UK Competition Law: Competition Appeal Tribunal Quashes OFT Decision on Tobacco Price Fixing Cartel: Smoke Without Fire

Sullivan & Cromwell LLP - December 16, 2011

On December 12, 2011, the UK Competition Appeal Tribunal quashed a decision by the Office of Fair Trading to impose a fine of £112.3 million on Imperial Tobacco Group Plc for allegedly being part of a price fixing cartel for tobacco products sold in the UK. However, this was not a classic situation of price fixing among competitors. The OFT’s case against Imperial Tobacco was based on an unusually elaborate economic analysis of the tobacco product sale agreements between Imperial Tobacco and its competitor Gallaher Group Limited on the one hand, and each of the major UK retailers on the other. During the (lengthy) appeal proceedings, the OFT conceded that the factual evidence put before the Competition Appeal Tribunal did not support its economic analysis of the tobacco product sale agreements. This led to the OFT attempting to reformulate its case against Imperial Tobacco. The Competition Appeal Tribunal roundly rejected the OFT’s submissions, certain of which it characterized as “a triumph of hope over experience.” The Competition Appeal Tribunal quashed the OFT’s decision fining Imperial Tobacco and held that it had no jurisdiction to rule on the OFT’s reformulated case against Imperial Tobacco.

The unravelling of the OFT’s case at such a late stage in the appeal proceedings will serve as a reminder to the OFT to base its fining decisions on plausible economic theories of harm supported by cogent evidence that will withstand intense scrutiny by the Competition Appeal Tribunal.