An update summarising key developments in UK competition law and policy in 2010 and predicting possible developments during 2011.
This update summarises key developments in UK competition law and policy in 2010 and predicts possible further developments during 2011.
Close speedreadKey developments relating to the organisation and general procedures of the competition authorities include the following:
Public bodies reform. In October 2010, the government announced that it intends to merge the competition functions of the Office of Fair Trading (OFT) with the Competition Commission to create a new competition and markets authority. The new body would be responsible for merger regulation, market investigations, cartel and antitrust cases, as well as a number of functions with respect to the regulated utilities. All the economic regulators with concurrent competition powers will be retained (subject to ongoing reviews of the role of Ofgem and Ofwat (see below under Utilities), although, responsibility for postal services regulation will be transferred to Ofcom and Postcomm will be abolished. In addition some of Ofcom's functions, particularly in relation to broadcasting, will be reformed (see Legal update, Government proposes merger of Competition Commission and OFT (www.practicallaw.com/0-503-6230)).
Monitor. In the context of reforms to the National Health Service, the coalition government has announced proposals to establish Monitor as an economic regulator in relation to health and adult social care services. Monitor will have concurrent competition enforcement powers under the Competition Act 1998 and, in relation to market studies/investigations, under the Enterprise Act 2002. The government also intends to make it clear in legislation that the Enterprise Act merger regime will apply to mergers between foundation trusts from April 2012. The government's decisions will be contained in the forthcoming Health and Social Care Bill (see Legal update, DoH confirms establishment of Monitor as economic regulator with concurrent competition powers (www.practicallaw.com/1-504-2532)).
Transparency. In June 2010, the OFT set out its approach to improving the transparency of its work (see OFT publishes statement on its approach to transparency (www.practicallaw.com/6-502-5323)). It has committed to consistently provide parties with information at the start of an enforcement action and to update parties regularly on case status and timescales. The OFT also committed to provide better information on its website and to provide more performance data in its annual report. The OFT subsequently sought views on possible issues to be considered in the next phase of its work to improve its transparency (see Legal update, OFT seeks views on future work to improve transparency (www.practicallaw.com/6-502-8519)).
Conflicts. Early in 2010, the Competition Commission appointed an independent panel of experts to review its existing rules and guidance governing its members' conflicts of interest. The report of this review was published in December 2010 (see Legal update, Competition Commission publishes conflicts review (www.practicallaw.com/6-504-3303)). The Competition Commission has accepted a number of recommendations on how to improve its policies on conflict and the way in which conflicts are handled. It intends to publish revised guidance on this early in 2011.
Impact estimation. The OFT published a guide explaining its impact estimation methods. This sets out the approach that the OFT uses to determine the direct customer benefits of its competition enforcement, merger control, market studies and consumer protection enforcement (see Legal update, OFT publishes guide to its impact estimation methods (www.practicallaw.com/8-502-9141)).
Public services. The OFT continued its competition advocacy work in relation to ensuring that competition issues are taken into account by government policy makers (see Legal update, OFT publishes external report evaluating the OFT's competition advocacy (www.practicallaw.com/3-501-9535)). In particular, in March 2010, it published a guide for policy makers considering using choice and competition in the delivery of public services (see Legal update, OFT publishes a guide for policy makers on choice and competition in public services (www.practicallaw.com/5-501-7682)). In July 2010, the OFT published a working paper on ensuring competitive neutrality in mixed markets (those in which state-owned enterprises, private firms and third sector organisations compete alongside one another) (see Legal update, OFT publishes paper on ensuring competitive neutrality in mixed public/private markets (www.practicallaw.com/9-502-7410)). The report discusses the need to ensure that entities are able to compete on these markets on a level playing field, regardless of public or private sector ownership (see also Legal update, Speech by John Fingleton on reforming public services (www.practicallaw.com/3-502-7408)).
Competition Commission stakeholder survey. In March 2010, the Competition Commission published the results of a survey that monitors stakeholders' levels of satisfaction with the Competition Commission's performance. Two fifths of stakeholders gave the Competition Commission a high overall satisfaction rating, with good performance in relation to the two important factors of "clarity and thoroughness" and "transparency". The lowest scores for the Competition Commission related to its understanding of the impact of its investigations on organisations, and the demands that its investigations make on parties to the proceedings (see Legal update, Competition Commission publishes stakeholder survey (www.practicallaw.com/4-501-9083)).
Key developments in relation to the enforcement of the Chapter I and Chapter II prohibitions of the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) include the following:
Procedural guidance. In August 2010, the OFT published for consultation a draft of new guidance on its Competition Act 1998 investigation procedures. This updates the OFT's previous guidance to reflect current practice and enhanced transparency. The draft guidance includes two new procedural initiatives. The OFT states that it is prepared to hold informal, non-binding, discussions with a potential complainant prior to the submission of a written, reasoned complaint. The OFT will indicate whether or not it is likely that it would investigate the matter further. In addition, the OFT commits to reach a decision on whether to formally open a case within four months of receiving a substantiated complaint (depending on the timely co-operation of the complainant, and the amount and quality of information) (see Legal update, OFT consults on draft guidance on Competition Act investigation procedures (www.practicallaw.com/1-503-1053)).
Compliance. In May 2010, the OFT published a report on drivers of compliance and non-compliance with competition law. The report sets out the general approach the OFT has found that business take to the issue of competition law compliance, best practices in relation to compliance and how the OFT could drive competition law compliance (see Legal update, OFT publishes report on drivers of compliance and non-compliance with competition law (www.practicallaw.com/8-502-3139)). This was followed by the publication of draft guidance on businesses can achieve competition compliance. This contains a four-step process for creating a culture of compliance and sets out practical measures that a business can take to ensure compliance with competition law (see Legal update, OFT consults on guidance for businesses on competition compliance (www.practicallaw.com/0-503-6584)).
Land agreements. In January 2010, the previous government announced its decision to repeal the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 from 6 April 2011 (see Government decides to repeal Land Agreements Exclusion Order (www.practicallaw.com/1-501-2078)). The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 (www.practicallaw.com/0-502-7122) was made by the new government in June 2010. Therefore, from 6 April 2011, the Chapter I prohibition will apply uniformly to all agreements without exception, removing any scope for doubt that land agreements must be properly assessed and made compatible with the Chapter I prohibition in the same way as any other type of agreement. In October 2010, the OFT published for consultation draft guidance on the application of competition law to land agreements (see Legal update, OFT consults on draft guidance on the application of competition law to land agreements (www.practicallaw.com/6-503-6331)).
Ticketing Block Exemption. The OFT has recommended that the Competition Act 1998 (Public Transport Ticketing Schemes Block Exemption) Order be extended by a further five years until 29 February 2016. It considers that the ticketing schemes covered by the block exemption are likely to continue to meet the conditions for exemption from the Chapter I prohibition during this time period (see Legal update, OFT recommends extension of the public transport ticketing schemes block exemption (www.practicallaw.com/2-504-2744)).
Tobacco retail pricing. In April 2010, the OFT imposed a record total fine of £225 million on two tobacco manufacturers and 10 retailers for breach of the Chapter I prohibition. The OFT found that each manufacturer had a series of individual agreements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer's brand. It concluded that these agreements were, by their nature, capable of restricting competition and so had an anti-competitive object. The OFT had reached early resolution agreements with five of the retailers and one tobacco manufacturer (see Legal updates, OFT fines tobacco manufacturers and retailers over retail pricing practices (www.practicallaw.com/7-502-0396) and OFT publishes tobacco retail pricing decision (www.practicallaw.com/1-502-7193)). Five retailers and one tobacco manufacturer have lodged appeals against the OFT's decision (see Tobacco retail pricing appeals (www.practicallaw.com/5-502-6323)).
Flybe. In November 2010, the OFT took a "no grounds of action" decision following an investigation into a complaint by Air Southwest against Flybe (see Legal updates, OFT decides no grounds to take action against alleged predatory behaviour by Flybe (www.practicallaw.com/4-503-8326) and OFT publishes decision in Flybe Competition Act investigation (www.practicallaw.com/3-504-1027)). Air Southwest had claimed that Flybe's decision to enter the Newquay to London Gatwick route was intended to drive out Air Southwest as a competitor on the route, or to eliminate it as a competitor at Plymouth Airport more widely. The OFT concluded that Flybe was only dominant on two small scale markets at Exeter Airport, and that the links between those markets and the Newquay to London Gatwick market were limited. It also found insufficient evidence to suggest that Flybe's entry onto the Newquay to Gatwick route was a departure from normal competition, or that its conduct was intended to be predatory.
Reckitt Benckiser. The OFT has reached an early resolution settlement with Reckitt Benckiser, after the company admitted to a breach of Article 102 of the TFEU and the Chapter II prohibition by withdrawing and de-listing Gaviscon Original Liquid from the NHS prescription channel in 2005. Reckitt Benckiser has agreed to pay a fine of £10 million. This is highest imposed by the OFT for breach of Article 102/Chapter II (see Legal update, Reckitt Benckiser admits abuse and agrees to pay fine (www.practicallaw.com/2-503-6328)).
