• Tougher economic environment encourages businesses to launch claims against competitors

Complaints to the Office for Fair Trading (OFT) about potential breaches of the UK’s competition rules hit a new record in 2011 – more than double the level since the start of the credit crunch, according to City law firm RPC (Reynolds Porter Chamberlain LLP).

There were 2,070 complaints to the OFT in 2011, the highest level since the Competition Act came into force in March 2000. Complaints hit a low of 801 in 2007, before more than doubling in 2008 (see chart below).

RPC explains that businesses, individuals and interest groups can lodge a complaint to the OFT about anti-competitive behaviour by third parties.

According to RPC, the harsh economic climate may well explain the recent surge in complaints to the OFT as businesses fighting for market share look to challenge the market position of competitors by lodging complaints with the OFT.

Stephen Smith, Partner and Head of Competition at RPC, explains: “With output still below 2007 levels, businesses are fighting over an ever smaller pie. It’s clearly difficult to grow market share during the current economic climate and businesses are understandably using all the tactics available – including making formal complaints to the Regulator – to challenge anti-competitive behaviour by their peers.”

“When businesses are doing well they are less likely to focus on what their rivals are doing, but in a downturn attention inevitably starts to focus more on what competitors are doing and the legal steps that can be taken to undermine their position.”

RPC says that one of the most high-profile probes launched by the OFT last year was into the electronic books market.

Stephen Smith comments, “The e-books market has grown enormously over the last few years and has increasingly become a battle ground between price-led retailers such as Amazon and the publishing houses, who see e-books as an opportunity to re-assert control over resale prices.”

“The OFT launched an investigation after saying it had received a number of complaints. The investigation was subsequently closed in December, following discussions with the European Commission which had opened a similar investigation. Similar investigations in the US resulted in many of the publishers settling to avoid further investigation.”

Complaints received alleging possible infringements of competition law

RPC points out that the number of competition complaints received by the OFT hit an all-time low in 2007, but has been running at more than twice those levels in every year since.

Says Stephen Smith: “As the number of complaints increases, there will inevitably be a greater pressure on the OFT as it seeks to identify and investigate the most serious infractions of competition law.”

“The OFT is currently consulting on changes to its investigation processes aimed at improving the speed of investigations without compromising the robustness of the decision-making. These reforms are welcomed and should help build a solid platform for the new Competition and Markets Authority in the years ahead.”

RPC points out that the OFT typically takes forward far less than 1% of the total number of complaints it receives and that competition investigations will ordinarily take more than a year (often significantly longer) before the OFT reaches a decision.

RPC explains that due to its limited resources, the OFT must apply “prioritisation principles” to decide which potential infringements of the competition rules to investigate. The OFT weighs up the potential benefits to consumer welfare of an investigation against the risks and resources required to carry out the investigation. Where the OFT chooses not to take a complaint forward, the complainant may still bring their own action for breach of the competition rules directly before the UK courts.

Stephen Smith adds: “Whilst private enforcements through the courts are an important part of the overall competition regime, these legal cases can be complex so the first port of call will typically be a complaint to the OFT.”

Ends

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