Mailinglist Archive: opensuse-edu (172 mails)
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Re: [suse-linux-uk-schools] Re: Health Service MS deal
- From: Michael Brown <mbrown@xxxxxxxxxxxxxxxx>
- Date: Tue, 20 Nov 2001 09:33:35 +0000 (UTC)
- Message-id: <Pine.LNX.4.33L2.0111200906530.28265-200000@xxxxxxxxxxxx>
The OFT has replied. Attached is a full transcript of communications to
date (16KB worth). Essentially, their argument now boils down to:
"'The Court has held (in particular in Höfner & Elser) that in the context
of competition law the concept of an undertaking encompasses every entity
engaged in an economic activity, regardless of the legal status of the
entity and the way in which it is financed.
Sickness funds, and the organisations involved in the management of the
public social security system, fulfil an exclusively social function.
That activity is based on the principle of solidarity and is entirely
non-profit making.'
As such, the principle of solidarity (i.e. that fact that the services
available to a person under the NHS bear no relationship to the amount (if
any) contributed by that person to the NHS by way of taxes or National
Insurance contributions) and the fact that the body in question fulfils a
purely social function is central to the question as to whether or not
that body is an undertaking.
As such, whether this might involve the purchase of, say, a renal dialysis
machine or the necessary computer software services required for the
general purpose of helping to run the NHS is irrelevant if the purpose in
both cases is to facilitate the overall objective of the NHS - the
provision of free healthcare services to society as a whole."
As an interesting aside, this could mean that free software projects are
also not subject to the Competition Act. After all, a free software
project is based on the principal of solidarity: "the services available
to a person [from a free software project] bear no relationship to the
amount (if any) contributed by that person to the [free software project]
by way of [any means]", *provided* that the project group does not offer
paid-for consultancy services. Of course, there should be nothing to
prevent individual members of a free software project offering private,
for-profit consultancy since there are certainly medical professionals who
work in both the NHS and private practice. A free software project is
therefore an "activity ... based on the principle of solidarity and is
entirely non-profit making".
So, if any of us ever wanted to set up some anti-competitive deals, all we
have to do is:
1. Pay 20ukp to set up a limited company. This creates a new legal
person, and avoids any possible problems about what might or might not
constitute an 'entity'.
2. In the name of the company, set up a free software project. Spend a
day or two hacking together something mildly useful and make it
available for download. License it under the GPL or similar.
3. Provide the free software project with a donations facility. You will
probably need to open a business bank account in order to do this.
Barclays will give you 18 months without bank charges, and I'm sure
other banks will do similar offers. Make it clear on the project web
page that this facility is purely for donations and that all money
received will go towards providing improved facilities for the project:
none will ever retained as profit or paid out as dividends to the
shareholders.
4. Route any potentially anti-competitive deals through the new company.
Explain to the OFT that the company is not an undertaking, preferably
by quoting their own words back to them.
There you go: how to bypass the Competition Act for only 20ukp...
Michael
Date: Fri, 12 Oct 2001 15:00:16 +0100 (BST)
From: Michael Brown <mbrown@xxxxxxxxxxxxxxxx>
To: enquiries.competitionact@xxxxxxxxxx
Subject: NHS / MS block licensing deal
Dear Sir / Madam,
I understand that the NHS is planning to negotiate a block licensing deal
with Microsoft. I have a few questions:
1. Will this contract be put out to tender as required under EU law for
any deal over £150,000? If so, what will the tender specify as
requirements? The requirement cannot be for specifically Microsoft
software licences, as this would obviously preclude all but one
supplier and would therefore be anti-competitive.
2. Have the competition implications been considered? If this deal goes
through, then Microsoft software will effectively become cost-free to
users within the NHS. This will lock out any alternative suppliers and
will therefore be anti-competitive.
3. Is the Government aware of the political risks of entering into a
high-profile, potentially anti-competitive deal with Microsoft at a
time when the company has been found guilty of anti-competitive
practices in its own country and looks set to suffer a similar verdict
by the EU?
4. Does the £70m deal represent best value? If so, where is the evidence;
if not, then why is the deal being considered? Have any alternatives
been evaluated?