BT. In November 2010, Ofcom finally reached a decision in the long-running investigation into BT's pricing for residential broadband between 2 June 2002 and 31 December 2004. Ofcom concluded that, from 1 January 2004, BT was not engaged in a margin squeeze in the market for residential broadband in the UK, and that from 2 June 2002 until 31 December 2003, the evidence available to Ofcom was not robust enough to support a finding of abuse (see Legal update, Ofcom publishes non-infringement decision in residential broadband pricing investigation (www.practicallaw.com/4-503-7968)). Ofcom has yet to issue an infringement decision under the Competition Act, despite a number of investigations into BT. In December 2010, Ofcom issued a statement of objections to BT in relation to another alleged margin squeeze (in relation to its Wholesale Calls product) (see Legal update, Ofcom issues statement of objections to BT in wholesale pricing investigation (www.practicallaw.com/0-504-3160)).
RBS and Barclays. In March 2010, the OFT reached an early resolution agreement with RBS, following admissions that it has breached Article 101 and the Chapter I prohibition by disclosing generic and specified confidential future pricing information to counterparts at Barclays Bank. RBS has agreed to pay a fine of £28.59 million. Barclays has received immunity under the OFT's leniency policy. As a procedural matter, prior to issuing its decision, the OFT sent both RBS and Barclays a statement of objections in September 2010 (see Legal update, OFT sends statement of objections to RBS and Barclays in loan pricing case (www.practicallaw.com/6-503-4619)).
Short Form Opinion. The OFT is trailing a Short Form Opinion procedure, whereby it will provide guidance on novel or unresolved issues of a wider interest arising in the context of a specific prospective collaborative initiatives between undertakings (see Legal update, OFT issues first Short-form Opinion in Competition Act case (www.practicallaw.com/1-502-1308)). The first Short Form Opinion issued was in relation to a proposed joint purchasing agreement between Makro-Self Service and Palmer & Harvey (see Legal update, OFT short form opinion on joint purchasing agreement (www.practicallaw.com/3-502-5367)).
Other investigations. The OFT's investigation into alleged collusion in relation to the retail prices of certain dairy products continued. In April 2010, the OFT announced that it does not have sufficient evidence to support certain allegations relating to liquid milk and value butter. Therefore, penalties previously agreed under early resolution agreements will be reduced. The OFT has dropped all allegations against Morrisons. In relation to Tesco, the only remaining company contesting the OFT's case, the OFT has agreed to grant Tesco a 10% penalty discount if it notifies the OFT that it does not intend to contest the remaining allegations against it(see Legal update, OFT provides update on its diary investigation and agreement with Tesco (www.practicallaw.com/8-502-1729)).
In November 2010, the OFT announced that it had decided on the grounds of administrative priority to close an investigation under the Competition Act 1998 into suspected price co-ordination involving a number of retailers and suppliers in the UK grocery sector (see Legal update, OFT closes investigation into suspected price co-ordination by retailers and suppliers in the grocery sector (www.practicallaw.com/9-503-9583)).
In April 2010, the OFT issued a statement of objections to Cathay Pacific Airways and Virgin Atlantic alleging that they had exchanged unlawful information exchange regarding pricing and other sensitive commercial matters in relation to passenger services on the London to Hong Kong route, in breach of Article 101 and the Chapter I prohibition (see Legal update, OFT issues statement of objections to Cathay Pacific Airways and Virgin Atlantic in relation to alleged information exchange (www.practicallaw.com/8-502-0904)).
The OFT also announced that it is conducting investigations under the Competition Act into online hotel room sales (www.practicallaw.com/7-503-3662)and commercial vehicle manufacturers (www.practicallaw.com/8-503-3666).
In August 2010, the ORR reached a decision finding that DB Schenker had not breached Article 102 or the Chapter II prohibition (see Legal update, ORR decides that DB Schenker Rail has not infringed competition law (www.practicallaw.com/8-502-9631)).
National Grid. In February 2010, the Court of Appeal upheld the CAT's decision in relation to its findings on National Grid's abuse of dominance (as established in a decision of the Gas and Electricity Markets Authority). However, it reduced the fine to £15 million (from the £30 million set by the CAT, reduced from the original £41.6 million fine) because it considered that the CAT did not give sufficient weight to the mitigating factor of the Authority's involvement in the process that led to the making of the agreements of National Grid that formed the basis of its abuse of dominance (see Legal update, Court of Appeal reduces National Grid fine in domestic gas meter case (www.practicallaw.com/2-501-5378)). The Supreme Court refused National Grid permission to appeal (see Legal update, Supreme Court refuses National Grid appeal in domestic gas meter case (www.practicallaw.com/8-502-9867)).
Attempt to sue employees. In January 2010, a High Court ruling (Safeway Stores Limited and others v Twigger and others) opened the possibility for companies that have been fined for breach of competition law to sue former and current employees and directors who were responsible for the infringement (see Legal update High Court judgment on ability of company to sue former employees for damages resulting from breach of competition law (www.practicallaw.com/0-501-2333)). However, in December, the Court of Appeal removed this possibility. The Court of Appeal overturned the ruling of the High Court and decided that fines imposed on an undertaking under the Competition Act 1998 are "personal" to that undertaking, and that it cannot recover the fines or the costs of the OFT's investigation from employees or directors who carried out the infringing behaviour. The maxim that a claimant cannot recover damages for the consequences of its own wrongful acts (ex turpi causa) applied in this case (see Legal update, Court of Appeal rules that OFT fines cannot be recovered from directors or employees (www.practicallaw.com/1-504-3225)).
CAT. The CAT did not hand down any judgments against Competition Act decisions during 2010. However, it was very busy with the 25 appeals against the OFT's construction industry bid-rigging decision (see Construction industry appeals (www.practicallaw.com/6-500-7710)). The hearings were held between 28 June and 23 July 2010. The CAT also heard the three appeals against the OFT's construction recruitment decision (see Construction recruitment agencies (www.practicallaw.com/3-500-9659)).
Following Ofcom's non-infringement decision in relation to BT's broadband pricing, the long standing appeal by Freeserve/ Wanadoo was finally withdrawn in December 2010 (see Wanadoo UK (formerly Freeserve.com) v Ofcom (www.practicallaw.com/0-102-6141)).
High Court actions. In April 2010, the High Court handed down a ruling on an application by the British Standards Institution (BSI) to strike out an action alleging breach of EU and UK competition law in relation to its application of a particular standard. Although it struck out certain of the claimant's pleas, the High Court decided that it could not find that the claimant had no realistic prospect of showing that there was a multilateral agreement, or a number of bilateral agreements, by which various undertakings agreed to accept BSI's interpretation of the standard, and that such agreements could give rise to a restriction of competition. In addition, the High Court concluded that, due to lack of legal certainty, it was not able to strike out a claim alleging that BSI had abused its dominant position (see Legal update, High Court ruling on application to strike out action claiming the British Standards Institution breached competition law (www.practicallaw.com/8-502-1055)).
On 7 July 2010, the High Court dismissed a competition defence against an alleged breach of a restrictive covenant in a franchise agreement. The restrictive covenant imposed a one-year post-termination restriction on participation in a similar or competing business. The High Court concluded that such a restriction was necessary to prevent the risk that know-how and assistance provided by the franchisor to the franchisee would, after termination, be used to aid the franchisor's competitors. It, therefore, considered that it did not constitute a restriction of competition that fell within the Chapter I prohibition. The restrictive covenant also did not constitute a restraint of trade at common law (see Legal update, High Court rules that restrictive covenant in franchise agreement did not breach competition law or restrain trade (www.practicallaw.com/8-502-7378)).
Also in July 2010, the High Court gave summary judgment in a claim alleging breach of a confidentiality agreement. It ruled that one of the clauses in the agreement breached Article 101 of the TFEU. The provision went further than could reasonably be required to protect the claimant's confidential information. It was not time limited or limited in geographic scope and it prevented the defendant, and all its international affiliates, from dealing with a very wide range of customers. Therefore, the provision could be seen to have both an anti-competitive object and effect (see Legal update, High Court rules that clause in confidentiality agreement is unenforceable as it breaches Article 101 (www.practicallaw.com/9-502-7962)).
In a novel case, in July 2010, the High Court dismissed an application for a reference to the European Court Justice (ECJ). The claimant, Conex Banninger Limited, brought an action against the European Commission in the High Court and sought a declaration that it is not liable for the fines imposed on two other companies (now insolvent) for participating in the 2006 copper fittings cartel. The Commission had requested information from Conex, which acquired the two companies in the context of administration proceedings. Conex requested that the High Court refer questions to the ECJ about the jurisdiction of the High Court to make such a declaration and about its liability in law for the breaches of Article 101 of TFEU. The High Court concluded that it would be undesirable for the English court and the Commission to reach conflicting views on questions relating to liability under Article 101. It also considered that there was no realistic prospect that the ECJ would rule in Conex's favour on the questions that it wanted to be referred (see Legal update, High Court dismisses application for reference to the ECJ as to whether national court can make declaration about company's liability for fines for breach of Article 101 (www.practicallaw.com/2-502-9399)).
