On 16 October, the Court of Appeal dismissed appeals brought in the Toys and Replica Kit cartels cases. The Court's ruling represents the latest (possibly final) stage in two cases that have been running since 2003. In the first of these, JJB Sports and others were fined by the OFT for fixing the prices of replica football kits. In the other, the OFT imposed fines on Littlewoods and others for fixing prices for the retail sale of Hasbro toys and games.
In each case, appeals were lodged with the Competition Appeal Tribunal challenging both the findings of infringement (on the basis that there was insufficient evidence that the relevant cartels existed) and the level of fines imposed. The CAT largely upheld the OFT decision but the parties further appealed to the Court of Appeal on a point of law.
The Court of Appeal, describing its judgment as 'regrettably long', began with a plea to the CAT to limit the length of its judgments in future. In particular, the Court suggested that the CAT might not in future need to make a finding on every disputed factual issue, nor set out each party’s submissions in detail before explaining its reasons for deciding the case. The Court expressed the hope that, in future, it would be possible for the Tribunal to express its findings of fact and its reasoning in more succinct form.
Liability – existence of an 'agreement' or 'concerted practice'
In each of the cases under appeal, the cartels involved, on the one hand, one supplier (in Toys it was Hasbro, in Replica Kit it was Umbro) and, on the other, two different retailers (in Toys, Littlewoods and Argos and, in Replica Kit, JJB Sports and Sports Soccer).
The OFT's case – upheld by the CAT – was that the retailers had managed to establish and operate a cartel amongst themselves via their mutual relationship with the same supplier. In other words, the two retailers had no direct dealings with each other yet were part of the cartel since the supplier acted as a facilitator. In Replica Kit, for instance, JJB complained to Umbro that Sports Soccer was discounting the kit. Umbro subsequently had discussions with Sports Soccer, which agreed to raise its prices, on the basis of assurances that the other major retailers would not discount. In Toys, Hasbro had regular conversations with Argos, Littlewoods and other retailers in which each retailer would inform Hasbro of its future pricing intentions, and Hasbro would inform that retailer of what other retailers had told Hasbro were their future pricing intentions. These conversations took place in a context in which Hasbro had informed its retailers that it was making a coordinated effort to persuade all retailers to price at its recommended retail prices.
At issue, therefore, was whether the dealings that had taken place were sufficient in law to amount to an 'agreement' or 'concerted practice' among the retailers contrary to Chapter I Prohibition.
In a similar case at European level the European Court of Justice already ruled on the dividing line between concerted behaviour (falling within the anti-cartel rules) and unilateral conduct (falling outside). In its Bayer decision in 2004the ECJ held that, before concerted behaviour (i.e. a cartel) can be established by tacit acceptance, "it is necessary that the manifestation of the wish of one of the parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly".
According to the Court of Appeal, the Bayer test was met in both of the cases under appeal on the proposition that: (i) retailer (A) discloses to supplier (B) its future pricing intentions in circumstances where A may be taken to intend that B will make use of that information to influence market conditions by passing that information to other retailers (of whom another retailer (C) is or may be one), (ii) B does, in fact, pass that information to C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B and (iii) C does, in fact, use the information in determining its own future pricing intentions. The Court saw that the case for meeting the Bayer test would be all the stronger where there was reciprocity, i.e., where information on C's pricing intentions flows back to B in similar circumstances.
The Court did, however, reserve its view on whether a further proposition (accepted by the CAT) would also meet the Bayer test. Under that proposition, the test would be satisfied if A discloses to B its future pricing intentions “in circumstances where it is reasonably foreseeable that B might make use of that information to influence market conditions” and B then passes that information on to C. In other words, the test would be met even if A did not in fact foresee that B might pass on the information or C did not in fact appreciate the basis on which A had provided the information.
Penalty – role of market definition
The Court was asked to review the decision of the CAT in each case as to the appropriateness of the penalties imposed. In rejecting all of the arguments put to it, the Court was careful to state that, "the Tribunal is an expert and specialised body, and […], subject to any difference in the basis on which the infringements are to be considered as a result of any appeal on liability, the court should hesitate before interfering with the Tribunal’s assessment of the appropriate penalty".
There was, however, an interesting discussion as to whether the OFT – and the CAT – had properly applied the relevant OFT guidance on calculating the amount of penalties. This related to the section of the (then current) guidance which stated that the starting point for a penalty calculation would be to assess 'relevant turnover', i.e., the turnover of the undertaking in the relevant product market and relevant geographic market affected by the infringement.
In cartel cases such as those under appeal – where the relevant agreement or concerted practice had as its object the restriction of competition – the OFT was not required, in establishing a breach of the Chapter I Prohibition, to undertake a detailed economic analysis to identify the relevant market(s) in which the agreement produced effects. The parties to the appeal argued that, nonetheless, the OFT's guidance did effectively require such an analysis to be carried out for the purpose of arriving at the 'relevant turnover' and, in turn, the appropriate penalty.
The Court rejected that proposition, agreeing instead with the CAT that in arriving at a figure for 'relevant turnover' for fining purposes, the OFT could apply a less rigorous approach and, for example, take account of turnover not only in products directly affected by the infringement, but also of products in neighbouring markets which may reasonably be considered to have been affected by the infringement.