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4 April 2014
John Vickers showed the UK this week that no company can afford to be caught napping on competition law. The Office of Fair Trading's (OFT) response to Napp Pharmaceutical's appeal was unequivocal - the regulator turned down Herbert Smith's client on virtually every point of substance and procedure. The OFT, with its first successful appeal tribunal now under its belt and super-complaints up its sleeve, has sent out a wake-up call to UK businesses.
In truth, it may have been easier for Herbert Smith to persuade the people of Houston that Enron had gold-standard accounting practices than to get Napp off the hook. Indeed, few antitrust lawyers have ever seen a more textbook breach of the Competition Act.
The case concerned the abuse of a dominant position through demarcated differential pricing on sales of morphine-based cancer drug MST. Napp sold MST to hospitals on the cheap, but clobbered the general practitioner sector on price, costing the NHS millions. Crucially, the OFT believes that the small hospital sector is virtually the only way into the MST market, and that by selling at an undervalue to hospitals, Napp forced out the competition, leaving it with a market share in excess of 90 per cent.
Both in-house and private practice lawyers to the pharmaceutical industry have been quick to recognise that Napp will hit them. However, small-medium enterprises in all sectors will be affected and lawyers may pick up extra work from businesses that have previously shunned competition advice. Napp demonstrates clearly that it is a dominant position in a given market that is key, even if the company itself is relatively small.
What Herbert Smith did get by way of compensation was a reduction in Napp's fine, from £3.21m to £2.2m. For the relatively small and privately-owned Napp, £1m is a lot of money, even after appeal costs. Other than that, the number has little significance, because there just haven't been enough OFT fines yet to gauge what sort of precedent Napp sets.
A much more significant number is 1,400, which is the number of complaints that the OFT responded to in 2000-2001. Bring in another number - 112 - and the picture becomes even more interesting. In this period, the European Commission responded to just 112 complaints. Different definitions and methods of calculation muddy the waters, but the figures remain stunning.
Generally, member states are left to deal with complaints themselves under the principle of subsidiary, but the Commission can use this to mask its comparatively low response rate. Although the Commission announced record numbers of fines last year, it is still woefully under-resourced, and this restricts its ability to go after really big EU-wide antitrust offenders. Fines of n855m (£598.5m) were levied on members of the Hoffman-La Roche vitamin cartel last year, but on this landmark case the Commission piggybacked on an earlier successful investigation by US antitrust authorities.
EU competition lawyers feel the effects of this under-resourcing, as do their clients. Cartel investigations drag on interminably with no fixed timetable, to the detriment of businesses and consumers. By contrast, the OFT has just been given a mandate to increase its staff by 20 per cent and is far more efficient than the Commission on the investigatory side.
The OFT's investigations are increasingly driven by consumer complaints. Consumers are at the sharp end of the marketplace and are potentially a goldmine of information. The concern for business and its competition lawyers is that consumer complaints are also a minefield. Even lawyers who stand to make money from over-regulation have expressed concern that business will be overburdened with spurious investigations. However, the optimistic hope is that, with the OFT's new procedures still in their infancy, the regulator's lawyers will become increasingly adept at sorting the wheat from the chaff.
If every case the OFT brings is as cut and dried as Napp, few neutral lawyers will complain that the team John Vickers and Margaret Bloom has built is overzealous. On the OFT's performance so far, Bloom can expect more calls from jaded young City lawyers desperate to join up as antitrust warriors.