The following were the most significant developments during 2010 on the developing case law in relation to damages actions for breach of Competition Law:
Time for bringing damages actions under section 47A. In an important ruling, providing further clarification on the time limits for bringing follow-on damages actions under section 47A of the Competition Act, in November 2010, the Court of Appeal concluded that there is no provision under the CAT Rules for the CAT to extend the deadline for bringing actions set in Rule 31 of the CAT Rules (BCL Old Co and others v BASF and others). It also found that the claimants were not entitled to an extension of the deadline by reference to any overriding principle of EU law (certainty, effectiveness or legitimate expectations). This judgment, therefore, upheld the CAT's decision to dismiss damages actions brought by BCL and others against BASF. However, it overturned the CAT's view that Rule 19(2)(i) of the CAT Rules gave it the power to exercise its discretion to allow damages actions to be brought out of time (see Legal update, Court of Appeal rules that CAT has no power to extend deadline for bringing damages claims (www.practicallaw.com/2-503-6427)).
Representative actions. In November 2010, the Court of Appeal confirmed the High Court's 2009 decision to strike out the representative element of a claim brought by cut flower importers against British Airways (Emerald Suppliers Ltd v British Airways plc). The claimants had sought to bring the damages action on behalf of parties with the same interest. The Court Held, however, that the claimants and those that they purport to represent do not have the same interest as required by Rule 19.6 of the Civil Procedure Rules. There were, in particular, fundamental problems in determining whether or not a person is a member of the represented class (a person entitled to claim damages against BA). It was significant that some of the persons were direct and some indirect purchasers from BA and that, therefore, the passing on defence could be used in relation to some, but not all, of the claims (see Legal update, Court of Appeal judgment on representative action in competition law damages case (www.practicallaw.com/9-503-9559)).
Staying actions where other actions pending. In July 2010, the Court of Appeal upheld a Commercial Court judgment that declined to stay an action for damages based on the European Commission's decision in the synthetic rubber cartel, where proceedings based on the same decision had also been brought in the Italian courts ( Cooper Tire & Rubber Company Europe Ltd & Ors v Dow Deutschland Inc & Ors). The Court of Appeal concluded that jurisdiction could be established under Article 6(1) of the Brussels Regulation due to the close relationship between the claims against UK-based defendants (who were not addressees of the Commission's cartel infringement decision) and the claims against the non-UK defendants. The Court of Appeal did not, however, have to decide the issue of whether the UK companies could be seen to be liable for the competition law infringements, despite having no direct knowledge or involvement in the cartels. The particulars of claim were broad enough to cover a claim based on general involvement in and implementation of the cartel arrangements such that the claims against the UK defendants could not be struck out (see Legal update, Court of Appeal dismisses appeal against High Court ruling that refused to stay English proceedings in cartel damages action (www.practicallaw.com/5-502-8831)).
Guidance. The OFT published a "quick guide" to private litigation in competition cases, providing high-level general information setting out the rights of individuals and businesses to bring private actions in the UK courts and the CAT for breaches of competition law (see Legal update, OFT publishes quick guide to private litigation in competition cases (www.practicallaw.com/9-501-8967)).
In April 2010, the first contested prosecution under the Enterprise Act 2002 came to trial, in the case involving four BA exeutives. However, on 10 May 2010, the OFT announced that it had decided to withdraw its proceedings against the four defendants. This followed the discovery of a large volume of electronic material of Virgin Atlantic (the other party to the alleged collusion and the leniency/immunity applicant), which neither the defendants nor the OFT had previously been able to review. In view of the quantity of material, the court's rulings about disclosure and the timing of witness hearings, the OFT concluded that it would potentially be unfair to continue with the trial. The prosecution informed the court that no evidence would be offered against the defendants. Therefore, the four defendants were acquitted by the jury (see Legal updates, BA executives acquitted of price-fixing charges following OFT withdrawal of criminal proceedings (www.practicallaw.com/A0-502-2539BA executives acquitted of price-fixing charges following OFT withdrawal of criminal proceedings) and OFT makes further statement on withdrawal of criminal proceedings against BA executives (www.practicallaw.com/0-502-2638)).
The collapse of this high-profile case was embarrassing for the OFT. The OFT, therefore, conducted an internal review of the conduct of its investigation and the prosecution. The review found that the OFT was justified in bringing the prosecution. Although the OFT had made mistakes, there was no indication that anyone at the OFT had been negligent or that the OFT did not have the capability to pursue a complex criminal case. However, this case was very complex and, with hindsight, was not ideal as the OFT's first contested criminal case.
Particular problems that arose in this case related to weakness in the internal oversight of the case and risk assessment, and the procedures relating to document management. In particular, the OFT left control of electronic documents in the control of the immunity applicant, which resulted in some difficulties and the failure to identify a number of relevant documents until a late stage. Complex issues also arose relating to the relationship between leniency, disclosure and legal professional privilege in the context of the criminal prosecution. The review has made a number of recommendations, which have been accepted by the OFT Board (see Legal update, OFT report on events leading to collapse of BA executives price-fixing trial (www.practicallaw.com/1-504-2909)).
In the context of the BA executives trial, the Court of Appeal handed down a ruling in May 2010 on the interpretation of the requirement of dishonesty in the Enterprise Act 2002 criminal cartel offence. The defendants had argued that section 188(1) of the Enterprise Act requires that the prosecution had to prove mutual dishonesty on the part of the defendants and the named employees of Virgin Atlantic, with whom they allegedly agreed to implement price-fixing arrangements. However, the Court of Appeal agreed with the trial judge and the prosecution that it was only necessary to prove dishonesty on the part of the defendants. The language and purpose of section 188(1) is clear. The Court of Appeal concluded that where a statute imposes criminal liability on "an individual … [who] dishonestly agrees with one or more other persons …" to do a prohibited act, the intention and purpose is to criminalise that individual, regardless of whether "one or more other persons" was or were also dishonest (see Legal update, Court of Appeal ruling on requirement of dishonesty in criminal cartel offence (www.practicallaw.com/5-502-4079)).
In February 2010, the Supreme Court removed the last barrier to the extradition of Ian Norris to the United States to face obstruction of justice charges (see Legal update, Supreme Court dismisses Norris extradition appeal on human rights grounds (www.practicallaw.com/9-501-5520)). In December 2010, Mr Norris, the former CEO of Morgan Crucible, was sentenced by the US District Court in Philadelphia to serve 18 months in prison for his role in a conspiracy to obstruct a federal grand jury investigation into price-fixing of carbon products sold in the USA and elsewhere (see US Department of Justice press release).
In October 2010, the Serious Fraud Office announced that its investigation into Sports Direct Plc and JJB Sports Plc has been completed, and it has decided that no charges are to be brought against either of the companies. Its investigation into individuals is, however, continuing. The SFO's investigations have been carried out under the Fraud Act and the Enterprise Act (see SFO announcement on Sports Direct/JJB investigation (www.practicallaw.com/4-503-6544)).
The OFT has announced that it is conducting a civil and criminal investigation into alleged anti-competitive conduct amongst commercial vehicle manufacturers (see Commercial vehicle manufacturers) (www.practicallaw.com/8-503-3666)
In June 2010, the OFT published its revised guidance on its approach to seeking director disqualification orders in competition law cases. Under this approach the OFT will consider the director's responsibility for the competition law breach (whether by act or omission) in order to assess whether the director is unfit to be concerned in the management of the company. It will be just as likely to apply for a disqualification order where it has sufficient evidence that the director directly contributed to the breach, took no steps to prevent the breach, or did not know but ought to have known about the breach. The OFT emphasised, however, that this is not intended to place greater burdens on directors that are responsible for compliance. In exceptional cases, the OFT considers that it may be appropriate to apply for a disqualification order where there is no prior decision or judgement on the infringement, or where no penalty has been imposed on the company (see Legal update, OFT publishes guidance setting out revised approach to competition director disqualification orders (www.practicallaw.com/9-502-6632)).
Following this, in October 2010, the OFT issued a consultation on guidance for company directors on compliance with competition law. This draft guidance provides information on the principles, types of behaviour, and extent of knowledge that might be relevant to directors when considering their responsibilities under competition law (see Legal update, OFT consults on guidance for company directors on competition law compliance (www.practicallaw.com/5-503-6548)).
The following are some of the key developments in relation to merger control in the UK during 2010:
Guidance. Following a further consultation (www.practicallaw.com/1-502-0262)in April 2010, in September 2010, the OFT and Competition Commission published the final version of their joint merger substantive assessment guidelines (see Legal update, OFT and Competition Commission merger assessment guidelines published (www.practicallaw.com/4-503-3526)). These set out the common principles that both authorities will apply in assessing the unilateral and co-ordinated effects of horizontal or non-horizontal mergers.
