Scottish arts agency grants break antitrust rules, publisher says in fast-track CAT suit

Scotland's principal arts funding agency is breaking antitrust rules with a key grant program and must be stopped, a Scottish publisher has urged judges in the latest test of fast-track procedures designed to give individuals and small businesses with competition-law grievances quick access to justice.

Strident Publishing filed an action last month against Creative Scotland, the Scottish government's development body for the arts and creative industries in Scotland. Strident director Keith Charters alleges that Creative Scotland has been handing out grants to rivals through its Open Project Fund, impending Strident's ability to compete fairly in the commercial book publishing market.

Strident, an independent book publisher based near Glasgow, has called on the Competition Appeal Tribunal, the UK's specialized antitrust court, to "compel" Creative Scotland to "comply with the law."

A three-judge CAT panel held a hearing today in Edinburgh at the Court of Session, to iron out procedural matters as part of managing the claim to trial.

Fast-tracking debate

Under the CAT's rules for a fast-tracked damages claim, substantive issues must be heard in court within six months of filing. That quick timetable to trial reflects the aim of the regime: to encourage individuals and small businesses to seek legal redress and avoid lengthy and costly litigation.

But the regime is in its infancy and therefore has been sparingly used so far since new consumer laws were enforced four years ago. It has seen a pioneer dispute brought to trial, which pitted online educational service Socrates Training against the Law Society of England and Wales. Other cases have settled ahead of proceedings, including a claim by mattress makers.

With only a handful of lawsuits to date considered for fast-tracking, Strident's claim is likely to raise questions as to both the strictness and suitability of the criteria considered appropriate for that status. Those criteria cover multiple factors: from complexity of the case to the status of the parties, as well as case urgency, disclosure requirements and the provision of evidence.

'Nationalized publisher'

In its complaint, Strident says that Creative Scotland abused its dominant market position through investment finance, or funding provided to create income-generating assets, such as books. It alleges that the financing provided to a trio of publishers, including rival Sandstone Press, breached competition rules because funds were used to underwrite losses.

With its claim focused on Sandstone, Strident says around three-quarters of finance to the value of 410,000 pounds ($547,000) provided to Sandstone by Creative Scotland over several years was "swallowed up" by losses accrued pre-funding. "Rather than require Sandstone to cut its overheads, CS funded more staff," Strident says.

Strident complains also that Creative Scotland made further financing available to Sandstone this year by coordinating a rescue package for the company with Highlands and Islands Enterprise, the Scottish government's economic and community development agency. Strident alleges that this committed Scotland's taxpayers to supporting Sandstone to the value of 600,000 pounds.

Sandstone has effectively become a "nationalized publisher," skewing the market for others, Charters alleges, and Creative Scotland has displayed "anticompetitive behavior" that has disadvantaged "viable competitors" due to an approach that "an unviable competitor like Sandstone should succeed no matter the cost to taxpayers, consumers or its competitors."

Strident's compensation demand isn't disclosed, but the publisher said the claim is over "damage to Strident's authors' livelihoods." The extent to which Creative Scotland's actions have "distorted competition is hard to overstate," it said.

Creative Scotland has argued that its funding arrangements are exempt from competition rules, according to Strident. But only funding actions explicitly required by law can be exempt, Strident responded — and that wasn't the case with the agency's investment finance.

In the fiscal year to 2020, its overall budget for the Open Project Fund, which is open to individuals, groups and organizations, is around 8.5 million pounds, most of which is sourced from National Lottery funding. Creative Scotland's other main source of funding is the Scottish government.

Neither Creative Scotland nor Sandstone were immediately available for comment.

The case reference is 1335/5/7/19 Strident Publishing Limited v Creative Scotland.