Ring, ring! Who’s there? Not unfair prices, says the CAT in Le Patourel v BT

On 19 December 2024, phones were ringing off the hook in anticipation as the Competition Appeal Tribunal (CAT) delivered its first ever substantive merits judgment in the UK collective proceedings regime in Justin Le Patourel v BT Group Plc and British Telecommunications Plc [2024] CAT 76. The CAT found unanimously in BT’s favour that BT’s prices in respect of Standalone Fixed Voice services (SFV services), while excessive, were not unfair, signalling a landmark first win for defendants under the new regime. We unpack the judgment’s key findings and, crucially, whether this is anything to phone home about in terms of future cases.

Background

The case centred around allegations that BT had abused its dominant market position by imposing unfair pricing in relation to its SFV services, contrary to section 18 of the Competition Act 1998. Justin Le Patourel initiated opt-out collective proceedings on behalf of a maximum of 3.8 million claimants, with aggregate damages claimed to be in excess of £1 billion. The claim was certified by the CAT in September 2021.

Ofcom previously investigated BT’s pricing under its regulatory powers in 2017, expressing concerns about BT's pricing in the SFV services market. However, in October 2017, BT agreed voluntary undertakings with Ofcom to address these concerns, including a price reduction in line rental charges, and Ofcom did not make any final infringement findings against BT.

Key Findings

Liability

The CAT took an orthodox approach to excessive pricing claims, applying the well-established test from United Brands v Commission, C-27/76. The key issues from a liability perspective were therefore:

• Market Definition and Dominance: What was the relevant market, and was BT dominant in it?

• Excessive pricing (Limb 1): Were the prices BT charged for its SFV Services excessive by reference to a notional competitive benchmark (determined by reference to all direct and indirect costs and a reasonable margin)?
• Unfairness (Limb 2): If so, were such excessive prices unfair, either in and of themselves, or by reference to relevant comparators?

Market Definition and Dominance: Applying the SSNIP Test framework, the CAT found that the relevant market was for SFV Services only, and BT, with a significant market share of well above 50% on any metric, were dominant. BT sought to argue for a wider market which also included bundles (one in which it was common ground that BT was not dominant) but this failed. Key to the CAT’s determination was that the function of switching during the claim period from SFV to bundles was a “secular trend” rather than one related to pricing, and the factual evidence did not suggest that the threat of switching was a competitive constraint.

Excessive pricing (Limb 1): Expert testimony formed the bedrock of the excessive pricing arguments. The experts used very different methodologies, resulting in very different notional competitive benchmarks. The CAT found that both experts’ methodologies had their respective issues, but did offer valuable insights. The CAT exercised a 'blended' approach to find a competitive benchmark that reflected the weight it thought should be given to each of the experts’ methodologies. The CAT found that on average across the seven years of the claim period, BT exceeded the competitive benchmark by 38%. It found that this excess was both excessive and persistent, noting that “any excess would have been significant if it was 20% or more above the competitive benchmark” [926].

Unfairness (Limb 2): Crucially, after balancing all the evidence together, the CAT considered that BT’s prices were not unfair. The CAT considered various factors, including (i) the extent of the excess, which it found was not sufficient to find unfairness alone, and (ii) the provision of economic value such as customer loyalty to BT, brand value, and BT’s “Gives” (i.e. services offered to customers such as call centres based in the UK). The CAT determined that material weight should not be given to evidence of unfairness in Ofcom’s provisional findings, given that the detailed trial analysis superseded Ofcom’s investigation and that these ex ante regulatory considerations differed fundamentally from the ex post Competition Act proceedings at hand.

Quantum

Since Mr Le Patourel’s claim failed, findings in relation to quantum were not strictly necessary, but the CAT briefly expressed the following notable obiter views:

• BT argued that it should not be assumed that, in the counterfactual, it would have limited itself to pricing at the competitive benchmark level. The CAT noted that it would not have accepted BT’s argument that quantum should be between a counterfactual of the highest lawful price and the actual price.

• The CAT would have rejected that the claim for damages should be uprated to take account of inflation, finding that there is no authority to suggest that this is permissible as a matter of law for this type of claim.

• The CAT said it would not have awarded interest on a compound basis, finding that “the fact that in collective proceedings, damages are to be assessed on an aggregate basis does not mean that there can be claims for compound interest which are not specifically evidenced in some way” [1419], although it “reach[ed] that conclusion with no particular enthusiasm” [1423].

Hold the phone: Key takeaways and wider implications

Given the extensive documentary, factual and expert evidence, clearly many aspects of this case turn on their own distinct facts. However, looking ahead, certain of the CAT’s findings may have broader implications.

Calling the numbers: the CAT’s approach to excessive pricing cases

The CAT emphasised the fact-specific nature of dealing with excessive pricing cases. However, it also provided welcome guidance that it would consider an excessive price only to be significant if it was 20% or more above the notional competitive benchmark and persistent if that excess was consistent over a number of years. The CAT also showed amenability to “distinctive value” points increasing the economic value of the product or service in question, where there is cogent evidence.

Prank call? Misplaced reliance on regulatory decisions

Despite allowing certification in part based on Ofcom’s provisional findings, the CAT was unpersuaded that it should attach material weight to them following trial, in particular noting that “this case demonstrates the pitfalls of attempting a rigid “read-across” from the findings of a regulatory body, especially where there was no final conclusion” [1267]. Whilst the relevance of regulatory findings will be highly fact specific, this judgment signals that the mere fact of an investigation or commitments having been entered into will not mean that liability will go in the class representative’s favour.

Hold the line, caller: Imminent future tests of the collective proceedings regime

We will not have long to wait before the relevance of this judgment is put under the spotlight. The case of Kent v Apple goes to trial this month, in which the class representative alleges that Apple abused a dominant position through excessive and unfair prices in the form of commission through its App Store. It will be interesting to see how the CAT approaches the same legal test in respect of this more innovative market.

Class Representatives: settlement on speed-dial?

This will be a disappointing ruling for class representatives, claimant firms and litigation funders and serves as a reminder that the lower hurdle for certification will not translate into an easy ride at a full merits trial. Further tests of the regime will be required before the risk of leaving empty-handed becomes clearer for class representatives (and their lawyers and funders). Even so, the judgment may encourage class representatives to seek to settle before trial, and potentially at more reasonable levels, rather than risk claims failing altogether.

This article was published on the GCR Class Actions hub on 21 January 2025