Sincerely,
Michael Brown
Managing Director, Fen Systems Ltd.
------------------------------------------------------------------------------
Date: Tue, 13 Nov 2001 14:35:57 +0000
From: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
To: mbrown@xxxxxxxxxxxxxxxx
Subject: NHS/MS Block licensing deal
Parts/Attachments:
1 Shown ~9 lines Text
2 116 KB Application
----------------------------------------
Dear Mr Brown,
Please see the attached reply to your e-mail of 12 October 2001. I am
sorry for the delay in replying.
Regards,
D J EADE
[ Part 2, Application/MSWORD 154KB. ]
Dear Mr Brown,
Thank you for your e-mail of 12 October addressed to the OFT enquiry
point. You are concerned about the new software licensing deal between
the National Health Service (NHS) and Microsoft Limited. You contend that
the contract was not put out to open tender and that the agreement is
likely to have a detrimental effect on competition.
As you may already know, the Director General of Fair Trading (the
Director) has responsibility for enforcing competition policy in the UK.
The principal piece of competition legislation available to him is the
Competition Act 1998 (the Act). The Chapter I prohibition prohibits
agreements between undertakings that may affect trade within the United
Kingdom (UK) and have as their object or effect the prevention,
restriction or distortion of competition within the UK. The Chapter II
prohibition prohibits conduct on the part of one or more undertakings
which amounts to the abuse of a dominant position in a market if it may
affect trade within the UK. The Act gives the Director powers to
investigate if there are reasonable grounds for suspecting that an
undertaking is infringing either of the prohibitions and powers to impose
fines up to a maximum of 10% of turnover.
The Public Procurement Rules are embodied in a number of EC Directives.
These collectively regulate the award of contracts by public authorities,
bodies governed by public law and private undertakings operating in the
utilities sectors on the basis of special or exclusive rights granted by
Member States. The aim of the public procurement rules is to co-ordinate
national award procedures for contracts above a minimum threshold
throughout the EU so as to introduce transparency, non-discriminatory and
fair and open competition in all Member States for the award of public
contracts. As such, the NHS is subject to these EC Directives.
There are legal consequences for a contracting authority if it is held by
a court to have breached the public procurement rules. For example, under
the Remedies Directive and the implementing regulations, the European
Court of Justice has power to review the award of the contract and may
award a number of remedies including (I) a declaration that the contract
is void, (ii) an order varying the contract, and/or (iii) an award of
damages to any person harmed by an infringement of the public procurement
rules.
As such, the procurement rules fall outside of the Director's
jurisdiction. Accordingly, the Director cannot rule on whether there has
been any breach of the EC procurement rules. Allegations of breaches of
the EC procurement rules are for the consideration, in the first instance,
of the European Commission.
As regards the Act, the Act applies to agreements between undertakings
(Chapter I) or the conduct of undertakings (Chapter II). Pursuant to
section 60 of the Act, the definition of an undertaking depends on the
case law of the European Court of Justice.
In Höfner & Elser[1], the European Court of Justice said:
'in the context of competition law,...the concept of an undertaking
encompasses every entity engaged in an economic activity, regardless of
the legal status of the entity and the way in which it is financed'.
As such, the NHS could be an undertaking when it is engaging in economic
activity but will probably not be acting as an undertaking when it is
exercising its 'public interest-type' functions. The NHS will not,
therefore, be an undertaking for the purposes of the Chapter I and II
prohibitions to the extent that they are purchasing services for the
purpose of improving healthcare services for the benefit of society in
general using monies raised by taxation. To summarise, while Microsoft
Limited is undoubtedly and undertaking for the purposes of the Act, the
NHS is unlikely to be an undertaking. As such, there is not agreement
between undertakings for the purposes of the Chapter I prohibition.
Further, as the NHS is not an undertaking there can be no breach of the
Chapter II prohibition by the NHS.