The OFT also finalised new guidance on exceptions to the duty to refer mergers to the Competition Commission (see Legal update, OFT final guidance on exceptions to the duty to refer and undertakings in lieu of reference (www.practicallaw.com/9-504-2359)). This explains the OFT's approach to de minimis mergers, mergers where arrangements are insufficiently advanced and where there are relevant customer benefits. It also covers the OFT's approach to the acceptance of undertakings in lieu of reference.
In May 2010, the OFT and Competition Commission consulted on joint guidance on good practice in the design and presentation of consumer survey evidence in merger inquiries. The draft guide provides advice on how to design and present consumer survey evidence (which may be used to support arguments in relation to market definition or the closeness of competition between the merging parties) (see Legal update, OFT and Competition Commission consult on good practice in consumer surveys in merger inquiries (www.practicallaw.com/5-502-3683)).
In December 2010, the Office of Communications (Ofcom) published the final version of guidance on its conduct of providing the OFT with its assessment of the sectoral context, relevant competitive constraints and relevant customer benefits of mergers between local newspapers, radio or television broadcasters, including cross-media mergers. It also published a memorandum of understanding with the OFT in relation to the conduct of such assessments and the co-operation between Ofcom and the OFT (see Legal update, Ofcom publishes local media assessment guidance and memorandum of understanding with OFT (www.practicallaw.com/9-504-0968)).
OFT decisions. The number of merger decisions reached by the OFT was very slightly up from 2009 (from 65 in 2009 to 69 in 2010). The OFT decided to seek undertakings in lieu of reference in five cases (as compared with four in 2009). The OFT referred only three cases to the Competition Commission, a notable reduction from previous years (7 in 2009 and 2008, 10 in 2007, 13 in 2006, 19 in 2005 and 16 in 2004).
The OFT referred one reference to the European Commission under Article 22 of the EU Merger Regulation (see Legal update, OFT publishes text of Article 22 reference request in relation to acquisition by Procter & Gamble of the air care business of Sara Lee Corporation (www.practicallaw.com/0-501-9080)). The OFT also requested that the European Commission refer two cases back to it under Article 9 of the Merger Regulation. It withdrew its request in the Orange/T-Mobile merger, after the parties agreed commitments with the Commission (see Legal update, OFT announces withdrawal of Article 9 request in relation to Orange UK/ T-Mobile UK merger (www.practicallaw.com/6-501-6007)). The European Commission granted the OFT's referral request in relation to the Thomas Cook/ CGL/ Midlands joint venture on 7 January 2010 (see Legal update, Commission refers acquisition by Thomas Cook of CGL's and Midlands travel businesses to UK competition authorities (www.practicallaw.com/8-504-4194)).
Competition Commission decisions. The Competition Commission issued its final report on three mergers referred to it by the OFT in 2009. It approved unconditionally the acquisition by Sports Direct of 31 JJB stores (see Sports Direct/ JJB Sports stores (www.practicallaw.com/4-387-5082)) and the acquisition of Friends Reunited Holdings Limited by Brightsolid Group Limited (see Friends Reunited/ Brightsolid (www.practicallaw.com/6-500-6386)). The Competition Commission also confirmed its decision to clear unconditionally the Ticketmaster/ Live Nation (www.practicallaw.com/2-386-3928) merger, following an appeal to the CAT (see below).
In relation to the three mergers referred to the Competition Commission during 2010, two of these were cancelled following reference (see Getty/Rex (www.practicallaw.com/5-502-7544) and Dorf Ketal/ Johnson Matthey titanate and zirconate business (www.practicallaw.com/8-503-9753)). The Competition Commission unconditionally approved the Zipcar/ Streetcar merger in December 2010 (see Zipcar/ Streetcar (www.practicallaw.com/3-503-0241)).
Appeals. In January 2010, the Court of Appeal handed down its judgment on appeals by BSkyB and Virgin Media against a judgment of the CAT relating to the decisions of the Competition Commission and Secretary of State on BSkyB's acquisition of a 17.9% stake in ITV plc. The Court of Appeal upheld the CAT's review of the competition issues in this case. However, the Court of Appeal overturned the CAT's interpretation of sections 58 and 58A of the Enterprise Act in relation to the media plurality public interest consideration. The Court of Appeal concluded that the Competition Commission's approach had been correct. In particular, when assessing the plurality of the aggregate number of relevant controllers of media enterprises and considering the sufficiency of that plurality, the Competition Commission may, and should, take into account the actual extent of the control exercised and exercisable over a relevant enterprise by another (see Legal update, Court of Appeal dismisses BSkyB's appeal on competition grounds but overturns CAT on media plurality (www.practicallaw.com/9-501-2734)).
On 21 May 2010, the CAT handed down its judgment on the appeal by Stagecoach against the Competition Commission's final report on the Stagecoach/ Preston Bus merger. The CAT held that the Competition Commission had not committed a legal error in its approach to choosing the counterfactual. However, the CAT upheld Stagecoach's argument that the Competition Commission had not acted rationally in choosing the appropriate counterfactual. The CAT found that the Competition Commission had not clearly explained why it was justified in taking such an approach (see Legal update, CAT judgment in Stagecoach appeal (www.practicallaw.com/5-502-3386)). As Stagecoach had already taken action to divest Preston Bus, the CAT did not make any order as to relief.
In February 2010, with the consent of the Competition Commission, the CAT quashed the Competition Commission's decision in its report on the Ticketmaster/ Live Nation merger. The Competition Commission accepted that CTS Eventim's grounds of challenge based on procedural fairness were arguable. CTS Eventim claimed that it had been denied the opportunity to comment on the Competition Commission's decision to reverse its adverse provisional findings. The Competition Commission therefore considered that it was appropriate to withdraw its final report in order to give an opportunity for further comment and consequent reconsideration. The Competition Commission subsequently issued a new decision confirming its original unconditional clearance decision (see Legal update, CAT quashes Ticketmaster/ Live Nation merger report and refers back to Competition Commission (www.practicallaw.com/4-501-4575)).
Media public interest intervention. On 4 November 2010, the Department for Business, Innovation & Skills (BIS) announced that the Secretary of State, Vince Cable, had issued a European intervention notice, under section 67 of the Enterprise Act 2002, in relation to News Corporation's proposed acquisition of the shares in BSkyB that it does not already own. The Secretary of State believed that a media public interest consideration (the sufficiency of plurality of persons with control of media enterprises) is relevant to consideration of the merger (see Legal update, Secretary of State issues European intervention notice in News Corp's proposed acquisition of remaining BSkyB shares (www.practicallaw.com/1-503-8177)). Ofcom had to report to the Secretary of State by 31 December 2010.
In December 2010, it was announced (www.practicallaw.com/6-504-3317) that Vince Cable will take no further part in the decision over News Corporation's proposed takeover of BSkyB, and all responsibility for competition and policy issues relating to media, broadcasting, digital and telecoms sectors was transferred to the Secretary of State for Culture, Media and Sport.
Review of undertakings. The Competition Commission completed its review of ITV's Contracts Rights Renewal (CRR) undertakings, which were accepted in 2003 as a condition to the merger of Carlton Communications Plc and Granada Plc (see Legal update, Competition Commission publishes final report on review of ITV's CRR Undertakings (www.practicallaw.com/1-502-2685)). The Competition Commission also conducted reviews of undertakings in the Kemira/ Terra Industries (www.practicallaw.com/7-503-8551), Centrica/ Dynegy (www.practicallaw.com/3-504-4568) and FirstGroup/ScotRail (www.practicallaw.com/1-504-4258)mergers.
Procedure. The OFT published a revised version of its guidance on market studies, which updates and revises earlier guidance in order to reflect the OFT's current practices and internal procedures when selecting markets to study and in conducting market studies (see Legal update, OFT revised market studies guidance (www.practicallaw.com/7-503-2511)).
The Competition Commission published the outcome of an internal review of its procedures for considering remedies in market investigations. This review was prompted by the outcome of appeals before the CAT in 2009 (in relation to the remedies in the PPI and supply of groceries market investigations). It set out, in particular, the Competition Commission's intention to adjust its investigation timetable so that it gives equivalent priority to both the competition assessment and remedies work (see Legal update, Competition Commission publishes review of market investigation remedies (www.practicallaw.com/4-501-5570)). Following this, the Competition Commission sought views on a general review of the existing market investigation guidelines (see Legal update, Competition Commission publishes initial consultation on review of market investigation guidelines) (www.practicallaw.com/0-501-7514)).
Review. In June 2010, BIS published a report that evaluates the impact of the Enterprise Act provisions covering market studies and market investigations. The report is intended to assist BIS in reviewing the effectiveness of the market study/investigation regime. It examines a sample of OFT market studies and five Competition Commission market investigations in order to identify their impact and any lessons that can be learnt (see Legal update, BIS provides evaluation report of market studies and market investigations (www.practicallaw.com/3-502-5225)).
