Competition enforcement in 2017 shows CMA challenging 'too timid' perception

The CMA has increased the volume of cases it has taken on, and the speed of its regulatory action, whilst maintaining a spread of cases across a variety of priority sectors and in respect of both large and small businesses. It has also taken steps internally to strengthen its skills and procedures to maximise its impact.

The regulator's actions reflect chief executive Andrea Coscelli's stated ambitions of the CMA emulating top enforcers of competition law around the world, such as the US Department of Justice and European Commission.

The CMA's approach

The CMA is not obliged to open a formal investigation into all allegations of anti-competitive conduct it receives. Indeed, it investigates only a small proportion of these allegations after assessing the priorities for investigation against its published prioritisation criteria: these assess likely consumer impact, strategic significance, for example in terms of deterrence, likelihood of success, and the cost of investigation.

In 2016 there was significant growth in the CMA’s enforcement activity, and this continued throughout 2017. The CMA concluded seven cases formally, either through fines or commitments. It closed a further case, concerning online sales restrictions in relation to mobility scooters, on administrative priority grounds, following compliance assurances by those under investigation. It has also continued to issue warning and advisory letters to businesses in lieu of formal enforcement action.

This represents a major increase in activity compared with an annual average of less than three infringements decisions between 2010 and 2015 for the CMA and its predecessor, the Office of Fair Trading.

The number of new cases opened also continues to rise. The opening of nine new cases comfortably exceeds the CMA’s target of six, set out in its annual report for 2017/2018.

A small increase to the CMA's budget was announced in the UK’s Autumn 2017 Budget to enable it to "take on more cases against companies that are acting unfairly". This increases the likelihood that the throughput of cases will continue.

The trend has not, however, carried over into enforcement in the criminal sphere. In 2017 the CMA closed one investigation without apparently commencing any new enquiries. The CMA’s ambitions in its draft annual plan for 2018/2019 are to commence at least six new civil investigations, but it has not set any targets in respect of criminal investigations.

Infringement findings

In 2017, the CMA imposed fines for infringement of rules that prohibit anti-competitive agreements in five cases, down from six in 2016.

Total fines of approximately £9 million were issued across the five cases to: suppliers of drawer wraps/fronts in the furniture industries, in relation to price-fixing, market-sharing and information exchange; businesses in the light fittings sector over the setting of minimum prices for online sales; local estate agents, for fixing commission rates; an online sales ban in the golf equipment market; and to suppliers of ‘cleanroom’ laundry services/products sector for illegal market sharing activities.

A notable feature of the ‘cleanroom’ laundry services case was that the market-sharing arrangement arose in the context of a long-running joint venture between the parties, and the focus of the CMA was on reciprocal trade mark licences containing wide non-compete arrangements.

In announcing its decision, the CMA emphasised the need to conduct checks on long-running trading arrangements for compliance with competition law. The CMA’s investigation in this case also arose from two merger cases it considered, showing that, as with the European Commission, merger cases can be a source of information or a trigger for cartel cases.

Whilst the level of fines imposed in these cases are not significant relative to previous years, they reflects the CMA’s drive to balance its case load across both smaller cases, which, despite their size, are considered to have major impacts on individual consumers and small businesses, and cases involving larger businesses. It is unlikely to represent a trend of lower fines generally.

In 2016, for example, the CMA imposed fines of £44.9 million in respect of ‘pay-for-delay’ arrangements in the pharmaceutical sector alone, as well as further fines of just under £90m on two pharmaceutical companies for excessive pricing. Fines of this sort of magnitude, or higher, might be expected in future years.

Commitments

Other investigations concluded by the CMA during 2017 included two cases settled by commitments. These stemmed from investigations into the use of most-favoured nation (MFN) and certain exclusionary clauses in online auction platform services by the UK’s largest provider of live online bidding platforms and into the restrictive rules of an association representing the travelling funfair sector.

Criminal cases

The CMA’s long-running criminal investigation into the supply of precast concrete drainage products came to an end in September 2017. After pleading guilty to agreeing with others to divide supply, fix prices and divide customers between 2006 and 2013, the former chief executive of Stanton Bonna was sentenced to two years’ imprisonment, suspended for two years, and also received a six month curfew order. He was also disqualified from acting as a company director for seven years. The CMA’s civil investigation into the arrangements is ongoing.

Civil investigations

The CMA carried over six ongoing civil investigations from previous years, into solid fuel products, precast concrete drainage products and pharmaceutical products. Two of these investigations involve allegations of anti-competitive agreements, while two others involve allegations of abuse of dominance, and another concerns both prohibitions.

The CMA also opened nine new investigations in 2017. These include: four relating to pharmaceuticals, which concern a mix of abuse of dominance and anti-competitive agreement concerns; three agreements cases relating to construction, from roofing materials, to design, construction and fit-out, and the provision of products/services to the construction sector; one relating to facilities at airports; and one relating to MFN clauses by a price comparison website in the motor insurance sector.

