01/05/2018
In December 2017 the Competition and Markets Authority (CMA) fined two businesses £1.7million for breaching competition law by market sharing under the umbrella of a joint venture.
Certain types of work must be undertaken in a controlled environment known as a Cleanroom. Examples include NHS pharmacies, and semi-conductor and micro-electronic production. Garments worn by people working in Cleanrooms are laundered by specialist cleanroom laundries. Customers who need Cleanroom services tend to purchase them by way of competitive tender. Fenland[1] and Berendsen[2] are suppliers of such specialist laundry services. In 1980 Fenland and Berendsen set up a joint venture (JVCo) whose purpose was to enable the operation of a national business under the "Micronclean" brand. The parties submitted that the joint venture arrangements allowed the introduction and development of new cleanroom services and consumables, including through the licensing of knowhow to the JV partners. In May 2012 Fenland and Berendsen entered into identical Trade Mark License Agreements (TMLAs) with JVCo. The TMLAs set out the terms on which each party could operate using the "Micronclean" brand, whose trademarks were held by JVCo. Under the TMLAs:
- Great Britain was divided into two "territories" (one allocated to each party) by a line roughly drawn from London to Anglesey;
- Each party had a non-exclusive right to use the "Micronclean" Trade Marks in its own (and, subject to restrictions, in the other party's) territories;
- Each party agreed not to solicit new business in the other's territory;
- Customers located in one party's territory were asked to give "written confirmation" if they wished to be supplied by the other party;
- Where one party was approached by an existing or former customer of the other party, the latter had to be notified and be given the opportunity to resolve any issues with the customer; and
- Details of customers supplied in the other party's territory were maintained on a Central List.
Unsurprisingly, the CMA found that Fenland and Berendsen agreed to share the market in cleanroom laundry services through an allocation of territories and customers, in breach of the Chapter I prohibition:
"Sharing markets is expressly prohibited under section 2(2) of the [Competition] Act. Sharing markets through territorial or customer allocation has long been established as being harmful to competition because, by its very nature, it constrains suppliers from determining independently the commercial policy which they intend to adopt on the market, and it deprives customers of the full choice of competitive offerings that might otherwise be available to them. When one undertaking agrees with another undertaking that it will enjoy exclusive access to a territory or customer group, that undertaking acts in the knowledge that it will face little, if any, competition from the other undertaking."
The CMA accepted that the wider context of the JV was important in assessing whether there had been an infringement; in particular whether the JV parties could be said to be "competitors" (a breach of the Chapter I prohibition could only be found if Fenland and Berendsen were actual or potential competitors), and whether the TMLAs were objectively necessary for the operation of the wider JV. The CMA did not accept that the parties operated in distinct geographic areas. Each party had existing customers in the territory allocated to the other party and the TMLAs expressly covered how such situations were to be dealt with. The CMA also found that the parties could have served more "out of territory" customers (whether using existing or new distribution networks, or couriers) had the restrictions in the TMLAs not been in place.
The CMA also rejected the argument that normal competition never existed between the parties due to the wider context of the JV, rather tersely noting that "the Parties cannot claim they were not legally actual competitors as a result of having agreed to limit the competition between themselves." Under the terms of the TMLAs each party had a non-exclusive license to use the "Micronclean" brand throughout Great Britain; it was as a result of the voluntary restrictions they imposed upon themselves that they (generally) restricted their business to the territory allocated to them.
The CMA had to consider whether the restrictions in the TMLAs were objectively necessary to the operation of the JV. This is a very high test; if a lesser restriction would enable the JV to be economically viable then the TMLAs would not be objectively necessary. The CMA found that the restrictions were not objectively necessary. In this case it was relevant that the JV did not result in functional integration or structural change in the market; on the contrary, both JV parents continued to operate independently on the market. This was therefore not a case in which the TMLAs were ancillary restrictions between a full function JV and its parents (which are generally acceptable in competition law terms). The CMA considered several "counterfactual" scenarios and concluded there would have been other realistic options that would have avoided the need for a market-sharing agreement, while still delivering the benefits of co-operation.
Concluding that the agreement did not fall into any individual or block exemption, the final penalties imposed by the CMA were £510,118 for Fenland and £1,197,956 for Berendsen[3].
The CMA's finding of an infringement could give rise to "follow on" claims for damages in the Competition Appeal Tribunal by any person (an individual or company) who has suffered loss as a result of the infringement. Given the difficulties quantifying loss caused to any single customer by the infringement, it may also be possible to bring a collective action on behalf of, for example, customers in a particular sector who require cleanroom laundry services.
For more information on this topic please contact Trevor Watt or David Owens.
[1] Formerly "Fenland Laundries Limited" and, since 1 July 2016, known as "Micronclean Limited".
[2] "Berendsen Newbury" and "Berendsen plc" collectively. "Berendsen Newbury" was formerly known as "Micronclean (Newbury) Limited" and, since 15 September 2015, has been called "Berendsen Cleanroom Services Limited".
[3] £169,285 for which Berendsen Newbury alone is liable, and £1,028,671 for which Berendsen Newbury and Berendsen plc are jointly and severally liable.
