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Recently 50 of the UK's top independent schools were accused of price fixing by the Office of Fair Trading (OFT). In effect, their participation in an annual survey of school fees -- the Sevenoaks survey -- was declared to be an anti- competitive "exchange of confidential information".
In the schools' defence Jonathan Shephard, general secretary of the Independent Schools Council (ISC), has said that the schools were unaware of the change in the law (with regard to charitable bodies) and thought they would be exempt from the provision under the Competition Act that says any exchange of confidential pricing information can be considered anti-competitive behaviour.
This incident could potentially be worrying for many other businesses. The OFT itself found in its last annual survey that only two-fifths of all businesses were aware of the Competition Act, and about half of all companies were unable to hazard a guess as to what the legislation prevented them from doing. While larger companies (those with 200 or more employees) are more aware of the act and its provisions, many small and medium-sized enterprises remain, relatively speaking, in the dark.
City lawyers say that while the business community has become more knowledgeable about competition law, there are still blind spots in their understanding of what constitutes an offence. However, there tends to be little confusion as to what comprises a traditional cartel.
"Few businessmen in competing companies will claim they don't know that sitting in a smoke-filled room and agreeing on the prices they are going to charge their customers is illegal," says Samantha Mobley, a competition partner at Baker & McKenzie, the law firm.
Grey areas, say lawyers, arise around the exchange of confidential business information where this exchange is not obviously a breach of the law. One lawyer from a leading City law firm says that a casual conversation where the disclosure of price-sensitive information has been only "one-way" can constitute an offence.
Another competition partner uses this example: "If you're in a room where prices are discussed and you don't absolutely repudiate your involvement in pricing and possibly even inform the competition authorities, you are at risk of being found liable for anti-competitive behaviour."
Ms Mobley says the whole area is tricky. "The extent to which the exchange of confidential business information between competitors is a problem under competition law depends on a number of factors, which include how many players there are in the market or the type of information being disclosed."
Dr Michael Grenfell, a competition partner at City law firm Norton Rose, agrees. He says: "It is a lot easier than people think to be in breach of the law. Any discussions or exchange of information about pricing can be potentially caught by the rules."
Lots of businesses such as independent schools supply statistics -- sometimes confidential -- to a central organisation or trade association. How concerned should companies that regularly participate in benchmarking surveys in their industry be?
Ms Mobley says there are clear rules in the case law as to what can happen to that information. "There is a best practice that has built up around statistics in the competition world so, for example, you would not expect to get back specific figures for all participants. It is normally an industry average so you get a sense of how you are doing in comparison to the market. You would certainly not expect to get back what you got in the Sevenoaks survey."
Unfortunately for the independent schools under investigation, ignorance of the provisions of the competition law will not hold much water as a defence, partly because the regulators tend to take a firm line on this stance and also because of the existence of potentially compromising evidence. The bursar of Winchester Collego sent an e-mail to Sir Alar Large, the deputy governor of the Bank of England, with a message that could be interpreted to mean the school had knowledge that the Sevenoaks survey could be sensitive under anti-cartel regulations.
Ms Mobley also points out that it is difficult in general for companies to plead ignorance as a defence since the Competition Act that came into force in March 2001 and the criminal penalties that were later introduced in July 2003 constituted nothing less than a wholesale change in the UK competition regulatory regime.
The most common defence for businesses is that a "rogue person" in the organisation has acted under his own steam with a counterpart from a competitor. However, even the rogue defence is not that effective. Ms Mobley says: "It can be a mitigating circumstance in the level of the fine imposed, but the regulators will turn around and say to the company 'You did not have the right policies and training in place'."
At the end of the day, rogues are still the responsibility of the company.
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