The CMA's focus

The focus of the CMA’s recent enforcement activity is, to a certain extent, concentrated on a number of areas.

The pharmaceuticals sector, for example, accounts for eight of the CMA's 15 live enforcement cases currently. The cases range from concerns over excessive pricing to alleged forms of market-sharing, and, whilst full details of the ongoing investigations are not available, these investigations may be expected to raise fundamental issues around the extent of application of competition law in the sector. Both of the CMA's 2016 enforcement decisions in the pharma sector were appealed, with decisions awaited.

Cases in the construction and online/digital markets have also made up a material portion of the CMA’s recent case load.

In 2016, the CMA took on a number of cases relating to online sales restrictions imposed on dealers or retailers, and it also engaged in a concerted education and compliance campaign on the topic.

This focus followed through to 2017 where two fines were issued by the CMA for infringement in the online/digital sector. One of the cases, where golf equipment manufacturer Ping was fined £1.45m, is on appeal. The CMA's current investigation into MFNs required by a price comparison website in the home insurance sector is consistent with the focus other national competition regulators have given to the use of such clauses by price comparison sites, albeit primarily in the online hotel booking market, and further continues the focus on digital markets.

Sectoral competition enforcement

The CMA recognised in its annual concurrency report in April 2017 that the number of new cases opened by sectoral regulators 'remains below the level that [it] would like to see'.
Following a number of dawn raids, financial services regulator, the Financial Conduct Authority (FCA), launched an investigation into aviation and aerospace insurance brokers, although the investigation was transferred to the European Commission in October. 

The FCA also issued its first 'statement of objections' in relation to the alleged sharing of confidential information by four asset management firms on share IPOs or placing processes.
The energy regulator, Ofgem, has two current investigations into the energy sector. One involves an investigation into an alleged anti-competition agreement, while the other is an investigation opened last year into alleged abuse of dominance in respect of supplies of services to the energy industry.

Competition law enforcement activity by other regulators was limited in 2017.

Skills

E-commerce has been highlighted as a particular challenge for the CMA in terms of regulation of tools like artificial intelligence software which spontaneously coordinates prices, data use which permits personalised pricing, or ‘free riding’ by online retailers on the pre-sale service of physical shops.

The CMA has therefore continued to develop its technical capabilities with the creation of a new digital, data and technology team. The team will focus on developing understanding of how algorithms, artificial intelligence and data can enable competition breaches.

Robust procedures

The CMA has implemented a number of procedural measures to improve the procedural robustness of its decisions.

This has included the use of case decision groups, which are separate from the case team investigating an alleged breach or issuing the statement of objections. It has also provided for the possibility of access to a procedural officer, also independent from the relevant case team, for parties/third parties to escalate procedural disputes.

For example, in 2017, the procedural officer considered an application by a third party in the online auction investigation about the operation of a confidentiality ring. It did not uphold that application, but the Phenytoin case of 2016, in which a party successfully used the procedural officer route to obtain an extension of time, shows that the procedural officer can help parties subject to an investigation.

Dealing with appeals

Andrea Coscelli, chief executive of the CMA, has warned that stricter, and wider-ranging, enforcement may equate to a higher risk of appeals. Encouragingly for the CMA, it successfully defended an appeal by Balmoral Tanks against its 2016 decision in the galvanised steel water tanks investigation.

The CMA had imposed a fine on Balmoral Tanks for participation in a single meeting, which was being recorded by the CMA, at which pricing information on galvanised steel tanks was exchanged. Although Balmoral refused, at the same meeting, to participate in a long-running price fixing cartel, the Competition Appeal Tribunal (CAT) agreed with the CMA that the exchange of information was sufficient for a breach.

In its Autumn 2017 Budget, the government suggested that the CMA would able to use some of the fines it raises to defend its investigations on appeal – the fines the CMA imposes are not generally retained by the CMA, currently. Detail on this measure is limited, but it may encourage the CMA to pursue a larger number, and wider range, of cases.

Speed of enforcement

There is a general trend towards faster enforcement that has been emerging for a couple of years now, and in 2017 the CMA continued to pick up the pace of its regulatory action.

Of the cases closed with commitments and/or subject to infringement decisions in 2017, three cases took less than a year from the opening of the investigation, with two others taking not much more than a year. No case closed in 2017 took longer than 22 months to complete.

The speed of enforcement has been helped by the extensive use of commitments and settlements.

A corollary of the emphasis on quicker enforcement is the burden this imposes on the parties to an investigation. The CMA has shown its willingness to use its civil powers to impose penalties on companies for failure to comply with information requests and related timetables.

In 2016, it imposed a £10,000 fine on Pfizer for submitting its response to an information request five days late. In 2017, it imposed a fine on a party to a merger case for not answering an information request fully. Information requests from the CMA can be wide-ranging, and timetables very tight. This can be a concern to parties, when the threat of sanctions is real.

Giles Warrington is a competition law expert at Pinsent Masons, the law firm behind Out-Law.com.