Competition Commission. Two new market investigations were referred to the Competition Commission in 2010. The OFT referred the local bus market in January 2010 (see Local bus services (www.practicallaw.com/1-501-1762)). In August 2010, Ofcom made its first market investigation reference. The reference relates to two closely related markets: the supply and acquisition of movie rights from major Hollywood studios in the first pay TV subscription window in the UK; and the wholesale supply and acquisition of packages including at least one of Sky's premium movie channels (see Movies on pay TV (www.practicallaw.com/1-502-9818)). The Competition Commission has been gathering evidence in relation to these investigations and it has published a number of working papers, as well as issues statements.
In October 2010, the Competition Commission completed its reconsideration of remedies in the payment protection insurance (PPI) market, following remittal of certain issues by the CAT (see Legal update, Competition Commission final decision on PPI remedies following remittal (www.practicallaw.com/9-503-6202)).
In October 2010, the Court of Appeal allowed an appeal by the Competition Commission and overturned the December 2009 judgment of the CAT that found that the Competition Commission's market investigation report into BAA airports was tainted by apparent bias. The Court of Appeal held that the CAT had been wrong to find that there was a relationship between one of the inquiry members and the Manchester Airport Group such as to give rise to apparent bias prior to December 2008. Professor Moizer was too remote from Manchester Airport Group and its owners for apparent bias to be a real concern (see Legal update, Court of Appeal overturns CAT ruling on apparent bias in BAA market investigation (www.practicallaw.com/1-503-6079)).
Therefore, the Court of Appeal restored the Competition Commission's decision on the divestiture by BAA of Gatwick, Stansted and either Edinburgh or Glasgow airports. The Competition Commission invited evidence on whether there have been any change of circumstances that affect these remedies since its 2008 final market investigation report (see Legal update, Competition Commission invites evidence on any relevant changes in circumstance that affect BAA divestment remedies (www.practicallaw.com/5-503-9599)).
OFT. The OFT continued its focus on retail banking markets. It conducted follow up reviews of progress by banks to address concerns identified in the personal current accounts market study (see Legal updatre, OFT progress update on personal current accounts (www.practicallaw.com/2-503-4503)). It also published a market study on unarranged overdrafts in personal current accounts (see Legal update, OFT publishes market study on unarranged overdrafts in personal current accounts (www.practicallaw.com/4-501-7282)). In addition, the OFT conducted a review of barriers to entry, expansion and exit in retail banking (see Barriers to entry in retail banking (www.practicallaw.com/0-502-3826)) and examined the high costs of consumer credit (see High cost of consumer credit (www.practicallaw.com/8-500-9633)).
The OFT conducted and concluded a number of market studies in 2010 in a range of other sectors. It published reports on home buying and selling (www.practicallaw.com/9-384-3932), second-hand car sales (www.practicallaw.com/0-386-0619), the advertising of prices (www.practicallaw.com/0-422-3916), the online targeting of advertising and prices (www.practicallaw.com/1-500-4771) and corporate insolvency (www.practicallaw.com/8-500-7238). The OFT also conducted a "stock take" exercise of the UK infrastructure, which sets out a framework that the OFT intends to use to assess the case for intervention in infrastructure sectors(see Infrastructure ownership and control (www.practicallaw.com/9-502-3073)).
Following the lodging of an appeal by CAMRA, the OFT reconsidered its response to a super-complaint by CAMRA. It confirmed its findings and its decision not to take any further action or to make a market investigation reference (see CAMRA super-complaint (www.practicallaw.com/8-386-8334)). The OFT also published a response to a super-complaint from Consumer Focus relating to cash ISAs, in which it made a series of recommendations and consulted on its provisional decision not to make a market investigation reference to the Competition Commission (see Cash ISAs (www.practicallaw.com/7-501-9227)). In the absence of any responses to the consultation, the OFT decided not to make a reference to the Competition Commission.
The following market studies were launched by the OFT in 2010 and are still ongoing: outdoor advertising (www.practicallaw.com/6-502-3003), equity underwriting (www.practicallaw.com/0-502-4996), aggregates (www.practicallaw.com/6-503-2922), mobility aids (www.practicallaw.com/3-503-9755), domestic electrical goods (www.practicallaw.com/7-504-0399), public services procurement (www.practicallaw.com/9-504-2161) and private healthcare (www.practicallaw.com/3-504-3494).
Independent Commission on Banking. The Independent Commission on Banking was established by the coalition government in June 2010. In light of the weaknesses in the current banking system exposed by the global financial crisis, the Commission's role is to examine questions about the structure of the UK banking sector and to make recommendations on structural and related non-structural measures to promote stability and competition in banking for the benefit of consumers and businesses. The Independent Commission on Banking published an issues paper and call for evidence in September 2010. This identifies the various structural and non-structural reform options that the Commission is considering (including structural or functional separation of banks and measures to reduce market concentration) (see Legal update, Independent Commission on Banking seeks views on reform of banking industry (www.practicallaw.com/7-503-4143)).
Grocery Supply Code. The new coalition government announced in August 2010 that it intended to establish the Groceries Code Adjudicator (GCA) to monitor and enforce compliance with the Groceries Supply Code of Practice (GSCOP), imposed following the groceries market study (see Legal update, BIS announces decisions on establishment of Groceries Code Adjudicator (www.practicallaw.com/4-502-9652)). This reflected a commitment in the coalition agreement. This will done through the Adjudicator Bill and should be implemented by November 2012.
The coalition government has introduced a number of measures to increase the transparency of public spending, which impose requirements on contracting authorities to publish details of contracts (see Legal update, OGC publishes guidance on new transparency requirements (www.practicallaw.com/0-503-3104)). In addition, the government wants to make government procurement more accessible to SMEs (see Legal update, BIS announces actions to help small businesses (www.practicallaw.com/5-503-7840)). These measures include the use of mandated core pre-qualification questions (see Legal update, OGC note on mandated use of core pre-qualification questions in central government procurement (www.practicallaw.com/4-504-1404)).
The government also began consideration of the implications of the Uniplex judgment on the provisions of the Public Contracts Regulations 2006 (as amended in 2009) relating to the time limits for bringing procurement actions (see Legal updates, OGC publishes note on time limits for procurement challenges (www.practicallaw.com/8-501-6068) and Cabinet Office consults on time limits for bringing procurement proceedings following Uniplex judgment (www.practicallaw.com/0-504-0086)).
There were a number of High Court judgments on challenges against procurement procedures, a number relating to applications for injunctions. Notable cases during 2010, include the following:
The last two cases above were the first in which the High Court considered applications under Regulation 47H(1)(a) of the Public Contracts Regulations 2006 (as amended in 2009). In each case, the High Court decided to lift the automatic standstill to allow the contracting authority to proceed with the award of the contract.
Aviation. The Queen's Speech in May 2010, included reference to a possible Airports Economic Regulation Bill. In July 2010, the new coalition government announced its decisions on proposals by the previous government to reform the economic regulation of airports. The government has, in particular, decided to reform the statutory duties of the Civil Aviation Authority (CAA), to introduce a new licence regime for major airports with significant market power (Heathrow, Gatwick and Stansted), to increase the CAA's enforcement powers and introduce a new appeals mechanism. In addition, the government has decided to give the CAA concurrent competition powers in relation to the provision of airport services by both airport operators and third parties (see Legal update, Government announces decisions on reform of economic regulation of airports (www.practicallaw.com/8-502-8542)).
Communications. The Digital Economy Act 2010 was passed in April 2010 (see Legal update, Digital Economy Act 2010 published (www.practicallaw.com/2-502-0049)). This imposes new duties on Ofcom, in particular to provide reports on infrastructure and on the wider delivery of public service media content on platforms other than television and radio (as part of its existing obligation to report on the public services remit by public service broadcasters).
The government began work on implementing the new EU telecoms regulatory framework, issuing a detailed consultation in September 2010 (see Legal update, BIS consults on implementing revised electronic communications framework (www.practicallaw.com/5-503-3130)). In December 2010, a strategy document setting out the government's vision for broadband in the UK was published (see Legal update, Government strategy for superfast broadband (www.practicallaw.com/6-504-1361)).
The National Audit Office conducted a review of Ofcom during 2010, which made a number of recommendations as to how Ofcom should better articulate the outcomes of its activities (see Legal update, NAO report on effectiveness of Ofcom (www.practicallaw.com/0-503-8696)).
Ofcom finalised its long-running investigation into pay TV in March 2010, deciding to use its powers under section 316 of the Communications Act 2003 to require that Sky offer Sky Sports 1 and Sky Sports 2 on a wholesale basis to retailers on other platforms, at wholesale prices set by Ofcom (see Ofcom publishes final statement on pay TV market investigation (www.practicallaw.com/8-501-9019)). This decision has been appealed both by those objecting to the "wholesale must offer" obligation (Sky and the Premier League) and those claiming that the remedy imposed does not go far enough or is flawed (Virgin Media and BT) (see Summaries of appeals against Ofcom pay TV decision published (www.practicallaw.com/0-502-4864)). The CAT has granted interim relief pending the hearing of the substantive appeals (see British Sky Broadcasting Limited v Ofcom (Interim Relief) (www.practicallaw.com/8-502-0517)).