As regards Microsoft Limited and the Chapter II prohibition, it is the
abuse of a dominant position that infringes the Chapter II prohibition not
being dominant in a particular market or markets. As the alleged abuse is
that of the NHS (for failing to put the contract for software services out
to competitive tender) there are no reasonable grounds for suspecting that
the Chapter II prohibition has been infringed by Microsoft Limited in this
particular case.
You will appreciate that this is a preliminary view of officials based on
some limited facts and that this view neither binds the Director nor is a
substitute for statutory guidance on the application of the Act.
Nevertheless I hope that the comments in this letter help to explain the
Office's view in relation to the issues you have raised. I am sorry that
I cannot send you a more helpful reply. It is not that the matters you
have raised are not important but that they do not fall within the
jurisdiction of the Director for the reasons given.
Yours sincerely
D J EADE
Competition Enforcement Division 5
[1] Höfner & Elser -v- Macrotron case C-41/90 [1991] ECR I-1979 at
paragraph 21.
------------------------------------------------------------------------------
Date: Wed, 14 Nov 2001 02:48:54 +0000 (GMT)
From: Michael Brown <mbrown@xxxxxxxxxxxxxxxx>
To: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
Subject: Re: NHS/MS Block licensing deal
Thank you for your reply.
> In Höfner & Elser[1], the European Court of Justice said:
> 'in the context of competition law,...the concept of an undertaking
> encompasses every entity engaged in an economic activity, regardless
> of the legal status of the entity and the way in which it is
> financed'.
> As such, the NHS could be an undertaking when it is engaging in
> economic activity but will probably not be acting as an undertaking
> when it is exercising its 'public interest-type' functions. The NHS
> will not, therefore, be an undertaking for the purposes of the Chapter
> I and II prohibitions to the extent that they are purchasing services
> for the purpose of improving healthcare services for the benefit of
> society in general using monies raised by taxation. To summarise,
> while Microsoft Limited is undoubtedly and undertaking for the
> purposes of the Act, the NHS is unlikely to be an undertaking. As
> such, there is not agreement between undertakings for the purposes of
> the Chapter I prohibition. Further, as the NHS is not an undertaking
> there can be no breach of the Chapter II prohibition by the NHS.
Does the fact the the NHS is "purchasing services...using monies" not
qualify it as an undertaking? It seems to me that purchasing is, by
definition, an economic activity. You could argue that the NHS is
exercising purely its 'public interest-type' functions while *providing*
the healthcare services but I don't see that there are any grounds for
claiming that *purchasing* items or services is not an economic activity.
The fact that the monies are raised by taxation is surely irrelevant to
the argument, since the definition of an undertaking is "regardless of the
legal status of the entity and the way in which it is financed".
It is also dubious to claim that the services in question were purchased
for the sole purpose of "improving healthcare services for the benefit of
society in general". Is it possible to show a direct way in which these
purchases provide an improved healthcare service? The closest link I can
think of is that, allegedly, the purchases represented an overall cost
saving which, it could be argued, frees up more public money to be spent
on providing an improved healthcare service. This is an indirect link
and, possibly more importantly, it is a purely economic case. This would
therefore, one presumes, constitute an economic activity and so the
argument is reduced ad absurdum.
I contend that the NHS is engaging in an economic activity when it makes a
purchasing decision. Consequent to this, I contend that the NHS is an
undertaking as defined in Höfner & Elser. As you say, there is no debate
on the status of Microsoft Limited; it is clearly an undertaking. I also
contend that one effect of this purchasing decision is the distortion of
competition within the UK (as the action has significantly raised the
barrier to competitors attempting to sell to the NHS, which is a large
economic entity). Therefore, I contend that there are reasonable grounds
for suspecting that one or both of the NHS and Microsoft Limited is/are
infringing the Chapter I prohibition, and thus the Act gives the Director
powers to investigate.
I look forward to hearing your views on these points.
Regards,
Michael Brown
Fen Systems Ltd.
------------------------------------------------------------------------------
Date: Mon, 19 Nov 2001 14:53:11 +0000
From: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
To: mbrown@xxxxxxxxxxxxxxxx
Subject: Re: NHS/MS Block licensing deal
Parts/Attachments:
1 Shown ~12 lines Text
2 117 KB Application
----------------------------------------
Dear Mr Brown,
Thanks for your further e-mail. A substantive reply is attached to this
e-mail which, I hope, helps explain in more detail the OFT view and how we
arrived at it. The question is not one of politics but of jurisdiction.
