Court upholds CAT decision price-fixing toys

13 November 2006

Louise Banér

The Court of Appeal has dismissed appeals by Argos Ltd, Littlewoods Ltd and JJB Sports plc in relation to the Competition Appeal Tribunal’s decisions in the separate cases of price-fixing of toys and games and replica football kits. The Court of Appeal also clarified the Competition Appeal Tribunal’s findings on activities which can amount to a concerted practice especially in the context of exchange of pricing information.

Although the facts in each case were different, the appeals on liability were on points of law and similar points arose on liability and penalties in each appeal. Therefore the Court of Appeal heard the two appeals in succession and gave one judgment on 19 October 2006. These were the first appeals to the Court of Appeal (“CA”) of Competition Appeal Tribunal (“CAT”) decisions under the Competition Act 1998.

The CAT had rejected appeals of the separate OFT decisions to fine Argos and Littlewoods for their involvement in agreements relating to the retail price of games and toys and JJB for its involvement in an agreement relating to the price of replica football kits. In both cases retailers and manufacturers were held to have been part of a concerted practice whereby retailers had coordinated their behaviour through information exchanged via the manufacturers. However, the parties argued that there was no evidence of a horizontal agreement or consensus between the retailers which was necessary for a finding of an agreement or concerted practice. The CA stated that concerted practices can take many forms and courts have always been careful not to define or limit what may amount to a concerted practice.

Although the CA’s findings were very much based on the evidence and specific facts of these cases, the CA has clarified the CAT’s findings on the level of consensus required to constitute a concerted practice. The CA held that the CAT may have gone too far when it stated that an information exchange can constitute a concerted practice if it is (objectively) reasonably foreseeable that the recipient of the information might make use of that information to influence market conditions. The CA clarified the position in more restricted and subjective terms; as follows:

  1. 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; and

  2. B does pass that information to retailer C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B; and

  3. C does in fact use the information in determining its own future pricing intentions;

then A, B and C are parties to a concerted practice and this case is stronger if there is reciprocity from retailer C as well. The CAT nonetheless found them narrower criteria to be fulfilled on the facts of the case, for the cartel findings to be upheld.

Therefore even unilateral disclosure of future pricing intentions can constitute a concerted practice where it is evident that it was intended to be passed on directly or indirectly to another competitor. However, the CA did not agree that the decision resulted in commercial uncertainty for manufacturers and retailers on the information they can discuss. It held that if discussions on actual or likely retail prices, profit margins and wholesale prices or terms of sale are conducted on a bilateral basis and limited to discussions of that nature, then they are unlikely to infringe competition law. However, there is a risk that discussions about possible prices or historic prices can tend towards discussion of future prices and agreement as to what they should be. The CA advised that any party to these types of vertical discussions needs to be aware of the risk and to avoid it.

In relation to the appeals on penalties, the CA recognised that the CAT is an expert and specialised body and hence the CA should hesitate before interfering with the CAT’s assessment of the appropriate penalty. It also confirmed that the CAT is not bound by the OFT’s guidance on setting the appropriate penalty.

The CA also considered the ground for appeal that two of the parties, Argos and Littlewoods, had been treated unfairly as regards the penalty imposed on them on the basis that Hasbro should not have received full leniency. The CA held that whilst in principle this ground could be argued, it was not possible to do so on the facts of this case and on the basis that Hasbro was not a party to the appeal.

The CA’s judgment confirms that companies must be very careful when transmitting pricing information especially to suppliers, manufacturers or distributors who may also have contact with competitors. This is especially the case where companies are operating in a network of agreements involving competitors.

Source: Argos Limited and Littlewoods Limited v Office of Fair Trading and JJB Sports plc v Office of Fair Trading [2006] EWCA Civ 1318