Reprographic Equipment (Hansard, 16 December 1976)

§ Mr. John Fraser

The report is being published today. The Commission has found that monopoly conditions, as defined in the legislation in force when the reference was made, prevail in the supply of indirect electrostatic reprographic equipment in the United Kingdom because one supplier, Rank Xerox Ltd. (Rank Xerox), supplies at least one-third 775W of the market. The Commission's finding is based on the supply of the reference goods alone, but, in its consideration of Rank Xerox's market power, the Commission took account of the other reprographic processes available and concluded that the company was particularly strong in that segment of the reprographic market where users have a monthly requirement for between 5,000 and 50,000 copies per machine.

The Commission has concluded that Rank Xerox's monopoly position does not operate, and may not be expected to operate, against the public interest. It recorded that Rank Xerox is well managed, has made possible the rapid introduction of a technological innovation and has made a substantial contribution to the balance of payments. The Commission has, however, suggested that the position may need to be re-examined if the competition which has developed recently were to fall away.

The Commission has considered various of Rank Xerox's policies. First, it has found that Rank Xerox's restrictive patent licensing policy is a thing done for the purpose of preserving monopoly conditions and that it operates and may be expected to operate against the public interest since it has restricted and delayed the development of competition. The Commission has not, however, made any recommendation in this connection because of the recent Consent Order negotiated between the United States Federal Trade Commission and Rank Xerox's United States parent, the Xerox Corporation (Xerox) which inter alia requires Rank Xerox in the United Kingdom to grant, subject to certain conditions, patent licences to competing manufacturers in respect of its patents relating to reference equipment. The Commission noted that, whereas a licensee manufacturing in the United States can require Xerox to provide "know-how" associated with its patents, there is no requirement that "know how" be provided to firms manufacturing outside the United States. Since the effect of this limitation cannot be predicted the Commission suggested that the matter would need to be watched as the new situation unfolds. My right hon. Friend is asking the Director General to monitor the impact of the Order and to report to him in due course, taking 776W account of those remedies for abuse of patent monopoly already available under the Patents Act.

Secondly, the Commission concluded that Rank Xerox's policy of only renting and not selling its machines was a thing done as a result of the monopoly conditions and that, having regard to the fact that the policy was practised by a supplier with substantial market power, it operated against the public interest in that it restricted consumer choice by not offering a purchase option and by preventing the development of alternative leasing arrangements by leasing companies. At a late stage in the Commission's work Rank Xerox abandoned its rental only policy and started to offer machines for sale. The Commission recommended that the Director General of Fair Trading should keep under review the sale prices fixed by Rank Xerox with a view to ensuring that these prices make outright purchase a feasible alternative to renting for a reasonable proportion of users. My right hon. Friend is asking the Director General to discuss the issues involved with the company accordingly.

Thirdly, the Commission concluded that Rank Xerox's policy of requiring some of the users of its machines to purchase toner—a printing agent—only from Rank Xerox was a thing done as a result of the monopoly conditions and that it operated and might be expected to operate against the public interest because it closed a very substantial market to alternative suppliers of toner. The Commission recommended that the company should charge for toner separately and not include the charge for toner in the rent for machines. My right hon. Friend is asking the Director General to obtain appropriate undertakings from the company.

Fourthly, the Commission considered Rank Xerox's group pricing plan (GPP), a discount arrangement under which users or certain groups of users with large copy volumes enter into undertakings that their aggregate monthly billings in respect of all their rented machines will be maintained at or above previously specified figures in return for substantially reduced copy charges. It found that the qualifying expenditure bands on which successive reductions in charges are based had the effect of detering customers from using, or switching to, other suppliers' machines for part of their copying requirements and 777W that this inhibiting effect was more pronounced because Rank Xerox could base its diminishing charges on a wide range of machines, because of the company's dominant position in the reprographic market and because of the scope for grouping establishments. The Commission therefore concluded that the present form of GPP was a thing done for the purpose of preserving the monopoly conditions and operated, and might be expected to operate, against the public interest. The Commission recognised that Rank Xerox might require some time before it was able to propose acceptable new discount or pricing arrangements in place of the present GPP and that, if the company's competitive position were not to be impaired to the public detriment, it should have the opportunity to discuss proposals.

The Commission recommended that:

(a) Rank Xerox be required to terminate its present GPP within six months;
(b) any new discount or pricing arrangements, whether or not these involve the aggregation of charges of more than one machine, proposed by Rank Xerox in place of its present GPP should not be brought into operation without the approval of the Director General; and
(c) The Director General should withhold approval unless he is satisfied that the proposed arrangements are unlikely to have serious anticompetitive effects.

The Commission suggested that the Director General should have regard to the effects of any new arrangements on Rank Xerox's profits.

My right hon. Friend has noted that the Commission received evidence from one of Rank Xerox's competitors who criticised the grouping of establishments such as hospital and universities for GPP purposes on the ground that it was artificial and who suggested that the same criticism might apply to the agreement between Rank Xerox and Her Majesty's Stationery Office. The Commission itself did not criticise the grouping of establishments or HMSO's actions and noted that the volume of HMSO's business with Rank Xerox was so great that the level would have to fall quite substantially before HMSO would be unable to obtain 778W a renewal on equally favourable terms. The Commission has, however, suggested that HMSO's agreement might be open to some of the objections applicable to the GPP and that the Director General should discuss with HMSO the effects of its policy on competition in the industry.

My right hon. Friend is asking the Director General to explore with Rank Xerox what modifications may be needed in its present GPP arrangements to remove any significant anti-competitive effects. I understand that in the light of the report the Director General is also discussing with public purchasing authorities generally whether any aspect of public procurement policy requires amendment. None the less, so far as concerns the acquisition of reference equipment, the Government are satisfied that HMSO has properly discharged its duty to obtain best value for money and that it has conformed with long established Government policies to encourage joint purchasing arrangements in the public sector.

The Commission has also considered Rank Xerox's copy bureaux: it has found that no aspect of its operation is against the public interest but has suggested that it is desirable that the bureaux exhibit price lists. My right hon. Friend is asking the Director General to discuss this point with the company.

Finally, my right hon. Friend is asking the Director General to keep under review the development of competition in this market to determine whether a further reference to the Commission may be necessary in due course.