In this context, we are required by the Act to be consistent with European
case law precedent.
Regards,
D J EADE
[ Part 2, Application/MSWORD 156KB. ]
Dear Mr Brown,
I refer to your e-mail of 14 November in reply to my e-mail of 13
November. In summary, you contend that the National Health Service (NHS)
is an undertaking for the purpose of the Competition Act 1998 (the Act)
and that as such the Director General of Fair Trading (the Director) has
the necessary jurisdiction to investigate the NHS's arrangements with
Microsoft under the Chapter I prohibition.
To explain further why the Office takes the view that the NHS is not an
undertaking for the purpose of the Act, when purchasing software services,
it might be helpful to set out in more detail our reasoning for reaching
this view.
In my previous e-mail I referred to the case of Höfner & Elser[1]. I
argued that the NHS would not be an undertaking when it is exercising its
'public interest-type' functions to the extent that it purchases services
for the purpose of improving healthcare services using monies raised by
taxation. You, quite correctly, contended that the fact that money is
raised by taxation is irrelevant in terms of defining whether a party is
an undertaking. I referred to monies raised by taxation only to
illustrate that the nature of the transaction has a public interest
dimension. In this context, the purpose of the NHS is to provide
healthcare services to the population in general. Further, the Secretary
of State for Health has a duty under the National Health Service Act 1977
to continue the promotion in England and Wales of a comprehensive health
service, and for that purpose to provide or secure the effective provision
of services; these services are of general benefit to society as a whole
and must be provided free of charge except in so far as the making and
recovery of charges is expressly provided for by statute.
To explain our view further as to why we take the view that the NHS is not
an undertaking in relation to your particular complaint, in Poucet &
Pistre[2] the European Court of Justice, commenting on a case involving a
public social security system, stated that:
'The Court has held (in particular in Höfner & Elser) that in the context
of competition law the concept of an undertaking encompasses every entity
engaged in an economic activity, regardless of the legal status of the
entity and the way in which it is financed.
Sickness funds, and the organisations involved in the management of the
public social security system, fulfil an exclusively social function.
That activity is based on the principle of solidarity and is entirely
non-profit making.'
As such, the principle of solidarity (i.e. that fact that the services
available to a person under the NHS bear no relationship to the amount (if
any) contributed by that person to the NHS by way of taxes or National
Insurance contributions) and the fact that the body in question fulfils a
purely social function is central to the question as to whether or not
that body is an undertaking.
As such, whether this might involve the purchase of, say, a renal dialysis
machine or the necessary computer software services required for the
general purpose of helping to run the NHS is irrelevant if the purpose in
both cases is to facilitate the overall objective of the NHS - the
provision of free healthcare services to society as a whole.
You should be aware that there is an exclusion from the Act for
undertakings entrusted with services of general economic interest in so
far as the Chapter I or Chapter II would obstruct the performance, of the
particular tasks assigned to the undertaking in question. Also, the
Secretary of State may by Order exclude for reasons of public policy
agreements from the application of the Chapter I prohibition. The Office
has not considered whether the exclusions are applicable or not in this
case given that our current view is that the NHS is not an undertaking for
the purposes of the Act.
The issue is not one of policy or lack of political will but one of
establishing jurisdiction under the Act. As previously noted, this is
just a view and neither binds the Director nor is it a substitute for
statutory guidance on the application of the Act. The Office is, of
course, receptive to alternative views on this jurisdictional issue and
would reconsider its preliminary view on jurisdiction in the light of
further arguments views suggesting that the NHS should be regarded as an
undertaking in these particular circumstances. I hope that my further
comments help to explain the Office's view in relation to these issues
Yours sincerely
D J EADE
Competition Enforcement Division 5
[1] Höfner & Elser -v- Macrotron case C-41/90 [1991] ECR I-1979 at
paragraph 21.
