CAT finding of replica football kit price fixing

20 January 2005

Richard Eccles

The Competition Appeal Tribunal (“CAT”) rejected appeals by two sportswear retailers over their involvement in a series of agreements relating to the retail price of replica football kit, upon the strength of evidence showing the existence of such agreements. One of the retailers was however partly successful in appealing an earlier finding due to evidence of the particular agreement pre-dating the entry into force of the Competition Act 1998. Some significant observations were made in the CAT’s judgment concerning the meaning of collusion between undertakings in the context of restrictions on pricing. Also, the case highlighted interesting questions on competition compliance and the activity that may amount to a concerted practice in the context of cartels, particularly for companies involved in vertical agreements where a network of dealers is involved.

On 1 August 2003, the Office of Fair Trading (“OFT”) found that a group of ten undertakings had entered price-fixing agreements in breach of Chapter 1 of the Competition Act 1998 in relation to the sale of replica football kit around the time of the Euro 2000 Championship. Two of these undertakings, JJB Sports plc (“JJB”) and Allsports Limited (“Allsports”) appealed the findings of infringement.

Outcome/Facts

The CAT assessed the standard of proof required for finding an infringement of the Chapter 1 prohibition in line with the balance of probabilities approach in the Napp judgment (Napp Pharmaceutical Holdings Limited v Director General of Fair Trading [2002]). First, for serious matters, the quality and weight of evidence needs to be stronger. Second, in light of the gravity of the Chapter 1 prohibition, the evidence must be sufficiently strong and compelling to overcome a presumption against involvement in unlawful conduct, although this does not equate to the criminal standard of “proof beyond reasonable doubt”. Finally, whether evidence is compelling depends on the circumstances of the particular case. As price-fixing cartels are by their nature hidden, a single item of evidence may be sufficient to meet the standard of proof.

The CAT found evidence that around the time of Euro 2000, the largest sportswear retailer JJB and Allsports had both complained to the manufacturer Umbro in relation to proposed discounting of England replica kit by a third retailer, Sports Soccer. Sports Soccer eventually agreed not to discount on the understanding that JJB and Allsports would not do so either. This amounted to an agreement or concerted practice under the Chapter 1 prohibition, the object or effect of which was to eliminate discounting in the period around Euro 2000.

The CAT also found sufficiently strong and compelling evidence that meetings were held between the same retailers discussing retail pricing prior to the launch of Manchester United replica kit in August 2000. In April 2001, JJB was also found to have received an assurance from Umbro that Sports Soccer would not discount new Manchester United replica kit.

In relation to replica kit sold via the England Direct website, Sportsetail, the retailers, had agreed not to sell below JJB’s own retail price. Despite JJB ending its involvement in the arrangement in February 2000, “price-pegging” continued thereafter with the knowledge of JJB who failed to inform the other parties explicitly that any prices could be charged on the website, which amounted to tacit approval of the unlawful initiative (Aalborg Portland). However, the appeal was allowed as JJB’s involvement was prior to the 1 March 2000 when the Competition Act 1998 was not in force and there was insufficient evidence to show that JJB had been party to an agreement after that date.

The decision of the CAT also discussed at length the ways in which price fixing arrangements can come into effect with reference, in particular, to JJB’s involvement in a series of anti-competitive agreements. However, the judgment has clarified the compliance position for other companies and therefore merits further discussion on these aspects.

The CAT held that where competitors meet face to face and the issue of pricing is raised, it is sufficient for one participant at the meeting to reveal its pricing intentions to the other parties for a concerted practice to exist, without the other parties having to reciprocate. Cimenteries and Tate & Lyle are cited as showing that even the unilateral disclosure of future pricing intentions can constitute a concerted practice if the effect of disclosure is in fact to reduce uncertainty in the market. There is a rebuttable presumption that an undertaking receiving this information cannot fail to take account of the information directly or indirectly when determining its own competitive policy.

The CAT indicated that rebuttal of this presumption would require a party present at the meeting to make an immediate withdrawal from the conversation upon communication of the pricing intention and to inform the other parties that it will no longer participate in the discussions. The party should protect itself by recording evidence in the form of written statements to the other parties, by giving full account of the meeting to its Board who must keep a full record of minutes and where necessary by reporting the matter to the OFT.

Where a competitor complains to a supplier about the activities of another competitor, the CAT indicated that a concerted practice will arise if the supplier acts on those complaints in such a way as to lead to conditions of competition which do not correspond to normal conditions in the market, for example by placing pressure upon the other competitor to limit its competitive activities. The CAT confirms that in these circumstances, all three parties may be guilty of a concerted practice although there is no presumption of such behaviour.

The CAT also made clear in the case that pricing information need not be received directly but can also be transmitted through an intermediary. In the replica football kit case, retailers communicated pricing intentions to the supplier who passed this information on. The CAT held that indirect contact will amount to a concerted practice on the part of all parties involved where it is reasonably foreseeable that the supplier might make use of that information to influence market conditions and the supplier does in fact pass this information on to a competing retailer. Transmitting pricing information will therefore only be acceptable where the company discloses historical information and this price information is disclosed for a legitimate purpose not related to competition. Furthermore, it must not be reasonably foreseeable that the supplier might use the information to influence market conditions.

Comment

On the standard of proof required to find a breach of the Chapter 1 prohibition, the CAT confirmed that it is the civil standard of balance of probabilities. The CAT needed to be satisfied on the evidence that the occurrence of meetings or communications between the parties was more likely than not.

On the meaning of a concerted practice, the CAT indicated that competitor companies operating within a network of agreements must be alert to any direct or indirect contact between parties which has the object or effect of influencing conduct on the market. This contact can form a concerted practice where only one party unilaterally reveals its future intentions due to the presumption that other parties cannot fail to take this information into account when pricing, thus resulting in a degree of co-ordination. Companies must, therefore, be careful when transmitting pricing information and clearly object when they receive price fixing information.

Source: JJB Sports PLC v Office of Fair Trading and Allsports Limited v Office of Fair Trading [2004] found here (in English only)

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