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OFT reaches early resolution agreements in tobacco case

82/08    11 July 2008

Six companies have today reached early resolution agreements with the OFT in which they have admitted engaging in unlawful practices in relation to retail prices for tobacco products in the UK, and have agreed to pay individual penalties which come to a combined maximum of £173.3m before discounts.

The companies are Asda, First Quench, Gallaher, One Stop Stores (formerly named T&S Stores), Somerfield, and TM Retail.
 
Today's agreements result from a process following the OFT's Statement of Objections issued in April 2008. This set out the OFT's proposed findings that two tobacco manufacturers and eleven retailers had variously engaged in one or more unlawful practices in relation to the retail prices of a number of tobacco products in breach of the Competition Act 1998. More details of the allegations are set out in the OFT's press statement dated 25 April 2008.

The OFT has now concluded early resolution agreements with these six parties, each of which has admitted liability in respect of all of the infringements alleged against it, and each of these parties will receive a significant reduction in the financial penalty that might have otherwise been imposed on condition that it continues to provide full co-operation with the OFT.

A number of the six parties had previously applied to the OFT for leniency, and the total penalties the parties have agreed to pay if all leniency and early resolution discounts are given is £132.3m, rather than the pre-discount penalties total of £173.3m.

John Fingleton, OFT Chief Executive, said:

'The OFT's objective is to make markets work well for consumers and the economy alike. A cornerstone of this is the principle that companies should set their prices independently.

'The OFT is very pleased that the early co-operation of these parties has enabled the swift resolution of some of this case, which will significantly reduce the costs of pursuing the investigation for the OFT and the businesses concerned. This demonstrates the flexible approach the OFT is prepared to take to reduce the burden of investigations, while maintaining strong and effective competition law enforcement.'

A further company, Sainsbury's, was the first to apply to the OFT for leniency and will receive complete immunity from financial penalty if it continues to co-operate fully.

The investigation against The Co-operative Group, Imperial Tobacco, Morrisons, Safeway, Shell and Tesco is continuing. These parties have an opportunity to make representations to the OFT on its proposed findings. The OFT will consider these carefully, along with the evidence in the case as a whole, before reaching any final decision as to whether the law has been breached.

NOTES

1. Having signed the agreements today, Friday 11 July 2008, the OFT has made an announcement at the earliest opportunity following the close of the London Stock Exchange.

2. The Competition Act 1998 prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK. The Chapter I prohibition covers anti-competitive agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in the UK or a part of it and which may affect trade in the UK or a part of it.

3. In April 2008, the OFT issued a Statement of Objections, setting out its proposed findings to: Asda Stores Limited, Co-operative Group Limited, First Quench Retailing Limited (which trades under several retail brands, including Threshers), Gallaher Limited, Imperial Tobacco Limited, Wm Morrison Supermarkets plc, Safeway Stores Limited, Sainsbury's Supermarkets Limited, Shell UK Limited, Somerfield Stores Limited, T&S Stores Limited, Tesco Stores Limited and TM Retail Limited. The Statement of Objections was also sent to other companies, such as parent companies, within the same corporate group of some of the above companies where it proposed to attribute liability to them, as well as the above companies. See press release 56/08.

Further key background information is set out below on the infringements alleged against each party:

a. Linking the retail price of a manufacturer's brand to the retail price of a competing brand of another manufacturer:

• March 2000 to at least mid 2003: Gallaher, Imperial Tobacco, Asda, the Co-operative Group, First Quench, Morrisons, Safeway, Shell, Somerfield, T&S Stores and TM Retail
  
• March 2000 to early 2003: Gallaher, Imperial Tobacco and Sainsbury's
  
• March 2000 to mid 2003: Gallaher, Imperial Tobacco and Tesco
  

b. Indirect exchange of proposed future retail prices between competitors:

• Late 2001: Sainsbury's to Tesco via Imperial Tobacco
  
• Early 2002: Imperial Tobacco to Gallaher via Asda
  
• Early 2002: Imperial Tobacco to Gallaher via Somerfield
  
• Mid 2002: Imperial Tobacco to Gallaher via Shell
  
• Early 2003: Gallaher to Imperial Tobacco via Shell

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