would have been significantly lessened.

The decision on the proposed merger was eventually handed down on 9 July 2013. The Competition Commission, however, was far less sanguine as to the ability of Barr to “hog” a significant part of the market in issue.  The Commission accepted that the relevant market should be that for carbonated soft drinks and that the transaction would have given rise to a “relevant merger situation”; however, unlike the OFT, it took the view that  the level of substitutability between Britvic and Barr’s drinks was limited in the eyes of consumers, thus minimising the risk of adversely affecting horizontal competition.  The Commission also dismissed the allegation that the merger would lead to portfolio effects that would be detrimental to smaller beverage suppliers: it took the view that given the strength of the merged entities’ next competitor, i.e. TCCC, the merger would not have made any significant difference, both in terms of the ability of the merged firm to constrain the expansion of smaller rivals and of the likelihood of coordination with TCCC.

The decision was obviously welcome in industry quarters; speaking to STV (see: http://news.stv.tv/west-central/228930-competition-commission-approves-merger-between-ag-barr-and-britvic/) the Chairman of Britvic appeared rather pleased at the Commission’s findings.  However, he was less committal as to the company’s immediate plans concerning the transaction: in his words, “Our company is in a different place to last summer when the terms of the
merger were agreed. The cost savings from merging are less, we are
performing better, we have new management and we have a new strategy (…). These are among the issues the board will reflect on in August once the
Competition Commission’s conclusions are known in order to ensure that
it acts in the best interests of Britvic’s shareholders (…)”.

In light of these declarations, the news that Britvic and Barr would no longer go ahead with the proposed merger was not very surprising.  Already in mid July Britvic had let it be known that, in order to “resurrect” the merger a new offer, reflecting the improved condition of the company and its goodwill for the future, would have been required.  Barr duly obliged: however, the revised deal “bit the dust” just a few weeks later, much to the regret of Barr’s officers.  (See among other reports the informative piece published by the Belfast Telegraph just after the news broke out: http://www.belfasttelegraph.co.uk/business/business-news/ag-barr-merger-with-britvic-firm-collapses-29413843.html). Despite the offer being on more favourable terms, Britvic’s Chairman expressed full confidence in the new CEO and in the company’s plans to continue operating on its own; AG Barr, on its part, emerged from this long running story as relatively unscathed–this is especially clear if one looks at the value of its shares, which rose by 1% the day after the news that there would not be a merger after all was revealed.

Reading the reports one could be forgiven for thinking that the Britvic/AG Barr merger was just one of the many proposed deals that fail to see the day.  Yet, this story clearly raises important questions of agency effectiveness and of institutional performance in the area of merger review: one of the uncontested “hallmarks” of a well-functioning merger control framework is the ability of the competent agencies to deliver decisions on individual proposed concentrations in accordance with principles of “speed” and “finality”: in other words, decisions should first of all be “good”, in the sense of being the outcome of accurate and well-informed legal and economic analysis; second, they should be delivered within a timescale that allows, so far as possible, the parties to act upon the decision in accordance with their commercial interests.

Unfortunately, if a week is a long time in politics, as the old adage goes, so is in the commercial and business world.  The Britvic/AG Barr story provides a very tangible example of how quickly the position of an undertaking on the market, its shareholding value and, perhaps more importantly, its current and future plans can change and, consequently, affect any plans of consolidation.  In this case, the fact that the Competition Commission got on to decide on the merger after a whopping 5 months from it being referred by the OFT  meant that the approval, while being a reasonable outcome in light of the conditions of the market and the economic strength of the parties, remained largely ineffective.  Against this background it may be legitimately asked whether this decision was a “good use” of the OFT and CC resources, as well as an appropriate response to the needs of the parties and to the demands of effective competition enforcement.   In this specific context, it should be emphasised that the CC was invested of the case in the exercise of its exclusive powers of merger review and still managed to hand down a decision a significant time after the referral.  It is therefore legitimate to ask whether once both antitrust enforcement and merger review are entrusted with a single authority (i.e. the CMA) we will see more concentration decisions like Britvic/AG Barr–“good decisions” but neither sufficiently “speedy” or “final” as to satisfy the demands of effective merger control.

 

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