EU & Competition Round-Up (December 2008)

UK COMPETITION

OFT Clears Stella Artois/Budweiser Merger

After a lengthy investigation, the Office of Fair Trading (OFT)

gave its approval to the acquisition by InBev (Belgium) of the

US's largest brewer, Anheuser-Busch. The deal is one of the

largest cash acquisitions in corporate history and secures

InBev's position as global leader in the beer market. The

OFT's initial investigation disclosed that InBev's

ownership of the Stella Artois and Beck brands made it the leading

supplier of premium lager in the UK. The acquisition of the

Budweiser brand would further increase its market share. The

investigation indicates that the deal was unlikely to raise

competition concerns in the off-trade market (i.e. retail sales

through shops, supermarkets and specialist outlets) where the

barriers to market for rival brands are low. The OFT took a closer

look however at the impact on the on-trade channel (i.e. pub, bar

and restaurants), where the parties represent over 50% of sales of

premium lager. Nevertheless, it was apparent that the majority of

the UK's on-trade market comprises sales of draught beer where

the parties do not have overlapping interests since Budweiser is

sold only in bottles. Although InBev and Anheuser-Busch do compete

for sales of bottle beer and "fridge shelf space" in the

on-trade market, the OFT concluded Budweiser and Beck's are not

considered close substitutes by consumers.

Follow-On Damages Claim In Coal Haulage Market

On 17 November 2008, the Competition Appeal Tribunal (CAT)

confirmed that Enron Coal (Enron), a company in liquidation since

2002, is seeking damages from English, Welsh and Scottish Railway

Limited (EWS). This claim follows from the 2006 decision by the

Office of Rail Regulation that EWS had abused its dominant position

in the market for coal haulage by rail, in breach of both national

competition law and Article 82 of the EC Treaty. EWS was found to

have formed exclusive agreements with industrial coal users from

1996 until 2005, and engaged in predatory pricing for 18 months

from July 2002. Accordingly, EWS was fined £4m. Enron are now

seeking damages in the CAT for the loss suffered by EWS imposing

additional costs in relation to coal haulage, and preventing Enron

from obtaining new business or extending business. Enron is seeking

damages and lost profit, restitutionary damages, an account of

profits, interest, costs and further relief.

Cardiff Bus Guilty Of Predatory Pricing

The Office of Fair Trading (OFT) has found that Cardiff Bus, a

bus service operated by Cardiff Council, abused its dominant

position by charging below cost prices. In 2004, Cardiff Bus

introduced a low-cost bus service to compete with a "no

frills" service offered by 2 Travel, a new-entrant to the

market. When 2 Travel had gone out of business in 2005, Cardiff Bus

removed its low-cost service altogether. On 18 November 2008, the

OFT found that Cardiff Bus had been the only significant provider

of bus services in the area and the dominant player in the market.

By dropping its prices to a loss making level in order to evict the

new competitor from the market, Cardiff Bus had abused its dominant

position. Under the Competition Act 1998, there is limited immunity

from fines for such abuse where the market effected or the turnover

of the undertaking concerned is not substantial, although the OFT

does have discretion to waive the immunity and impose fines where

appropriate. In this instance the OFT held that the conduct was of

minor significance and decided not to fine Cardiff Bus.

Nevertheless, third parties that have suffered a loss as a result

of Cardiff Bus's anti-competitive conduct may still bring a

claim for damages. Interestingly, this is the first finding of an

abuse of dominance by the OFT since 2003.

Marine Hose Directors Receive Reduction In Prison

Sentences

The UK Court of Appeal (CoA) has reduced the prison sentences of

three directors imprisoned earlier this year in the first

successful prosecutions for cartel offences under the Enterprise

Act 2002. The three directors, who had been arrested by the

Department of Justice in the USA, negotiated a plea bargain that

would allow them to be returned to the UK provided they pleaded

guilty to participating in the marine hose cartel. A director of PW

Consulting and two directors of Dunlop Oil & Marine were

sentenced to 36, 36 and 30 months in prison by the Crown Court in

June 2008. On 14 November 2008, the CoA reduced these prison terms.

The CoA explained that it would have reduced the sentences still

further to take into account the directors' co-operation in the

investigation and their loss of livelihood, however it had been

constrained by the sentences imposed by the USA officials as a

result of the plea bargains. The Directors concerned will now serve

between 20-30 months.

British Airways Executives In Magistrates' Court

Four executives of British Airways appeared in court on 12

November 2008 on charges of colluding with Virgin Atlantic to fix

the prices of passenger fuel surcharges on long-haul flights. The

executives are charged with the cartel offence under the Enterprise

Act 2002. If they are found guilty of the offence they could face a

maximum of five years in prison, disqualification from acting as...