Other significant areas of work conducted by Ofcom during the year included consideration of Next Generation Networks (see Legal update, Ofcom statement on Next Generation Networks (www.practicallaw.com/3-501-3487)), developing the regulatory framework for super-fast broadband services (see Legal update, Ofcom publishes review of wholesale local access market (www.practicallaw.com/4-503-5460)), completing reviews of the wholesale fixed analogue exchange lines markets (www.practicallaw.com/4-504-3059) and wholesale broadband access market (www.practicallaw.com/3-504-1230) and conducting a review of the wholesale mobile call termination markets (www.practicallaw.com/0-501-9179), net neutrality (see Legal update, Ofcom publishes discussion document on traffic management and net neutrality (www.practicallaw.com/9-502-6217)) and customer switching (see Legal update, Ofcom consults on customer switching processes (www.practicallaw.com/4-503-2975)).
Ofcom has had another busy year defending appeals before the CAT. Excluding the appeals relating to the pay TV decision, seven new appeals were lodged (see Ongoing Competition Appeal Tribunal regulatory appeals (www.practicallaw.com/7-102-5360)). The CAT disposed of appeals against Ofcom's price control decisions relating to wholesale line rental, local loop unbundling and leased lines, following determinations on the price control issues by the Competition Commission (which found some errors in Ofcom's approach). In each case the CAT followed the Competition Commission's findings (see The Carphone Warehouse v Ofcom (Wholesale Line Rental) (www.practicallaw.com/4-501-1925), The Carphone Warehouse v Ofcom (Local Loop Unbundling) (www.practicallaw.com/3-386-8379) and Cable & Wireless v Ofcom (leased lines charge control) (www.practicallaw.com/3-500-1489)). Following these cases, the Competition Commission announced that it is conducting a review of how it conducts telecoms appeals (see Legal update, Competition Commission announces review of telecoms appeals (www.practicallaw.com/9-503-1247)).
During the year, the CAT also handed down rulings on the definition of price control matters (see Legal update, CAT ruling on preliminary issues in BT's PPC disputes appeal (www.practicallaw.com/9-502-4987)) and on the admissibility of evidence (see Legal update, CAT judgment on admissibility of evidence in BT's appeal against decision on termination charges for calls to 080 numbers (www.practicallaw.com/7-502-7449)). It also dismissed an appeal by Telefonica against a refusal by Ofcom to vary O2's Public Wireless Network Licence (see Legal update, CAT judgment in Telefonica appeal against Ofcom refusal to vary O2 licence (www.practicallaw.com/1-503-5490)).
In April 2010, the Court of Appeal, on appeal by mobile phone operators, Vodafone, Telefonica, T-Mobile and Orange, confirmed that the CAT does not have the power to direct Ofcom to make amendments to a price control condition with retrospective effect (see Legal update, Court of Appeal judgment on CAT powers following Communications Act appeal (www.practicallaw.com/1-502-0648)).
Energy. The coalition government stated its intention to "reform energy markets to deliver security of supply and investment in low carbon energy, and ensure fair competition including a review of the role of Ofgem". Therefore, the new government launched a review of the regulatory role of Ofgem in July 2010 (see Legal update, DECC publishes government response to call for evidence on Ofgem review (www.practicallaw.com/0-504-2797)). It also published an Annual Energy Statement to Parliament to set strategic energy policy and guide investment (see Legal update, DECC publishes first Annual Energy Statement and 2050 Pathways Analysis (www.practicallaw.com/9-502-9089)). The government is also undertaking an Electricity Market Reform Project and it published proposals in December 2010 on measures to provide long-term certainty for electricity investors and to achieve the government objectives of security of supply and carbon reduction (see Legal update, DECC consults on proposals for electricity market reform (www.practicallaw.com/6-504-2775)).
The Energy Act 2010, introduced by the previous government, received Royal Assent in April 2010. Notably, this Act gives the Secretary of State the power to take action to address some of the concerns identified in Ofgem's Energy Supply Probe. In particular, the Secretary of State may modify electricity generation licences in order to prevent an electricity generator from obtaining an excessive benefit (resulting from its market power) (see Legal update, Energy Bill receives Royal Assent (www.practicallaw.com/7-501-9784)).
In December 2010, the new government introduced a new Energy Bill, which is intended to improve energy efficiency, to promote low carbon energy production and to secure energy supplies. It also introduces a Special Administration Regime for gas and electricity suppliers and extends the life of the Secretary of State's powers to make the necessary modifications to offshore transmission and distribution licences, for implementation of the enduring offshore transmission regime (see Legal update, Energy Bill published (www.practicallaw.com/9-504-1835)).
The government also consulted on its proposed approach to implementing the implementation of EU third internal energy package (see Legal update, DECC consults on implementation of EU third internal energy package (www.practicallaw.com/2-502-9115)).
During the year, Ofgem completed its work on reviewing its approach to network price controls (the RPI-X review). It has adopted a new approach that will use new RIIO (revenue = incentives + innovation + outputs) price control model (see Legal update, Ofgem decision on reforming network price controls (www.practicallaw.com/7-503-5067)).
Other significant work concluded by Ofgem during the year was its report on Project Discovery, its study into whether the current arrangements are adequate for delivering secure and sustainable electricity and gas supplies over the next 10-15 years (see Legal update, Ofgem consults on options for delivering secure and sustainable energy supplies (www.practicallaw.com/6-501-3933)). Ofgem identified the need for action to address the challenges faced. This work has fed into the government's review of the electricity markets. Ofgem also continued work in relation to wholesale market liquidity (see Legal update, Ofgem publishes an assessment of wholesale electricity market liquidity (www.practicallaw.com/0-502-9357)) and the development of the enduring regime for offshore transmission (see Legal update, Government response to DECC and Ofgem consultations on the enduring regulatory regime for offshore transmission (www.practicallaw.com/5-504-2530)). The DECC also concluded work on grid access reform (see Legal update, DECC publishes government response to consultation on grid access reform (www.practicallaw.com/9-502-9131)).
Post. The new coalition government commissioned Richard Hooper CBE to update his report on the future of the postal services sector. The updated report, published in September 2010, identified the continued need for urgent reform (see Legal update, Updated report on future of postal services sector (www.practicallaw.com/3-503-3032)).
In October 2010, a new Postal Services Bill was introduced into Parliament. This includes provision for the sale of shares in Royal Mail and the establishment of an employee share scheme. It also provides for the separation of Post Office Limited from Royal Mail and the transfer of the Royal Mail pension deficit. The Bill will transfer regulatory functions in relation to postal services to Ofcom (which will have concurrent competition powers) and will abolish Postcomm. There are also measures to reform the regulatory framework, particularly to protect the universal service and to replace the current licensing regime with a regime under which Ofcom will be able to impose access and other conditions on operators (see Legal update, New Postal Services Bill published (www.practicallaw.com/8-503-6146)).
In the meantime, Postcomm has been working to introduce a new regulatory framework in April 2012. Following consultation in May 2010, in November 2010, Postcomm published its proposals for the introduction of the first phase of a new regulatory framework. It has decided to substantially deregulate some packets and parcels weighing more than 2Kg, and to remove retail price controls for some other products where Royal Mail does not have market power or where competition has developed. Royal Mail will, however, be required to take steps to improve cost transparency and to introduce account separation (see Legal update, Postcomm decision on new regulatory framework (www.practicallaw.com/1-503-8460)).
Rail. During 2010, work began on the study being conducted by Sir Roy McNulty on rail value for money. This study was commissioned by the previous government and is supported by the new government. A scoping paper (www.practicallaw.com/5-502-5187) was published in June 2010 and am interim submission was published in December 2010 (see Legal update, Interim submission on rail value for money study (www.practicallaw.com/0-504-1514)).
The new government consulted in July 2010 on proposals to reform rail franchising (following a similar consultation by the previous government) (see Legal update, DfT publishes consultation on reforming rail franchising (www.practicallaw.com/0-502-8635)). In a parliamentary statement in December 2010, the Secretary of State announced that a move to longer franchises (15 years) with less detailed specifications and greater incentives for operators will form part of the plans for making the railway more efficient and responsive. Franchising reform needs to be co-ordinated with reform of Network Rail, following the outcome of the value for money study.
In September 2010, the ORR launched a market study into access to rail freight sites in Great Britain, which could, potentially, result in a market investigation reference to the Competition Commission (see Legal update, ORR announces launch of market study into access to rail freight sites (www.practicallaw.com/4-503-3060)).
