Ofcom Communications Strategic Review proposes to open up BT’s broadband infrastructure

Ofcom’s initial conclusions of its digital communications strategic review, published on 25 February, propose wide reaching changes to ensure the effectiveness of fixed, mobile and content services. 

Reforms to Openreach which owns and operates BT’s broadband infrastructure are designed to ensure its independence from BT and allow access to other providers on non-discriminatory terms.  Openreach will be required to grant access to its ducts and poles to allow rivals to be able to roll out their own fibre networks.

Although Ofcom has proposed measures to facilitate greater access to broadband infrastructure by BT’s competitors, it has not gone as far as recommending the structural separation of Openreach from BT.  The reforms would require the broadband infrastructure business to be run on an arm’s length basis from BT, thereby removing the incentive and ability for BT to discriminate against competitors.  Ofcom has also called for greater transparency in terms of how profits are allocated across the BT Group.

Ofcom’s recommendations follow complaints by BT’s rivals including TalkTalk and Sky that the existing structure which allows Openreach to contribute to the profitability of the BT Group distorts competition.  Whether these companies will consider that the proposed solutions go far enough remains to be seen.

Many of the proposals will be implemented using Ofcom’s review and consultation process. Ofcom is expected to discuss the independence of Openreach with the European Commission in 2016.

Ofcom.  Strategic Review of Digital Communications: Initial Conclusions document. 25 February 2016

Real estate developer challenges Tesco in Competition Appeal Tribunal

Real estate developer challenges Tesco in Competition Appeal Tribunal

A property developer has brought proceedings in the Competition Appeal Tribunal (CAT) alleging that a 1997 land agreement with Tesco is in breach of competition law. 

High Peak Developments has requested a declaration from the CAT that a covenant restricting it from developing a bargain retail outlet adjacent to a Tesco store is void and unenforceable.  It has also claimed damages and an injunction preventing Tesco from enforcing the covenant.

Restrictive covenants over land were traditionally outside the UK competition law regime.  On 6 April 2011 that exclusion was removed with the result that restrictive covenants and other restrictions relating to land now need to be analysed for compliance with UK competition law.  It is also clear that covenants that may have been valid when they were entered into may no longer be enforceable due to changed market circumstances.

Up to now, competition law challenges to restrictive covenants have tended to be raised in commercial negotiations and have typically ended in a settlement.  The first reported litigated case was Martin Retail Group Ltd v Crawley Borough Council, a judgment of HHJ Dight at the Central London County Court on 24 December 2013. 

High Peak Developments has applied for the case to be treated under the new fast-track procedure in force since 1 October 2015, although the CAT has not yet confirmed that designation.  The property developer claims that the case merits fast track status because the issues are not overly complex and it is suffering substantial and continuing losses from the maintenance of the covenant.

The High Peak Developments case illustrates that commercial parties are prepared to litigate competition issues in land agreements.  The changes to UK competition law procedure brought about by the Consumer Rights Act 2015 and allowing for standalone actions to be brought in the CAT can be expected to provide further momentum. 

It remains to be seen whether the case will settle before judgment but it is a timely reminder that covenants and similar agreements relating to real property cannot escape competition law scrutiny.  Landlords and tenants will want to review existing restrictions in agreements (leases and purchase agreements) and consider the scope to negotiate more favourable terms.  Tenants will want to check that any protections from competition in existing agreements are in fact enforceable, for example, where an anchor tenant has been able to secure a commitment from the owner of a development that it will not grant leases to third parties for a specific user. 

Indian competition authority investigates Monsanto in GM seeds case

Indian competition authority investigates Monsanto in GM seeds case

The Competition Commission of India (CCI) has launched an antitrust investigation into Monsanto’s joint venture with Mahyco, an Indian seed company.  The CCI has concerns that the companies abused their dominant position in the market for genetically modified cotton technology.

Monsanto has worldwide patents and trademarks and associated licensing arrangements for genetically modified products.  Its ‘Bt’ technology combats the Bollworm pest in cotton cultivation.  Monsanto and Mahyco both license the technology to seed manufacturers which onsell modified seeds to distributors.