[2] Poucet -v- Assurance Générales de France & Another and Pistre -v-
Caisse Autonome Nationale de Compensation joined cases C-159/91 and
C-160/91, [1993] ECR I-631.
------------------------------------------------------------------------------
date (16KB worth). Essentially, their argument now boils down to:
"'The Court has held (in particular in Höfner & Elser) that in the context
of competition law the concept of an undertaking encompasses every entity
engaged in an economic activity, regardless of the legal status of the
entity and the way in which it is financed.
Sickness funds, and the organisations involved in the management of the
public social security system, fulfil an exclusively social function.
That activity is based on the principle of solidarity and is entirely
non-profit making.'
As such, the principle of solidarity (i.e. that fact that the services
available to a person under the NHS bear no relationship to the amount (if
any) contributed by that person to the NHS by way of taxes or National
Insurance contributions) and the fact that the body in question fulfils a
purely social function is central to the question as to whether or not
that body is an undertaking.
As such, whether this might involve the purchase of, say, a renal dialysis
machine or the necessary computer software services required for the
general purpose of helping to run the NHS is irrelevant if the purpose in
both cases is to facilitate the overall objective of the NHS - the
provision of free healthcare services to society as a whole."
As an interesting aside, this could mean that free software projects are
also not subject to the Competition Act. After all, a free software
project is based on the principal of solidarity: "the services available
to a person [from a free software project] bear no relationship to the
amount (if any) contributed by that person to the [free software project]
by way of [any means]", *provided* that the project group does not offer
paid-for consultancy services. Of course, there should be nothing to
prevent individual members of a free software project offering private,
for-profit consultancy since there are certainly medical professionals who
work in both the NHS and private practice. A free software project is
therefore an "activity ... based on the principle of solidarity and is
entirely non-profit making".
So, if any of us ever wanted to set up some anti-competitive deals, all we
have to do is:
1. Pay 20ukp to set up a limited company. This creates a new legal
person, and avoids any possible problems about what might or might not
constitute an 'entity'.
2. In the name of the company, set up a free software project. Spend a
day or two hacking together something mildly useful and make it
available for download. License it under the GPL or similar.
3. Provide the free software project with a donations facility. You will
probably need to open a business bank account in order to do this.
Barclays will give you 18 months without bank charges, and I'm sure
other banks will do similar offers. Make it clear on the project web
page that this facility is purely for donations and that all money
received will go towards providing improved facilities for the project:
none will ever retained as profit or paid out as dividends to the
shareholders.
4. Route any potentially anti-competitive deals through the new company.
Explain to the OFT that the company is not an undertaking, preferably
by quoting their own words back to them.
There you go: how to bypass the Competition Act for only 20ukp...
Michael
Date: Fri, 12 Oct 2001 15:00:16 +0100 (BST)
From: Michael Brown <mbrown@xxxxxxxxxxxxxxxx>
To: enquiries.competitionact@xxxxxxxxxx
Subject: NHS / MS block licensing deal
Dear Sir / Madam,
I understand that the NHS is planning to negotiate a block licensing deal
with Microsoft. I have a few questions:
1. Will this contract be put out to tender as required under EU law for
any deal over £150,000? If so, what will the tender specify as
requirements? The requirement cannot be for specifically Microsoft
software licences, as this would obviously preclude all but one
supplier and would therefore be anti-competitive.
2. Have the competition implications been considered? If this deal goes
through, then Microsoft software will effectively become cost-free to
users within the NHS. This will lock out any alternative suppliers and
will therefore be anti-competitive.
3. Is the Government aware of the political risks of entering into a
high-profile, potentially anti-competitive deal with Microsoft at a
time when the company has been found guilty of anti-competitive
practices in its own country and looks set to suffer a similar verdict
by the EU?
4. Does the £70m deal represent best value? If so, where is the evidence;
if not, then why is the deal being considered? Have any alternatives
been evaluated?
Sincerely,
Michael Brown
Managing Director, Fen Systems Ltd.