Water. The coalition government announced that it would "reform the water industry to ensure more efficient use of water and the protection of poorer households". In August 2010, Defra announced that it had begun a review of Ofwat to ensure that it is fit for future challenges facing the water industry (see Legal update, Defra announces review of Ofwat (www.practicallaw.com/0-503-1652)). Defra also sought views on a proposed Water White Paper, which will incorporate the recommendations of both the 2009 Cave review on competition and innovation in the water industry and the Walker review on charging (see Legal update, Defra invites views ahead of drafting of Water White Paper (www.practicallaw.com/5-503-7369)).
All but one of the water companies accepted Ofwat's price control determinations (see Legal update, Ofwat confirms that only one water company has decided to refer price control determination to the Competition Commission (www.practicallaw.com/5-501-3429)). Bristol Water appealed against Ofwat's decision to the Competition Commission. The Competition Commission made its final determination in August 2010, adjusting some aspects of Ofwat's decision. Overall, it concluded that Bristol Water should be permitted to increase its prices so that the average customer bill will rise (see Legal update, Bristol Water price control determination published (www.practicallaw.com/7-503-3313)).
In March 2010, Ofwat published a new strategy setting out its long-term approach to regulating the water and sewerage sectors in England and Wales (see Legal update, Ofwat publishes updated strategy for regulation of water and sewerage sectors (www.practicallaw.com/3-501-6278)). This set out Ofwat's view that the current approach to regulation may not be proportionate in the future. During the year, Ofwat published a number of discussion papers setting out its views on how aspects of the regulatory regime could be enhanced, in particular in relation to price-setting (see Legal updates, Ofwat publishes paper on review of water price controls (www.practicallaw.com/8-502-9443), Ofwat discussion papers on form of price controls and customer involvement (www.practicallaw.com/9-503-7051)Ofwat publishes three discussion papers on issues related to price control (www.practicallaw.com/4-503-6756) and Ofwat focus report on making monopoly water and sewerage companies more accountable (www.practicallaw.com/8-504-0167)).
Other work conducted by Ofwat during the year included revision of its policies on appointments and variations (see Legal update, Ofwat consults on policy and procedures for new appointments and variations and on bulk supply price (www.practicallaw.com/4-501-6598)). In addition, Ofwat published revised guidance on the application of the Competition Act 1998 in the water and sewerage sectors (see Legal update, Ofwat publishes revised Competition Act guidance and consults on prioritisation principles (www.practicallaw.com/8-501-7591)). It also published new prioritisation principles (see Legal update, Ofwat publishes Competition Act prioritisation principles (www.practicallaw.com/9-503-3703)).
Based on the above and other ongoing work, the following are some of the potential developments that may take place during 2011:
Legislative reform of competition regime. The most significant anticipated development in 2011 is likely to be the announcement of government proposals for reforming the UK competition regime. The government is expected to hold a public consultation on the detailed options for merging the competition functions of the OFT and the Competition Commission, and creating the new competition and markets authority and the processes involved in 2011, possibly during February. It is understood that BIS is conducting a wider review of the competition framework to ensure that it is fit for purpose, including possibly the concurrent powers of economic regulators (see Legal updates, BIS confirms review of competition and sector regulation regimes (www.practicallaw.com/9-502-8612) and DECC publishes government response to call for evidence on Ofgem review (www.practicallaw.com/0-504-2797)).
It is not yet known to what extent the government will propose substantive changes to the competition regime, or whether the proposed reforms will extend to matters such as private actions (following the OFT's 2007 recommendations (www.practicallaw.com/4-379-6443) on this). However, the implementation of a merger of the competition functions of the OFT with the Competition Commission will require significant amendment to, in particular, the market investigation and merger control provisions in the Enterprise Act 2002, which enshrine the existing two-stage investigation process.
Review of IP law. In November 2010, BIS announced an independent review of intellectual property law. This review includes consideration of the interaction between IP and competition frameworks. The review is expected to report in April 2011 (see Legal update, BIS asks for views on relationship between IP and competition frameworks as part of call for evidence on IP review (www.practicallaw.com/1-504-2891)).
Competition Act guidance. The OFT is expected to finalise its draft guidance (www.practicallaw.com/1-503-1053) on Competition Act investigations. The consultation on this concluded on 12 November 2010. The OFT is also likely to finalise its draft guidance for businesses (www.practicallaw.com/0-503-6584) and directors (www.practicallaw.com/5-503-6548) on competition compliance. The consultation on these ends on 21 January 2011.
Land agreements. The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 comes into effect on 6 April 2011. From that time, land agreements are subject to the same self assessment as other agreements. The OFT will finalise its draft guidance on the application of the Competition Act to land agreements.
Public ticketing. The Secretary of State will take a decision on whether to extend the Competition Act 1998 (Public Transport Ticketing Schemes Block Exemption) Order, as recommended by the OFT. The current order is due to expire at the end of February 2011.
Competition Act decisions. The OFT is expected to conclude its investigations in relation to retail price-fixing of dairy products (see Dairy products (www.practicallaw.com/3-376-3730)). It has indicated on its website that it hopes to conclude its work on this case in the first half of 2011.
It will also be interesting to see if the OFT makes any further progress on its civil investigation in the BA/ Virgin price-fixing case, following the collapse of the criminal trial. The OFT announced in 2007 that BA had agreed to pay a fine of £121.5 million, but no final decision (or statement of objections) have yet been issued (see Long haul passenger flights (www.practicallaw.com/5-203-1361)). In addition, following announcement of early resolution agreements, the OFT may reach final decisions in the Reckitt Benckiser and RBS/Barclays cases (see Reckitt Benckiser (www.practicallaw.com/3-501-5561) and Loan products to professional service firms (www.practicallaw.com/4-385-5833)).
Following its consultation in January 2011, the OFT may also reach a final decision to accept binding commitments from motor vehicle insurance companies (see WhatIf? Private Motor (www.practicallaw.com/3-504-4790)).
Leniency and no action guidance. As a result of its review of the circumstances leading to the collapse of the criminal trial of BA executives, the OFT is reviewing its guidance on leniency and no-action (see Legal update, OFT report on events leading to collapse of BA executives price-fixing trial (www.practicallaw.com/1-504-2909)). This may result in a consultation on any proposed changes.
CAT Competition Act cases. The CAT is likely to hand down its judgments on the 25 appeals against the OFT's construction industry bid-rigging decision. These, in particular, raise issues in relation to the OFT's approach to calculating fines (see Construction industry appeals (www.practicallaw.com/6-500-7710)). The OFT is also likely to hand down judgments on the construction recruitment appeals (see Construction recruitment agencies (www.practicallaw.com/3-500-9659)). The hearings in the tobacco retail pricing appeals are not due to begin until September 2011 at the earliest, so judgments are unlikely this year (see Tobacco retail pricing appeals (www.practicallaw.com/5-502-6323)).
Damages actions. Progress is likely in the damages actions relating to the carbon and graphite cartel (see Emerson Electric Co and others v Morgan Crucible Company plc and others (www.practicallaw.com/5-233-5956)). The stay in this case was lifted following ECJ judgments, and Schunk, SGL Carbon and Le Carbone (now Mersen) have been added as defendants. Judgment is awaited on an application (www.practicallaw.com/4-504-2559) by Mersen UK Portslade Limited (a subsidiary of Mersen SA) for the claims against it to be struck out. This application raises jurisdictional issues, in particular whether an action can be brought against a company that was not an addressee of the cartel decision. The time limit for other jurisdictional challenges by the defendants to be brought have been extended pending the CAT's ruling on this issue. The CAT's ruling will also have implications for other damages actions pending before the CAT (see Moy Park Limited and others v Evonik Degussa GmbH and Degussa Limited (www.practicallaw.com/1-501-4812) and Marshall Food Group Limited and Others v Evonik Degussa GmbH and Degussa Limited (www.practicallaw.com/4-502-4579)).
A second damages action in relation to the carbon and graphite cartel was lodged late in 2010 and this is likely to progress during 2011 (see Deutsche Bahn and others v Morgan Crucible and others (www.practicallaw.com/7-504-3492)).
The other ongoing damages action currently before the CAT is Albion Water's claim for damages from Dwr Cymru (see Albion Water v Dwr Cymru (www.practicallaw.com/0-502-7160)). This case raises issues about the type of damages that might be available (compensatory and exemplary damages have been claimed) (see Legal update, CAT ruling on application to strike out parts of Albion Water damages claim (www.practicallaw.com/5-504-1696)).
Criminal cartel offence. The coalition government announced that it intends to create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and OFT (see Legal update, Coalition agreement final version: competition and regulatory implications (www.practicallaw.com/9-502-3266)). Although not expressly stated, it seems reasonable to assume that such an agency might take over, at least, the Serious Fraud Office's work related to the Enterprise Act 2002 cartel offence. The Home Office is taking forward the work in relation to this and it intends to issue a consultation later in 2011.
Merger control. There are two potentially significant cases pending at the moment:
The Secretary of State's decision on whether to refer the News Corp/ BSkyB merger to the Competition Commission on media plurality public interest grounds is keenly anticipated. It is likely that there will be appeals against whatever decision is reached.
