United Kingdom Competition Appeal Tribunal Upholds £50 Million Penalty Against Royal Mail for Discriminatory Pricing Against Bulk Mail Operators

On November 12, the United Kingdom Competition Appeal Tribunal (Tribunal) issued a unanimous judgment in which it affirmed a £50 million penalty by the Office of Communications (Ofcom) against Royal Mail plc for discriminatory pricing against bulk mail operators.

Royal Mail plc, once the state-owned monopoly provider of mail services in the United Kingdom, is a publicly traded company that operates as an international parcels and letters delivery service, and that also serves as the United Kingdom’s sole designated provider of the universal postal service throughout the United Kingdom.

In January 2014, according to the Judgment, Royal Mail announced the introduction of differential prices for bulk mail operators for access to Royal Mail’s final delivery service, without which the bulk mail providers could not operate.  One bulk mail operator, Whistl UK Limited (formerly known as TNT Post), “planned to set up its own final delivery service and establish an end-to-end bulk mail service in competition with Royal Mail.”

After Whistl complained to Ofcom that Royal Mail’s new differential access prices “made its end-to-end operations and future plans uneconomic,” in February 2014 Ofcom announced that it would open an investigation into Royal Mail’s pricing.  Thereafter, Royal Mail’s new prices were suspended, and formally withdrawn in 2015.

Ofcom ultimately ruled in 2018 that Royal Mail “had infringed the Chapter II prohibition under the Competition Act 1998 (“CA 1998”) and Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), and imposed a fine of £50 million on Royal Mail.  Royal Mail then appealed the Ofcom decision to the Tribunal.

In a highly detailed 230-page judgment, the Tribunal dismissed each of Royal Mail’s arguments:

1. Ofcom erred in law and in fact by concluding that, when Royal Mail announced the new prices, prices were applied for the purposes of Article 102(c) TFEU and section 18(2)(c) CA 1998. On this issue, the Tribunal concluded, among other things, “that Royal Mail’s conduct was not ‘competition on the merits’ as that term is understood in competition law,” and that Royal Mail’s issuance of Contract Change Notices, which give notices to access operators of impending changes to the terms and conditions of access, “had the effect of signalling Royal Mail’s commitment to a policy of limiting entry into direct delivery.”
2. Ofcom erred in concluding that transactions undertaken between Royal Mail and all of its different access customers were equivalent in all material respects, and that the price differential could not be justified. On this issue, the Tribunal concluded “the cost justification as advanced by Royal Mail does not serve to overcome the essentially discriminatory nature of the price differential in the particular circumstances of this case.”
3. Ofcom erred in its assessment of whether the price differential was likely to give rise to a competitive disadvantage and/or a restriction of competition because it failed to have proper regard to the impact of the conduct on an ‘as efficient competitor’. On this issue, the Tribunal concluded, after an elaborate analysis, that Ofcom was correct in its finding that the test that Royal Mail advanced “was neither appropriate nor necessary in this case and that its analysis of the likely effects  of the conduct in question and its findings on competitive disadvantage were fully justified.”
4. Ofcom erred in finding that any abuse was not objectively justified under Article 102 and/or Article 106(2) TFEU by reference to the need to preserve the viability of the universal service under economically acceptable conditions.  On this issue, the Tribunal concluded “that Royal Mail cannot claim either that its conduct was objectively justified under Article 102 or that it was exempt from the application of Article 102 by reason of Article 106(2).”
5. Ofcom committed a fundamental procedural error by basing its findings of a likely competitive disadvantage in the Decision on evidence and analysis that was not previously included, or relied upon, in the Statement of Objections, or otherwise put to Royal Mail during the administrative phase. On this issue, the Tribunal concluded That “notwithstanding the paramountcy of an undertaking’s ability to defend itself without procedural hindrance, Royal  Mail’s ability to do so in this particular case has not been impaired.”
6. Ofcom erred in imposing a £50 million fine on Royal Mail. On this issue, the Tribunal “[took] the view that a substantial penalty is justified” and concluded that the amount of the penalty was correct.

N.B.:  Corporate officers responsible for compliance with the United Kingdom Competition Act 1998 should take note of this judgment, and incorporate key elements of the Tribunal’s judgment and analysis in their internal guidance on discriminatory pricing.  Although this case arose in the United Kingdom, the Tribunal’s judgment may also provide guidance for other European Union Member States in pursuing discriminatory-pricing cases.