On 14 December 2004 the Competition Appeal Tribunal
(CAT) dismissed appeals by Argos and Littlewoods against an OFT
decision that they had breached UK competition law by fixing prices
of toys. The CAT unanimously upheld the OFT's decision that the
catalogue companies had infringed the Competition Act 1998, Chapter
I prohibition.
The case centred around Hasbro (UK) Limited's
recommended retail prices (RRPs) and their implementation by Argos
and Littlewoods. The OFT found that each of Argos and Littlewoods
had discussed with Hasbro whether they would adhere to Hasbro's
RRPs. It also found that these discussions went further, for
example, by Hasbro discussing with Littlewoods whether Argos would
also stick to RRPs, with the result that this influenced
Littlewoods' pricing strategies.
There was no formal agreement between Argos and
Littlewoods to share price information or fix prices, but the OFT
and the CAT found that the RRP discussions amounted in practice to
either a verbal agreement or, at the very least, a practice whereby
the parties did not compete and any uncertainty as to their future
conduct was removed. This was found to infringe UK competition
law.
Argos and Littlewoods appealed on the basis that
the OFT lacked evidence of any price-fixing agreement. It was
submitted that the similarity in pricing was due to Littlewoods and
others on the market correctly anticipating Argos' likely price
movements.
The CAT found that there was clear evidence of
information having been shared with Hasbro in the knowledge that it
would be communicated to Littlewoods. The CAT emphasised that the
2contacts and discussions [between Hasbro and Argos or Hasbro and
Littlewoods] went well beyond possibly legitimate discussions and
led to agreements or concerted practices on prices."
Arguments were also made that the discussions were
merely attempts to persuade retailers to observe RRPs and as such
were lawful "where the supplier does not incentivise the retailer
and the retailer does not fetter his
discretion". Although the CAT pointed out that
it was not concerned in this case to "determine at what point the
unilateral recommendation by a supplier of RRPs may or may not lead
to" a breach of competition law, the case does give some helpful
reminders on the use of RRPs.
The CAT stated that "if a supplier seeks to
'persuade' a retailer to observe RRPs, there may not be much doubt
[…] that the supplier's action, and its effect, if achieved,
is to prevent, restrict or distort competition. The issue is then
whether what occurred can be properly characterised as purely
unilateral action on the part of the supplier, or whether facts
disclose a sufficient degree of consensus to give rise to a
relevant agreement or concerted practice." It
continued that it is a question of fact in each case whether
conduct was unilateral or whether there was sufficient consensus or
co-ordination to give rise to an agreement or concerted practice.
If such an agreement or concerted practice exists, UK competition
law is infringed. The CAT also found that it does not matter if
there is no guarantee that the other party will in fact adhere to
the strategy (here observing RRPs).
The CAT added that suppliers should not reveal to a
retailer information about other retailers' pricing intentions,
stating "if a retailer complains to a supplier about the prices of
another retailer, and the supplier approaches the retailer with a
view to persuading that retailer to raise his prices, and the
retailer in fact does so, then [a breach of UK competition law] may
have come into being, provided that there is a relationship of
cause and effect between the original retailer's complaint and the
other retailer's decision to raise prices."
The message is clear, whether you are a supplier or
retailer – do not participate in any discussions with a third
party about prices charged by others. If you are a retailer,
information on your pricing is highly confidential and should not
be shared with third parties. If you supply to retailers,
you should note that purely recommending an RRP
is lawful, but that you are entering a danger zone as soon as
discussions go beyond simple recommendations.
The CAT's judgment dealt only with liability. A
verdict on appeals regarding the amount of penalties imposed by the
OFT is still to come.
For further details the full text of the CAT's
judgment, please click
here.
For further information, please contact Susan
Hankey on T: + 44 20 7367 2960 or by e-mail at [email protected] , David Marks on T: +44(0)
207 367 2136 or by email at [email protected] or Salim Gunny on T: +44(0) 207
367 3458 or by email at [email protected]