------------------------------------------------------------------------------
Date: Tue, 13 Nov 2001 14:35:57 +0000
From: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
To: mbrown@xxxxxxxxxxxxxxxx
Subject: NHS/MS Block licensing deal
Parts/Attachments:
1 Shown ~9 lines Text
2 116 KB Application
----------------------------------------
Dear Mr Brown,
Please see the attached reply to your e-mail of 12 October 2001. I am
sorry for the delay in replying.
Regards,
D J EADE
[ Part 2, Application/MSWORD 154KB. ]
Dear Mr Brown,
Thank you for your e-mail of 12 October addressed to the OFT enquiry
point. You are concerned about the new software licensing deal between
the National Health Service (NHS) and Microsoft Limited. You contend that
the contract was not put out to open tender and that the agreement is
likely to have a detrimental effect on competition.
As you may already know, the Director General of Fair Trading (the
Director) has responsibility for enforcing competition policy in the UK.
The principal piece of competition legislation available to him is the
Competition Act 1998 (the Act). The Chapter I prohibition prohibits
agreements between undertakings that may affect trade within the United
Kingdom (UK) and have as their object or effect the prevention,
restriction or distortion of competition within the UK. The Chapter II
prohibition prohibits conduct on the part of one or more undertakings
which amounts to the abuse of a dominant position in a market if it may
affect trade within the UK. The Act gives the Director powers to
investigate if there are reasonable grounds for suspecting that an
undertaking is infringing either of the prohibitions and powers to impose
fines up to a maximum of 10% of turnover.
The Public Procurement Rules are embodied in a number of EC Directives.
These collectively regulate the award of contracts by public authorities,
bodies governed by public law and private undertakings operating in the
utilities sectors on the basis of special or exclusive rights granted by
Member States. The aim of the public procurement rules is to co-ordinate
national award procedures for contracts above a minimum threshold
throughout the EU so as to introduce transparency, non-discriminatory and
fair and open competition in all Member States for the award of public
contracts. As such, the NHS is subject to these EC Directives.
There are legal consequences for a contracting authority if it is held by
a court to have breached the public procurement rules. For example, under
the Remedies Directive and the implementing regulations, the European
Court of Justice has power to review the award of the contract and may
award a number of remedies including (I) a declaration that the contract
is void, (ii) an order varying the contract, and/or (iii) an award of
damages to any person harmed by an infringement of the public procurement
rules.
As such, the procurement rules fall outside of the Director's
jurisdiction. Accordingly, the Director cannot rule on whether there has
been any breach of the EC procurement rules. Allegations of breaches of
the EC procurement rules are for the consideration, in the first instance,
of the European Commission.
As regards the Act, the Act applies to agreements between undertakings
(Chapter I) or the conduct of undertakings (Chapter II). Pursuant to
section 60 of the Act, the definition of an undertaking depends on the
case law of the European Court of Justice.
In Höfner & Elser[1], the European Court of Justice said:
'in the context of competition law,...the concept of an undertaking
encompasses every entity engaged in an economic activity, regardless of
the legal status of the entity and the way in which it is financed'.
As such, the NHS could be an undertaking when it is engaging in economic
activity but will probably not be acting as an undertaking when it is
exercising its 'public interest-type' functions. The NHS will not,
therefore, be an undertaking for the purposes of the Chapter I and II
prohibitions to the extent that they are purchasing services for the
purpose of improving healthcare services for the benefit of society in
general using monies raised by taxation. To summarise, while Microsoft
Limited is undoubtedly and undertaking for the purposes of the Act, the
NHS is unlikely to be an undertaking. As such, there is not agreement
between undertakings for the purposes of the Chapter I prohibition.
Further, as the NHS is not an undertaking there can be no breach of the
Chapter II prohibition by the NHS.
As regards Microsoft Limited and the Chapter II prohibition, it is the
abuse of a dominant position that infringes the Chapter II prohibition not
being dominant in a particular market or markets. As the alleged abuse is
that of the NHS (for failing to put the contract for software services out
to competitive tender) there are no reasonable grounds for suspecting that
the Chapter II prohibition has been infringed by Microsoft Limited in this
particular case.
