Cigarette Cartel, Pharma Pricing- Recent UK Antitrust Rulings

In the United Kingdom there have been two recent significant

developments in respect of cartel activity. On Friday 11 July,

Mr Justice Pitchford quashed an indictment alleging price

fixing against five pharmaceutical companies and nine

executives. On the same date, Gallaher and five retailers

agreed to pay £132 million to settle charges brought by

the Office of Fair Trading ("OFT"). By any measure,

the developments represent a spectacular defeat for

Britain's Serious Fraud Office ("SFO") and a

significant achievement for the increasingly aggressive

OFT.

Serious Fraud Office Prosecution

The SFO began investigating allegations of price fixing in

the pharmaceutical industry in 2000. In April 2002 more than 30

premises were raided including the offices of pharmaceutical

companies and the homes of a number of executives. Civil

proceedings began in October 2002 against the pharmaceutical

companies. It has been suggested that the cost of the

investigation amounted to £25 million and was the largest

prosecution ever brought by the SFO. The companies Goldshield

Group, Norton Health Care, Generics UK, Ranbaxy and Kent

Pharmaceuticals were all indicted in April 2006 together with

nine executives. The allegation was simply that the companies,

through the indicted executives, had fixed the price of

pharmaceuticals supplied to the UK's National Health

Service and orchestrated planned price rises.

The charges brought against the companies and the

individuals were under the common law offence of conspiracy to

defraud. The decision by the trial judge to quash the

Indictment followed the decision by the House of Lords in April

2008 that price fixing in the absence of other aggravating

features was not a criminal offence in the UK prior to the

introduction of the Enterprise Act in 2002.

The SFO does have the right of appeal to the Court of Appeal

in this matter but most commentators think it is unlikely to

succeed. The question remains as to whether the SFO was wise in

bringing this prosecution when a civil settlement with the

defendant companies had already been reached.

In stark contrast to this very public failure on behalf of

the criminal prosecutors is the OFT's record £132

million settlement with six companies for fixing the price of

cigarettes.

The OFT identified Imperial Tobacco as the company at the

centre of the scheme. Imperial Tobacco owns brands such as

Embassy and Gallaher. These two companies control about 85% of

the UK's cigarette market. UK...