Umbro Holdings Ltd v Office Of Fair Trading, Court of Appeal - United Kingdom Competition Appeals Tribunal, May 27, 2005, [2005] CAT 22

Resolution Date:May 27, 2005
Issuing Organization:United Kingdom Competition Appeals Tribunal
Actores:Umbro Holdings Ltd v Office Of Fair Trading
 
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Neutral citation: [2005] CAT 22

IN THE COMPETITION

APPEAL TRIBUNAL

Victoria House Cases: 1019/1/1/03

Bloomsbury Place 1020/1/1/03

London WC1A 2EB 1021/1/1/03

1022/1/1/03

19 May 2005

Before:

Sir Christopher Bellamy (President)

Mr. Barry Colgate

Mr. Richard Prosser OBE

Sitting as a Tribunal in England and Wales

BETWEEN

UMBRO HOLDINGS LIMITED

Appellant

-and-

OFFICE OF FAIR TRADING

Respondent

MANCHESTER UNITED PLC

Appellant

-and-

OFFICE OF FAIR TRADING

Respondent

JJB SPORTS PLC

Appellant

-and-

OFFICE OF FAIR TRADING

Respondent

ALLSPORTS LIMITED

Appellant

-and-

OFFICE OF FAIR TRADING

Respondent

JUDGMENT ON PENALTY

Mr. Nicholas Green QC and Miss Kelyn Bacon (instructed by Umbro Holdings Limited Legal Department) appeared for Umbro Holdings Limited.

Mr. Peter Roth QC and Mr. Paul Harris (instructed by James Chapman & Co) appeared for Manchester United plc.

Lord Grabiner QC and Mr. Mark Hoskins (instructed by DLA Piper Rudnick Gray Cary UK LLP) appeared for JJB Sports plc.

Mr. George Peretz (instructed by Addleshaw Goddard) and Mr. Adam Aldred (of Addleshaw Goddard) appeared for Allsports Limited.

Mr. Stephen Morris QC, Mr. Jon Turner and Miss Anneli Howard (instructed by Director of Legal Services, Office of Fair Trading) appeared for the OFT.

Heard at Victoria House on 17, 18, 19 and 20 January 2005

58

i

TABLE OF CONTENTS

I INTRODUCTION 1

II THE STATUTORY FRAMEWORK AS REGARDS PENALTIES 3

III THE OFT'S DECISION as regards the penalty 12

relevant product market 13

The Penalty for Umbro 14

Penalty for Allsports 17

Penalty for JJB 19

Penalty for MU 21

iv the common arguments of JJb, allsports and mu 23

(1) The relevant market 23

(2) the starting point of 9% 25

(3) duration 26

(4) the multiplier under step 3 27

v the tribunal's analysis of the common arguments of jjb, allsports and mu 28

general observations 28

the relevant market issue 29

Step 1 and step 3 41

DURATION 47

vi asSESSMENT OF THE PENALTY: JJB 50

vii assessment of the penalty: allsports 54

viii assessment of the penalty: mu 62

ix assessment of penalty: umbro 70

umbro's discount for co-operation:

the parties' submissions 71

the tribunal's analysis of the co-operation issue 74

co-operation during the appeal 88

the effect of the liability judgment 89

x conclusions 93

1

I INTRODUCTION

1. On 1 October 2004 the Tribunal gave judgment on liability in the appeals by Allsports Limited (``Allsports'') and JJB Sports plc (``JJB'') respectively against the OFT's Decision no. CA 98/06/2003 dated 1 August 2003 (``the Decision''). Umbro Holdings Limited (``Umbro'') and Manchester United plc (``MU'') did not appeal on the question of liability but have appealed against the level of the penalties imposed by the OFT on them, as have Allsports and JJB. This judgment deals with the issue of penalties.

2. In the Decision, the OFT found that various infringements of the Chapter I prohibition set out in section 2 of the Competition Act 1998 (``the Act'') had been committed, notably as follows:

(1) An agreement between Umbro and Sports Soccer fixing the retail price of Umbro replica shirts during key selling periods between April 2000 and August 2001 (``the Umbro/Sports Soccer Agreement'').

(2) An agreement between Umbro, JJB, Allsports, Sports Soccer, Blacks and JD fixing the retail price of the England replica shirt during the Euro 2000 tournament (``the England Agreement'').

(3) An agreement between at least JJB, Allsports and Sports Soccer, as well as MU, Umbro and Blacks, fixing the price of the MU home replica shirt launched on 1 August 2000 (``the MU Agreement'').

(4) An agreement between at least JJB, Umbro and Sports Soccer fixing the price of England and MU replica shirts during key selling periods until August 2001 (``the Continuation Agreement'').

(5) An agreement between the Football Association (FA), Sportsetail, Umbro and JJB to align the retail prices of England replica kit sold by the England Direct website operated by Sportsetail with JJB's retail prices (``the England Direct Agreement'') A further agreement between the FA and Sportsetail relating to the resale prices of products sold on the Sportsetail website is not relevant to this judgment..