Monsanto introduced the technology to India in 2002.  The complainants allege that the joint venture parties priced the Bt technology excessively and imposed unfair conditions in their licence agreements. It is further alleged that they leveraged a dominant position in the upstream technology market into the downstream seed market where Bt technology was present in virtually all the seeds used for cotton cultivation.

The investigation is at a relatively early stage.  Published statements disclose limited details of the CCI’s theory of harm or the evidence it is relying on.   

Although the CCI already has some seven years of enforcement experience under the Competition Act 2002, a number of its decisions have been controversial and subject to challenges before the Competition Appellate Tribunal (Compat).  At the end of last year, Compat quashed the biggest fine that the CCI has levied to date in its cement cartel case.

The CCI should be anxious to ensure that the rights of the defence are respected. The investigation comes only a week after Compat has agreed to hear appeals by air cargo defendants SpiceJet and IndoGo accepting their pleas that they were denied due process. 

CMA fines pharma companies in pay for delay case

The Competition and Markets Authority has fined pharmaceutical companies including GlaxoSmithKline (GSK) £45 million for their agreement to delay the sale of generic versions of paroxetine, a GSK antidepressant drug.

The fine follows a five year investigation and comes three years after the OFT issued a statement of objections.

GSK bears the largest portion of the fine (£37.6 million) and has stated that it is considering an appeal.  Merck has been fined £5.8 million and companies in the Allergan group are jointly and severally liable for a £1.9 million penalty.

The agreements were entered into in 2001 and 2004 to settle complex patent disputes.  According to statements from GSK they enabled the NHS to save over £15 million in savings by facilitating early entry of a generic paroxetine product. The CMA, however, considers that but for the agreements independent generic entry could have occurred earlier than 2003 when it prompted a 70 per cent fall in prices over the next two years.

The CMA’s decision echoes recent enforcement activity at EU level where the European Commission is maintaining the scrutiny of settlement agreements that it signalled in its pharmaceutical sector inquiry.  The Commission has also carried out a series of patent settlement monitoring exercises since the sector inquiry reinforcing its continued interest in this area.  In parallel, the Commission has issued antitrust decisions in cases involving settlement agreements in the pharmaceutical sector (including cases involving Johnson & Johnson, Novartis, Servier and Lundbeck).

The details of the CMA’s analysis are not yet public and it will be interesting to see its reasoning.  Patent settlements involving a transfer of value (e.g. a payment) from the originator to the generic company in return for delayed entry tend to attract antitrust scrutiny, but these cases are not always straightforward.  Important questions need to be asked such as whether the settlement went beyond what was necessary to settle the dispute, whether it extended beyond the scope of the relevant patents and whether the foregone profits of the generic companies had any bearing on the settlement terms.

CMA press release, 12 February 2016

CMA relaunches merger inquiry into acquisition of three supermarkets – six months after clearance

The CMA is investigating grocer Netto’s completed acquisition of three stores from Co-Operative Group.  The announcement of a fresh UK merger control investigation comes in the wake of the CMA’s July 2015 clearance of the transaction and after learning that it should have been notified to the European Commission under the EU Merger Regulation.

The case was referred back to the CMA from the European Commission on 22 January and the CMA has revoked its initial clearance decision with effect from 1 February.  The three UK stores, located in Leeds, Doncaster and Hull are not currently trading pending the CMA’s decision.

The CMA has not commented further on the circumstances of the referral back, yet it is rare for a case that should have been notified to the European Commission to be reviewed at national level and then to find it being re-examined by the same national authority months after that authority’s initial clearance.

It is not entirely clear how this state of affairs arose, although the CMA’s original clearance decision could not remain in place because it did not have jurisdiction.  It is only now, following the referral back to the UK from the European Commission’s original jurisdiction that the CMA has authority to review the transaction under domestic competition law.

It is for the notifying parties to determine where they need to file a merger and to satisfy the authority that it has jurisdiction.  There may have been some difficulties in determining whether or not the EU thresholds were triggered, not least in view of Netto’s joint venture with Sainsbury’s.  Another issue relates to the potential application of the ‘two thirds rule’ whereby there is no EU dimension if each of the undertakings concerned achieves at least two thirds of its EU turnover in the same member state.

The CMA has done its assessment once and absent a material change in circumstances that is not expected to change.  However, the second review brings with it delay and expenditure of duplicated resources for both the merging parties and the authority.