Simmons’ client BT wins first ever collective action

The Competition Appeal Tribunal (CAT) handed down its judgment today in the first opt-out competition collective action to go to trial in the UK, Justin Le Patourel v BT. In a successful outcome for BT, represented by Simmons & Simmons, the CAT has dismissed the +£1.3bn claim against BT in its entirety. The outcome is a major victory for our client and we are delighted to have successfully acted for BT in such a seminal case.

This case (an excessive pricing case) ultimately turned on the question of fairness: the CAT found that BT had demonstrated its products provided real and meaningful value to customers (beyond cost) and that, as a result, BT had charged its customers a fair price (including when compared with competitors’ prices). In particular, the documentary, factual and expert witness evidence deployed by BT and its legal team persuaded the CAT of the high levels of customer satisfaction with BT’s landline product and the value of the BT brand as perceived by customers. Consequently, the CAT concluded that (although the prices exceeded a benchmark price based on costs), the level of value customers received from the product meant BT’s prices were not unfair, and so not abusively priced. This judgment and the way the CAT approached the question of unfairness and economic value in particular will have a major impact on excessive pricing cases in the future.

Summary of outcome

The CAT found that BT was dominant on a narrow product market for standalone fixed voice services, its legacy landline product, rejecting the position that such standalone landline services were part of a broader retail telecoms market that included the provision of broadband and other services in bundles. It went on to find that BT’s prices exceeded a competitive cost benchmark which it determined itself (not using either party’s methodology).

However, the CAT did find that BT’s prices for these services were ultimately not unfair and therefore not abusive because they were reflective of the value attributed to BT’s services by its landline only customers. In particular, the CAT focused on evidence relating to positive BT brand value, high customer satisfaction scores and evidence that each price change was accompanied by so-called “customer gives” – essentially ‘value adds’ and/or service improvements at no additional charge to the customer (e.g. the onshoring of call centres to the UK, nuisance call protection, fault fix guarantees etc.).

Importance of showing economic value and fairness

This is one of the few excessive pricing cases that contains a lengthy, ‘positive’ description of the types of factors that can constitute ‘economic value’ for customers (a rather vague element of the legal test for abuse), such that the price charged is ultimately fair. While the discussion is, again, largely case-specific a few general points flow from it:

• Where there is evidence of a material number of customers switching away from the dominant company’s product, that can tell you something about the value attributed to it by those customers who stay.
• Claimants will have to put forward a solid body of evidence to demonstrate unfairness and lack of additional economic value to customers, particularly where customers aren’t captive. A claim for unfairness which rests principally on the extent of the excess may not ‘cut it’ in these types of circumstances.
• Defendants in excessive pricing cases will want to consider what elements of ‘distinctive value’ they provide to customers and, crucially, how this is supported by internal documents.

(Dis)proving excessiveness

• Even though it’s for the class representative to prove their case, this case shows that the CAT is willing to ‘split the difference’ between the parties and set out its own methodology for excessiveness if it doesn’t agree with either party’s costs / benchmark methodology.
• The CAT also suggested that a defendant should carry out an in-depth cost allocation exercise based on principles of cost causality specifically for the purposes of any proceedings involving excessive pricing (i.e. it should produce new evidence on costs). If adopted as a standard approach, this goes further than even some competition regulators (who have the investigative powers to order companies to carry out such exercises) – the CMA, for example, has in past excessive pricing decisions accepted that the companies it investigated do not always allocate all costs to individual products, and approached its benchmark price methodology accordingly. This could therefore have broader implications for defendants in considering how to respond to allegations of excessive pricing.

Other implications for the UK collective actions regime

On the one hand, a defendant successfully seeing off a claim in the first collective action to go to trial will no doubt have some impact on the market and the rate of competition collective actions being brought in the CAT. Nevertheless, the CAT’s approach was relatively restrictive on the ‘Limb 1’ test for excessiveness (the benchmark price) and what ended up swinging the case were the factors taken into account for the ‘Limb 2’ unfairness assessment. Each case will have to be assessed through this lens going forward.

While a major success for the defendant in this instance, the judgment offers important lessons for defendants in ongoing or future excessive pricing cases: it shows the importance of evidence on economic value and highlights the CAT’s relatively conservative approach to the ‘Limb 1’ benchmark price and the question of prima facie excessiveness.

Our team

The Simmons team advising BT was Patrick Boylan, Eleanore Di Claudio, Alice Lauterjung, Josh Farquharson, Vanessa Sharman, Anna Crellin and Rachel Malloch.