You will appreciate that this is a preliminary view of officials based on
some limited facts and that this view neither binds the Director nor is a
substitute for statutory guidance on the application of the Act.
Nevertheless I hope that the comments in this letter help to explain the
Office's view in relation to the issues you have raised. I am sorry that
I cannot send you a more helpful reply. It is not that the matters you
have raised are not important but that they do not fall within the
jurisdiction of the Director for the reasons given.
Yours sincerely
D J EADE
Competition Enforcement Division 5
[1] Höfner & Elser -v- Macrotron case C-41/90 [1991] ECR I-1979 at
paragraph 21.
------------------------------------------------------------------------------
Date: Wed, 14 Nov 2001 02:48:54 +0000 (GMT)
From: Michael Brown <mbrown@xxxxxxxxxxxxxxxx>
To: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
Subject: Re: NHS/MS Block licensing deal
Thank you for your reply.
> In Höfner & Elser[1], the European Court of Justice said:
> 'in the context of competition law,...the concept of an undertaking
> encompasses every entity engaged in an economic activity, regardless
> of the legal status of the entity and the way in which it is
> financed'.
> As such, the NHS could be an undertaking when it is engaging in
> economic activity but will probably not be acting as an undertaking
> when it is exercising its 'public interest-type' functions. The NHS
> will not, therefore, be an undertaking for the purposes of the Chapter
> I and II prohibitions to the extent that they are purchasing services
> for the purpose of improving healthcare services for the benefit of
> society in general using monies raised by taxation. To summarise,
> while Microsoft Limited is undoubtedly and undertaking for the
> purposes of the Act, the NHS is unlikely to be an undertaking. As
> such, there is not agreement between undertakings for the purposes of
> the Chapter I prohibition. Further, as the NHS is not an undertaking
> there can be no breach of the Chapter II prohibition by the NHS.
Does the fact the the NHS is "purchasing services...using monies" not
qualify it as an undertaking? It seems to me that purchasing is, by
definition, an economic activity. You could argue that the NHS is
exercising purely its 'public interest-type' functions while *providing*
the healthcare services but I don't see that there are any grounds for
claiming that *purchasing* items or services is not an economic activity.
The fact that the monies are raised by taxation is surely irrelevant to
the argument, since the definition of an undertaking is "regardless of the
legal status of the entity and the way in which it is financed".
It is also dubious to claim that the services in question were purchased
for the sole purpose of "improving healthcare services for the benefit of
society in general". Is it possible to show a direct way in which these
purchases provide an improved healthcare service? The closest link I can
think of is that, allegedly, the purchases represented an overall cost
saving which, it could be argued, frees up more public money to be spent
on providing an improved healthcare service. This is an indirect link
and, possibly more importantly, it is a purely economic case. This would
therefore, one presumes, constitute an economic activity and so the
argument is reduced ad absurdum.
I contend that the NHS is engaging in an economic activity when it makes a
purchasing decision. Consequent to this, I contend that the NHS is an
undertaking as defined in Höfner & Elser. As you say, there is no debate
on the status of Microsoft Limited; it is clearly an undertaking. I also
contend that one effect of this purchasing decision is the distortion of
competition within the UK (as the action has significantly raised the
barrier to competitors attempting to sell to the NHS, which is a large
economic entity). Therefore, I contend that there are reasonable grounds
for suspecting that one or both of the NHS and Microsoft Limited is/are
infringing the Chapter I prohibition, and thus the Act gives the Director
powers to investigate.
I look forward to hearing your views on these points.
Regards,
Michael Brown
Fen Systems Ltd.
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Date: Mon, 19 Nov 2001 14:53:11 +0000
From: Darren Eade <Darren.Eade@xxxxxxxxxxxxxx>
To: mbrown@xxxxxxxxxxxxxxxx
Subject: Re: NHS/MS Block licensing deal
Parts/Attachments:
1 Shown ~12 lines Text
2 117 KB Application
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Dear Mr Brown,
Thanks for your further e-mail. A substantive reply is attached to this
e-mail which, I hope, helps explain in more detail the OFT view and how we
arrived at it. The question is not one of politics but of jurisdiction.