The OFT has decided that it is in time to review Ryanair's acquisition of a minority shareholding in Aer Lingus (which has already been reviewed by the European Commission and the General Court) (see Legal update, OFT announces view on "in time" aspects of investigation into Ryanair acquisition of minority stake in Aer Lingus (www.practicallaw.com/5-504-3935)). This case raises issues about the relationship between EU and UK merger control. Ryanair has already lodged an appeal in relation to the OFT's "in time" decision (see Ryanair Holdings plc v Office of Fair Trading (www.practicallaw.com/4-504-4365)), and any substantive decision by the OFT is also likely to be highly contentious.
Market investigations. The Competition Commission is hoping to publish its final report on the local bus services market investigation in autumn 2011 (Local bus services (www.practicallaw.com/1-501-1762)). It is also likely to, at least, reach provisional findings in the movies on pay TV market investigation (see Movies on pay TV (www.practicallaw.com/1-502-9818)).
The Competition Commission is conducting a review of its market investigation guidance and there may a public consultation on this during 2011.
BAA has applied to the Supreme Court for leave to appeal against the Court of Appeal's judgment, which overturned the CAT's ruling on apparent bias by the Competition Commission. Regardless of this, the Competition Commission has begun taking action in relation to the implementation of the divestment remedies (see Legal updates, Competition Commission accepts BAA interim undertakings (www.practicallaw.com/6-504-4425) and Competition Commission invites evidence on any relevant changes in circumstance that affect BAA divestment remedies (www.practicallaw.com/5-503-9599)).
OFT market studies. The OFT will publish reports on the following market studies during 2010: consumer contracts (www.practicallaw.com/0-501-4092), outdoor advertising (www.practicallaw.com/6-502-3003), equity underwriting (www.practicallaw.com/0-502-4996), aggregates (www.practicallaw.com/6-503-2922), mobility aids (www.practicallaw.com/3-503-9755), public services procurement (www.practicallaw.com/9-504-2161) and private healthcare (www.practicallaw.com/3-504-3494). The OFT is also conducting a review of an order and undertakings in relation to domestic electrical goods, and will consider whether to conduct a market study into aftermarkets (see Domestic electrical goods (www.practicallaw.com/7-504-0399)). The OFT will also continue to keep the personal current accounts market under review.
In its draft Annual Plan for 2011/12, the OFT states that it proposes to focus on public services markets, markets that affect vulnerable consumers, markets impacted by commodity price rises, economic infrastructure sectors (informed by its stock take exercise) and transparency and fairness in advertising and prices (see Legal update, OFT consults on Annual Plan 2011-12 and publishes Business Plan 2011-15 (www.practicallaw.com/8-504-1987)).
Independent Commission on Banking. The Commission is due to make recommendations by the end of September 2011 on structural and related non-structural measures to promote stability and competition in banking for the benefit of consumers and businesses.
Health sector. The Health and Social Care Bill is likely to be introduced into Parliament. This will contain the provisions to create Monitor as an economic regulator, with concurrent competition functions.
Utilities. Following the publication of the first National Infrastructure Plan (www.practicallaw.com/4-503-7157) in October 2010, the government is considering the regime for economic regulation in the UK to assess whether it is fit for purpose to address the challenges (particularly the need for investment) in UK infrastructure. In January 2011, the BIS consulted on proposed cross-sector principles for economic regulation (see Legal update, BIS consults on principles for economic regulation (www.practicallaw.com/0-504-4225)). The government will report, by summer 2011, on the need for any further cross-sectoral action
Aviation. It will remain to be seen when Parliamentary time will be found to take forward the DfT's decisions for reforming the economic regulation of airports. In the meantime, the CAA will take forward two projects that are intended to support the transition towards a more competitive UK airports industry. The first project will develop a set of competition guidelines, in order to inform airport owners, airport users and other stakeholders how airport market power is likely to be assessed. The second project will seek to identify alternative approaches to airport regulation so that the CAA is well placed to regulate UK airports in a proportionate and effective manner as its powers and the sector evolve (see Legal update, CAA confirms scope of projects to develop approaches to airports competition and regulation (www.practicallaw.com/8-501-8717)).
Communications. The CAT will hear the appeals against Ofcom's pay TV decisions between May and July 2011. There is a chance, therefore, that the CAT's judgment will be handed down towards the end of 2011. It would seem likely that there might be further appeals against the CAT's judgment, whatever the outcome.
The revised EU framework for electronic communications must be implemented by 25 May 2011 (see Legal update, BIS consults on implementing revised electronic communications framework (www.practicallaw.com/5-503-3130)). This will require amendment of the Communications Act, but most changes will be implemented using secondary legislation. The BIS is proposing, in particular, to make changes to the appeals procedure under section 192 of the Communications Act. Ofcom will also have to amend the General Conditions.
The CAT will continue to be busy defending the several ongoing appeals under the Communications Act that are pending before the CAT (see Ongoing Competition Appeal Tribunal regulatory appeals (www.practicallaw.com/7-102-5360)).
Other key areas of work for Ofcom are likely to include conclusion of the review of wholesale mobile call termination markets (www.practicallaw.com/0-501-9179)), establishing new charge controls for local loop unbundling (LLU) and wholesale line rental (WLR), setting a charge control on the wholesale broadband access services market (www.practicallaw.com/3-504-1230), simplifying regulation of non-geographic services (www.practicallaw.com/1-504-2792), conducting reviews of the business connectivity market and the leased lines charge control, and developing and implementing policies that will improve the ease of switching. It is also likely that the government and Ofcom will take forward work in relation to the achievement of objectives in relation to super-fast broadband.
Ofcom will have to prepare its first report to the Secretary of State under its new duty under the DEA to report every three years on the UK's communications infrastructure by August 2011 (see Legal update, Ofcom consults on approach to new infrastructure reporting duty (www.practicallaw.com/9-502-8650)).
Energy. The government is intending to publish a White Paper on electricity market reform, including the conclusions of its review of Ofgem, in spring 2011. This is in addition to the Energy Bill that is currently before Parliament.
The third energy reform package must be implemented by 3 March 2011. This will involve some statutory amendment, amendment of licence conditions and also the publication of guidance (see Legal update, DECC publishes response to consultations on implementation of EU third internal energy package (www.practicallaw.com/5-504-4987)).
Key areas of work for Ofgem will include its review of retail markets, announced in November 2010. Ofgem intends to report during March 2011 (see Legal update, Ofgem announces review of effectiveness of retail energy market (www.practicallaw.com/2-504-0373)). Ofgem will also be working on its review of transmission charging (Project TransmiT) (see Legal update, Ofgem launches review of transmission charging (www.practicallaw.com/2-503-3867)) and its Significant Code Review of gas security and supply (see Legal update, Ofgem consults on Gas Security of Supply Significant Code Review (www.practicallaw.com/8-504-4491)). Ofgem will also be conducting work in relation to its next transmission and distribution price controls, applying its new RIIO approach (see Legal update, Ofgem consults on strategy for next price controls for gas distribution and transmission (www.practicallaw.com/4-504-2941)). Ofgem also aims to conclude its work on improving electricity market liquidity.
Post. The Postal Services Bill (www.practicallaw.com/8-503-6146) has just completed its passage through the House of Commons. Assuming the conclusion of the legislative process this year, it is anticipated that regulatory functions would pass from Postcomm to Ofcom by 2012. In preparation for this, Postcomm is continuing its review of the regulatory framework and preparing for the next price control that is due to take effect in April 2012.
Rail. The independent report on rail value for money will be delivered to the Secretary of State in April 2011. A high level group (chaired by the Secretary of State) will be established to examine the options for getting those responsible for track and train to work together to drive down the cost of the railway. Based on the final report, this will consider options for structural reform in the industry. It is anticipated that proposals for industry reform will be published in November 2011 (see Interim submission on rail value for money study (www.practicallaw.com/0-504-1514)).
The ORR intends to begin work on the next periodic review of access charges in early summer 2011 (see Legal update, ORR announces delay to start of the next periodic review (www.practicallaw.com/6-503-6487)).
Water. Defra will conclude its review of the regulatory role of Ofwat. It will also take forward its development of a Water White Paper, which will, in particular, contain proposals for introducing greater competition into the water market. Defra hopes to consult on the White Paper by early summer 2011.
Public procurement. The Cabinet Office will reach conclusions on any amendments to the UK rules to ensure that the time limits for bringing procurement proceedings are compliant with EU law following the Uniplex judgment (see Cabinet Office consults on time limits for bringing procurement proceedings following Uniplex judgment (www.practicallaw.com/0-504-0086)). The Defence and Security Public Contracts Regulations 2011 must be made by 21 August 2011 in order to implement Directive 2009/81 (see Legal update, MOD second consultation on implementation of defence procurement directive (www.practicallaw.com/6-504-4722)).
It seems likely that the trend for increasing numbers of challenges to public procurement processes will continue throughout 2011. In particular, it is likely that the new body of case law relating to the provisions of the Public Contracts (Amendment) Regulations 2009 will develop further during 2011.