(6) An agreement between Umbro and Sports Connection fixing the retail price of the Celtic home replica shirt from March to May 2001 (``the Umbro/Sports Connection Agreement'').

3. Agreements (1) to (4) are referred to in the Decision as ``the Replica Shirts Agreements''.

4. JJB appealed to the Tribunal on liability in respect of the OFT's findings against it concerning the England Agreement, the MU Agreement, the Continuation Agreement and the England Direct Agreement, and, in any event, against the penalty imposed. Allsports appealed to the Tribunal on liability in respect of the OFT's findings concerning the England Agreement and the MU Agreement, and in any event against the penalty imposed.

5. MU appealed to the Tribunal only as regards the penalty, which is imposed in relation to MU's participation in the MU Agreement.

6. Umbro also appealed to the Tribunal solely on the issue of penalty. In its notice of appeal, Umbro advanced only one argument, namely that it should have received a greater discount as regards the penalty because of Umbro's cooperation with the OFT which the Decision fails to acknowledge. Because of the distinct and self contained nature of Umbro's appeal, we deal with Umbro's appeal separately in this judgment.

7. The penalties imposed on each of the four appellants are:

8. The facts as found by the Tribunal are set out in the Tribunal's judgment on liability [2004] CAT 17 (``The Liability Judgment''). In summary, the Tribunal found as follows.

(1) JJB and Allsports, respectively, were party with Umbro, Sports Soccer, JD and Blacks to the England Agreement, namely an agreement or concerted practice contrary to the Chapter I prohibition having as its object or effect the maintenance of the retail price of England replica shirts at £39.99 in the period immediately before and during the Euro 2000 football tournament (see [637] to [670] and [704] to [727] of the Liability Judgment).

(2) JJB and Allsports, respectively, were party with Umbro, Sports Soccer, and Blacks to the MU Agreement, namely an agreement or concerted practice contrary to the Chapter I prohibition having as its object or effect the fixing of the retail price during the key selling period of the new Manchester United home shirt due to be launched on 1 August 2000 at £39.99 (see [830] to [885] of the Liability Judgment).

(3) JJB was party to a concerted practice contrary to the Chapter I prohibition having as its object or effect the maintenance of the retail price of the Manchester United Centenary shirt at £39.99 at launch on 20 July 2001 until the end of August 2001 (``the MU Centenary Shirt Agreement'') (see [933] to [989] of the Liability Judgment).

(4) The OFT had otherwise not proved its case against JJB as regards the alleged Continuation Agreement (see [894] to [932] of the Liability Judgment).

(5) The OFT had not proved its case against JJB in respect of the England Direct Agreement (see [990] to [1053] of the Liability Judgment).

II THE STATUTORY FRAMEWORK AS REGARDS PENALTIES

Section 36 of the Act

9. The OFT's power to impose penalties arises under section 36 of the Act as amended:

``(1) On making a decision that an agreement has infringed the Chapter I prohibition, the OFT may require an undertaking which is a party to the agreement to pay the OFT a penalty in respect of the infringement.

...

(3) The OFT may impose a penalty on an undertaking under subsection (1) or (2) only if the OFT is satisfied that the infringement has been committed intentionally or negligently by the undertaking.

...

(8) No penalty fixed by the OFT under this section may exceed 10% of the turnover of the undertaking (determined in accordance with such provisions as may be specified in an order made by the Secretary of State).''

The Penalties Order

10. The turnover of the undertaking for the purposes of calculating the maximum of 10% of turnover referred to in section 36 (8) was at the material time to be determined in accordance with the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000, SI 2000/ 309, (``the Penalties Order''). That Order has since been amended by the Competition Act 1998 (Determination of Turnover for Penalties) (Amendment) Order, SI 2004/1259. The principal effect of that Order is to substitute a new Article 3 which provides as follows:

``The turnover of an undertaking for the purposes of section 36(8) is the applicable turnover for the business year preceding the date on which the decision of the OFT is taken or, if figures are not available for that business year, the one immediately preceding it''.

The object of the amendment is to bring the Penalties Order in line with Council Regulation (EC) No. 1/2003 0J 2003 L1/1.

11. Under Article 3 of the Penalties Order:

``The turnover of an undertaking for the purposes of section 36(8) is -

(1) the applicable turnover for the business year preceding the date when the infringement ended;

(2) where the length of the infringement is more than 12 months, in addition the amount of the applicable turnover for the business year preceding that identified under paragraph (1) which bears the same proportion to the applicable turnover for that business year as the period by which the length of infringement exceeds 12 months bears to 12 months; and

(3) where the length of the infringement is more than 24 months, in addition the amount of the applicable turnover for the business year preceding that identified under paragraphs (2) which bears the same proportion to the applicable turnover for that business year as the period by which the length of infringement exceeds 24 months bears to 12 months''.

12. By virtue of Article 2, read with paragraph 3 of the Schedule to that Order, the ``applicable turnover'' for the business year preceding the date when the infringement ended

``shall be limited to the amounts derived by the undertaking from the sale of products and the provision...

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