The Competition and Markets Authority (CMA), the principal UK competition regulator, recently announced a significant change of policy in the way it will deal with leniency applications in relation to resale price maintenance cases (RPM). It is to limit the amount of discount available to leniency applicants in these type of cases.
The CMA believes that the deterrent effect of high fines are a better way to deter RPM than awarding very large discounts off fines to leniency applicants for their cooperation when the regulator is already aware of the arrangement. Therefore businesses can expect higher fines for RPM arrangements in the future.
On 24th September the CMA amended its Guidance on Leniency and No-Action Applications in Cartel Cases (OFT1495) through the introduction of an Addendum.
The Addendum explains how the CMA will exercise its discretion in relation to the grant of Type B leniency in RPM cases. Type B leniency is granted in those cases where the CMA is conducting a pre-existing investigation and the applicant seeking leniency is the first to report and provide evidence of a significant value of a cartel. This is distinct from Type A leniency which is only available when the leniency applicant informs the CMA of an arrangement or cartel of which the CMA is unaware.
The usual position is that the CMA may grant successful Type B applicants immunity or up to a 100% discount on any financial penalty. However in a significant change in policy the CMA states in its addendum that it would not generally expect to grant immunity or discounts on any financial penalty of more than 50% to Type B applicants in RPM cases. This new policy applies to new leniency applications made on or after 24 September 2020.
The announcement of this new policy follows a consultation on the proposal issued by the CMA in July 2020. In their consultation document the CMA stated that it considered the change in policy was now appropriate given that RPM cases were less secretive and generally of low complexity compared with horizontal cartel cases. It took the view that the availability of significant discounts reduced the CMA’s ability to fine heavily in such cases thereby limiting deterrence.
In justifying its change in policy the CMA noted that:
- As there are usually only ever two parties to any RPM agreement (the supplier and the reseller), the ability for a Type B applicant to obtain immunity or up to a 100% discount vastly reduces the CMA’s ability to fine.
- Given the nature of RPM cases, the value that a Type B applicant is able to add is unlikely to be sufficient to justify immunity or a discount of up to 100% on any financial penalty.
Following the consultation and having reviewed the responses it received the CMA determined that it was appropriate to go ahead with the policy change. It remained of the view that there are important differences in the nature of RPM and other horizontal cartel cases. This is reflected in the value that a Type B applicant will generally be able to add.
Therefore balancing the incentives for leniency for RPM against the need to achieve deterrence through higher fines, the CMA believed that it was appropriate for the CMA to apply a maximum discount of 50% for Type B leniency. The CMA believed that the continuing availability of up to a 50% discount would mean that there remained an incentive to apply for leniency. Of course Type A immunity still remains available in RPM cases where the leniency applicant notifies the CMA of an arrangement of which it is not aware.
