On 12 November 2019, the UK Competition Appeal Tribunal ("CAT") upheld Ofcom's decision to fine Royal Mail £50 million for abusing a dominant position by announcing price changes. Royal Mail has announced that it is seeking permission to appeal to the Court of Appeal.
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- The CAT upheld the £50 million fine on Royal Mail - the second largest single fine ever imposed in the UK for a competition law infringement.
- Royal Mail was found to have infringed competition law by announcing pricing changes, even though those prices changes were never implemented, as the changes would have had a material impact on Royal Mail's only downstream competitor.]
- The CAT's findings on Royal Mail's intentions, derived from contemporaneous documents, were central to its conclusions.
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Background
In January 2014, Royal Mail announced changes to the prices which wholesale customers pay to access its delivery network, including a price differential between two of Royal Mail's access price plans. Whistl, a user of Royal Mail's network who was also in the process of rolling out its own delivery network to certain parts of the country, complained to Ofcom that the new prices would put them at a competitive disadvantage. In February 2014, Ofcom announced a decision to investigate Royal Mail which immediately suspended the price announcements, as a consequence of pre-existing contractual provisions. In August 2018, Ofcom imposed a fine of £50m on Royal Mail for abusing its dominant position by discriminating against delivery competitors. See further the November 2018 edition of our competition newsletter.
The Appeal
Royal Mail appealed Ofcom's decision to the CAT and a hearing was held in June & July 2019. On 12 November 2019, the CAT upheld Ofcom's decision and dismissed Royal Mail's appeal on all grounds. In particular:
- The CAT rejected Royal Mail's argument that the prices set out in the contracts could not be discriminatory because they were never charged or paid;
- Royal Mail had argued that Ofcom should have applied the "as-efficient competitor test" ("AEC test") to determine whether the announced prices, if paid, were capable of excluding a competitor as efficient as the appellant. The CAT held that the test was not necessary or informative in this case.
- Royal Mail argued that its announced price changes were objectively justified by the need to protect its universal service obligation from 'cherry-picking' direct delivery. However, the CAT did not accept that Whistl posed a threat to the universal service and concluded that the price changes were not proportionate to achieve that objective.
Comment
The CAT's judgment raises a number of interesting points of wider application, in particular in relation to when pricing announcements can themselves be considered anti-competitive and the extent to which dominant companies can rely on the AEC test in order to self-assess their conduct.
While the concept of abusive price announcements is novel, the question of the appropriate test for establishing anti-competitive foreclosure is the subject of a long-running debate, in particular following the Court of Justice of the European Union's judgment in Intel. In this case, the CAT found that Ofcom was correct in its view that an AEC test was neither necessary nor informative. The CAT upheld Ofcom's finding that the price differential announced by Royal Mail was capable of restricting competition as it would have had a material impact on Royal Mail's only competitor. The CAT also relied heavily in its judgment on its finding, based in large part on its assessment of the contemporaneous documents, that Royal Mail had a strategic intent to restrict competitive entry by Whistl.
On 4 December 2019 Royal Mail announced that it is seeking permission to appeal the CAT's decision to the Court of Appeal.
With thanks to Robert Anderegg of Ashurst for his contribution.
