Antitrust Alert: Court Ruling May Limit UK Competition Commission Remedies in Market Investigations

On 4 March 2009, Tesco won its appeal to the Competition Appeal Tribunal, challenging a recommendation made by the Competition Commission in its Groceries Market Investigation report. This is the first time that a Commission remedy following a market investigation has been successfully challenged and may lead to further challenges and less flexibility for the Commission in proposing market remedies.  

The Commission has the authority to investigate the competitiveness of UK markets and the practices of market participants. The Commission has some authority to take action itself to correct perceived problems or to recommend that the UK Government take action to correct perceived problems. Following a reference by the Office of Fair Trading, the Commission carried out a two-year in-depth investigation (from May 2006 to April 2008) of whether features of the UK groceries market prevent, restrict, or distort competition. Having concluded that certain features of the groceries market do restrict competition, one of the Commission's recommended remedies was the inclusion of a “competition test” in the planning (“municipal building code”) application process for the construction or extension of large grocery stores, to control the development of large grocery stores by retailers with large local market shares.

Tesco, which as the largest grocery store operator in the UK would be most likely to be affected by this recommendation, sought a review of the Commission's findings before the Tribunal, arguing principally that the Commission had failed to carry out a detailed cost-benefit analysis of the likely effects of the competition test on consumers.

The Tribunal, whilst emphasising that the Commission has a certain margin of authority in assessing the appropriateness of a particular recommendation, found that the Commission had failed to give proper consideration to the possible costs to consumers of the recommendation or to its effectiveness.

The parties will now make further submissions to the Tribunal, and there will be a hearing on 16 March, at which the Tribunal may direct the Commission to reconsider the effects and effectiveness of the competition test recommendation more carefully. Although this does not signal the end for the competition test, upon reflection the Competition may determine that it is unable to justify its inclusion in the planning process. If the recommendation survives reconsideration, it will still need to be approved by the UK Government, which then must make the necessary changes to planning laws before it becomes effective.

Therefore, although this review of the UK groceries market started more than three years ago, it looks set to continue for a number of months yet.

As a result of the Tribunal's decision, in future market investigations the Commission will have to consider remedies more carefully, with an emphasis on a thorough cost-benefit analysis, particularly where a proposed remedy is innovative or novel or where its effects may be uncertain or intrusive. The Tribunal's judgment may have an immediate impact on the Commission's market studies involving BAA Airports and Rolling Stock, for which its findings are due by 28 March and 24 April respectively. The proposed structural remedies in the BAA Airports investigation are well known to be opposed by BAA, so the Tesco judgment may encourage another appeal to the Competition Appeal Tribunal.

Heavier evidential burdens and an increased likelihood of appeals could mean that the Commission is more likely to require the full statutory two-year period to complete its market investigations. Further, the Commission's resources will likely be strained, and the implementation of Commission remedies may take longer, leaving the relevant market longer in a state of uncertainty.

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