In this context, we are required by the Act to be consistent with European
case law precedent.
Regards,
D J EADE
[ Part 2, Application/MSWORD 156KB. ]
Dear Mr Brown,
I refer to your e-mail of 14 November in reply to my e-mail of 13
November. In summary, you contend that the National Health Service (NHS)
is an undertaking for the purpose of the Competition Act 1998 (the Act)
and that as such the Director General of Fair Trading (the Director) has
the necessary jurisdiction to investigate the NHS's arrangements with
Microsoft under the Chapter I prohibition.
To explain further why the Office takes the view that the NHS is not an
undertaking for the purpose of the Act, when purchasing software services,
it might be helpful to set out in more detail our reasoning for reaching
this view.
In my previous e-mail I referred to the case of Höfner & Elser[1]. I
argued that the NHS would not be an undertaking when it is exercising its
'public interest-type' functions to the extent that it purchases services
for the purpose of improving healthcare services using monies raised by
taxation. You, quite correctly, contended that the fact that money is
raised by taxation is irrelevant in terms of defining whether a party is
an undertaking. I referred to monies raised by taxation only to
illustrate that the nature of the transaction has a public interest
dimension. In this context, the purpose of the NHS is to provide
healthcare services to the population in general. Further, the Secretary
of State for Health has a duty under the National Health Service Act 1977
to continue the promotion in England and Wales of a comprehensive health
service, and for that purpose to provide or secure the effective provision
of services; these services are of general benefit to society as a whole
and must be provided free of charge except in so far as the making and
recovery of charges is expressly provided for by statute.
To explain our view further as to why we take the view that the NHS is not
an undertaking in relation to your particular complaint, in Poucet &
Pistre[2] the European Court of Justice, commenting on a case involving a
public social security system, stated that:
'The Court has held (in particular in Höfner & Elser) that in the context
of competition law the concept of an undertaking encompasses every entity
engaged in an economic activity, regardless of the legal status of the
entity and the way in which it is financed.
Sickness funds, and the organisations involved in the management of the
public social security system, fulfil an exclusively social function.
That activity is based on the principle of solidarity and is entirely
non-profit making.'
As such, the principle of solidarity (i.e. that fact that the services
available to a person under the NHS bear no relationship to the amount (if
any) contributed by that person to the NHS by way of taxes or National
Insurance contributions) and the fact that the body in question fulfils a
purely social function is central to the question as to whether or not
that body is an undertaking.
As such, whether this might involve the purchase of, say, a renal dialysis
machine or the necessary computer software services required for the
general purpose of helping to run the NHS is irrelevant if the purpose in
both cases is to facilitate the overall objective of the NHS - the
provision of free healthcare services to society as a whole.
You should be aware that there is an exclusion from the Act for
undertakings entrusted with services of general economic interest in so
far as the Chapter I or Chapter II would obstruct the performance, of the
particular tasks assigned to the undertaking in question. Also, the
Secretary of State may by Order exclude for reasons of public policy
agreements from the application of the Chapter I prohibition. The Office
has not considered whether the exclusions are applicable or not in this
case given that our current view is that the NHS is not an undertaking for
the purposes of the Act.
The issue is not one of policy or lack of political will but one of
establishing jurisdiction under the Act. As previously noted, this is
just a view and neither binds the Director nor is it a substitute for
statutory guidance on the application of the Act. The Office is, of
course, receptive to alternative views on this jurisdictional issue and
would reconsider its preliminary view on jurisdiction in the light of
further arguments views suggesting that the NHS should be regarded as an
undertaking in these particular circumstances. I hope that my further
comments help to explain the Office's view in relation to these issues
Yours sincerely
D J EADE
Competition Enforcement Division 5
[1] Höfner & Elser -v- Macrotron case C-41/90 [1991] ECR I-1979 at
paragraph 21.
[2] Poucet -v- Assurance Générales de France & Another and Pistre -v-
Caisse Autonome Nationale de Compensation joined cases C-159/91 and
C-160/91, [1993] ECR I-631.
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