"Lunch and Learn": Concerted practices in competition law clarified in Phones 4U case

The ruling marks the latest chapter in a long running legal battle over alleged anti-competitive conduct by three major UK mobile network operators (MNOs): EE Limited (EE), Vodafone Limited and Telefonica UK Ltd (O2). The appeal challenged an earlier High Court judgment which found that the MNOs had not breached competition law by allegedly colluding to withdraw supply from P4U between 2012 and 2014 – a move that P4U claimed led to its collapse.

What is a Concerted Practice?

A key part of P4U's appeal centred on the question of what amounts to a "concerted practice" – a form of anti-competitive behaviour that does not require formal agreement.

Under UK (and EU) competition law, any arrangement between two or more undertakings that has the object or effect of preventing, restricting or distorting competition is prohibited. Crucially, these arrangements do not need to be formalised. The law also captures "concerted practices" – where one party informally 'signals' its intentions and another tacitly agrees, resulting in a shared understanding on how they will act in the market.

P4U was one of the UK's two main independent retailers offering mobile connections on behalf of MNOs. Its business relied heavily on agreements with the MNOs to sell devices which were connected to the respective network services. But, by 2012, the MNOs were increasingly selling directly to consumers, putting them into competition with 'indirect' retailers like P4U.

P4U's original claim was that, between 2012-2014, the MNOs colluded to withdraw supply, ultimately forcing P4U into administration in September 2014.  Central to that claim was a lunch meeting at the Landmark Hotel on 19 September 2012. There, O2's CEO (Mr Ronan Dunne) allegedly told EE's CEO (Mr Olaf Swantee) that O2 was intending to reduce the volume of supplies that it made via 'indirect' retailers – information which was arguably commercially sensitive since it concerned O2's future strategy. Mr Swantee's response was passive – he did not object to or protest against Mr Dunne's communication at the time and EE did not subsequently publicly distance itself from the information sharing.

P4U argued that this passive response amounted to tacit approval, undermining the commercial uncertainty that should exist between rivals. Since both MNOs continued to operate in the market, P4U relied on the Anic presumption – a legal principle that assumes subsequent conduct was influenced by the earlier exchange.

The High Court rejected this. It found that Mr Dunne's comments at the Landmark Hotel lunch were "wholly vague" and insufficient to remove commercial uncertainty.  The Court held that Mr Swantee had steered the conversation into generalities and so it was not possible to infer acquiescence. Therefore, a concerted practice had not arisen. In any event, the Anic presumption was rebutted – at least in relation to EE – because it had proceeded to sign a new three-year deal with P4U in October 2012. 

The Outcome of the Appeal

P4U appealed on several grounds, including that the High Court was wrong to conclude that the exchange at the 'Landmark lunch' did not amount to a concerted practice. It argued that, even though Mr Swantee's response was passive, this was sufficient to infringe competition law. His failure to object, P4U claimed, was itself a signal to Mr Dunne that EE was not wholly opposed to a cooperative approach to reducing volume to the 'indirect' retailers – information which would not have been available to O2 under normal market conditions.

The Court of Appeal dismissed this argument, along with the other grounds of appeal. It held that Mr Swantee’s passive response did not amount to any consensus to cooperate with O2’s proposed strategy, nor did it communicate anything back to Mr Dunne as regards EE's own intentions. In fact, the Court noted, Mr Swantee was opposed to the approach.

Nonetheless, the case gave the Court of Appeal the opportunity to set out some useful markers.

• A concerted practice requires an element of consensus leading to coordination. It can arise from a 'one way' disclosure of commercially sensitive information, and, where the recipient has requested that information, the threshold for establishing consensus is relatively low.
• The situation is more nuanced when a party receives an unanticipated 'one-way' communication from a competitor. In that case, failure to object could be taken as tacit approval, and remaining passive could be regarded as signalling back to the disclosing party.
• That said, simply receiving the information, particularly without having any wish to do so, will allow more room to argue that consensus was not reached. The Court of Appeal emphasised that at least some degree of reciprocal tacit approval will need to be shown. While it declined to set out an exhaustive list of what that amounts to, it stated that attending a meeting knowing that confidential information will be disclosed would be an "obvious example."
• Ultimately, if the recipient of the information later makes a commercial decision, which clearly shows that it took the commercially sensitive information into account, it will be much harder to argue that there was no tacit approval or consensus.    

Conclusion

Concerted practices can take many different forms, and the courts have always been careful not to define or limit them. Each case will turn heavily on the facts. Businesses, their directors and employees therefore need to take care.

As a starting point, it is prudent to assume that internal confidential information relating to future business strategy is competitively sensitive. Handle it with care. Seek legal advice before going into a meeting with a competitor if such information is likely to be brought up. If it does come up, openly object to discussing it and make sure that objection is recorded. Leave the meeting if necessary and seek legal advice.

If you would like to discuss any of the issues raised in this blog, please contact a member of our Competition and Antitrust team.