OFT imposes £225m fine against certain tobacco manufacturers and retailers over

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The OFT has found that two tobacco manufacturers and ten retailers engaged in unlawful practices in relation to retail prices for tobacco products in the UK, and has imposed fines totalling £225m.

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Re: OFT imposes £225m fine against certain tobacco manufacturers and retailers

OFT imposes £225m fine against certain tobacco manufacturers and retailers over retail pricing practices

39/10 16 April 2010
The OFT has found that two tobacco manufacturers and ten retailers engaged in unlawful practices in relation to retail prices for tobacco products in the UK, and has imposed fines totalling £225m.
The tobacco manufacturers involved are Imperial Tobacco and Gallaher, and the retailers are Asda, The Co-operative Group, First Quench, Morrisons, One Stop Stores (formerly T&S Stores), Safeway, Sainsbury's, Shell, Somerfield and TM Retail.
The OFT has concluded that each manufacturer had a series of individual arrangements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer's brand. These arrangements restricted the ability of these retailers to determine their selling prices independently and breached the Competition Act 1998.
The infringements span different periods between 2001 and 2003 for different parties, and related variously to the markets for UK duty paid cigarettes, hand rolling tobacco, pipe tobacco, and cigars and cigarillos. The current value of these markets is estimated at around £13 billion.
Asda, One Stop Stores, Sainsbury's and Somerfield have benefitted from discounts in their fines under the OFT's leniency programme, which provides co-operating parties with a discount in fines where they proactively volunteer information which assists the OFT's investigation. Sainsbury's had alerted the OFT to the infringements and as the first to apply to the OFT for leniency, it receives complete immunity from fines.
In addition, Gallaher, Asda, First Quench, One Stop Stores, Somerfield and TM Retail received reductions in their fines because, following receipt of the OFT's Statement of Objections issued in April 2008, they each admitted liability in respect of the infringements alleged against them and agreed to a streamlined procedure enabling parts of the case to be resolved more quickly so reducing the costs of the investigation.
Having considered representations made by the parties, the OFT has decided not to pursue allegations made in respect of the relationship between each of Imperial Tobacco and Gallaher with Tesco in its Statement of Objections as it considers it has insufficient evidence to proceed to an infringement finding. For the same reason, the OFT has also decided not to pursue additional allegations relating to the indirect exchange of proposed future retail prices against Imperial Tobacco, Gallaher, Asda, Sainsbury's, Shell, Somerfield and Tesco.
Simon Williams, OFT Senior Director of Goods, said:
'Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful. They can lead to reduced competition and ultimately disadvantage consumers.
'This enforcement action will send out a strong message that such practices, which could in principle be applied to the sale of many different products, can result in substantial penalties for those who engage in them.'
NOTES

1. See a list of the parties involved and the fines imposed (pdf 45kb).
2. The £225m fine represents the largest total fine imposed by the OFT to date in a case under the Competition Act 1998.
3. The Competition Act 1998 prohibits, among other matters, agreements and practices that have the object or effect of preventing, restricting or distorting competition in the UK or a part of it and which may affect trade in the UK or a part of it ('the Chapter I Prohibition').
4. In April 2008 the OFT issued a Statement of Objections (SO) against certain tobacco manufacturers and retailers. See PN56/08 for more details. On 11 July 2008 each of Gallaher, Asda, First Quench, One Stop Stores, Somerfield and TM Retail reached an early resolution agreement with the OFT admitting its involvement in the alleged infringing agreements to which each was party, in breach of the Chapter I Prohibition. See PN 82/08 for more details.
5. The SO noted that the alleged infringing agreements had an anti-competitive object and/or likely anti-competitive effect. The OFT has found that the infringing agreements were, by their very nature, capable of restricting competition and therefore had an anti-competitive object in breach of the Chapter I Prohibition. The OFT is no longer pursuing the allegation regarding the likely anti-competitive effect of the infringing agreements.
6. The infringing agreements were in breach of the Chapter I Prohibition from 1 March 2001, as although they were entered into and took effect before 1 March 2000 they benefited from a one-year period from 1 March 2000 during which the Chapter I Prohibition did not apply to them. The one exception was the infringing agreement in respect of Gallaher/Shell, which existed from 20 August 2001. Subject to three exceptions, the OFT has taken 15 August 2003 as the cut-off date for all the infringements, which is when the OFT sent out the first request for documents and information under section 26 of the Act. The exceptions are the infringing agreements in respect of Gallaher/First Quench (which ended on 19 December 2002) and Imperial Tobacco/Sainsbury's and Gallaher/Sainsbury's (both of which ended on 9 March 2003).
7. The full OFT decision is expected to be published on the OFT website later this year following the redaction of commercially sensitive information.