Antitrust and competition issues are unavoidable elements of today’s business, especially given the prevalence of cross-border components in almost every transaction or business practice and the vigilance of antitrust regulators around the world. Click here for our update on UK AntiTrust or Competition Law and what you need to understand
UK antitrust (or “competition”) law is set out in the Competition Act 1998, which contains two prohibitions that are closely based on the corresponding prohibitions under EU competition law (namely, Articles 101 and 102 of the Treaty on the Functioning of the European Union, or TFEU):
- Chapter I, like Article 101 TFEU, prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the UK and have as their object or effect the prevention, restriction or distortion of competition within the UK. Types of conduct falling under this chapter are usually referred to as “anti-competitive agreements”.
- Chapter II, like Article 102 TFEU, which prohibits the abuse of a dominant market position which has or is capable of having an effect on trade within the UK. Types of conduct falling under this chapter are usually referred to as “abuse of market power”.
Under the principle of consistency under EU law, UK competition authorities and courts must ensure that questions arising under the Competition Act are interpreted consistently with the interpretation of Articles 101 and 102 of the TFEU by the EU Courts and the European Commission.
- Chapter I: Anti-Competitive Agreements
There are three elements to a breach of the Chapter I prohibition that you should be aware of:
- There must be some form of agreement, decision, or concerted practice between undertakings;
- Which may affect trade within the UK or part of the UK; and
- Which has as its object or effect the restriction, prevention, or distortion of competition within the UK.
An agreement will only infringe the Chapter I prohibition if its effect on competition and trade within the UK is likely to be “appreciable”. Unfortunately, there is no legislative definition of appreciability; the UK’s competition enforcement body, the Competition and Markets Authority (CMA), follows the European Commission’s practice.
There is limited immunity from fines for “small agreements”, which is defined as an agreement between parties whose combined group turnovers in their last financial year preceding the infringement does not exceed £20 million. The immunity is limited because it does not apply to price-fixing agreements, and because the CMA may withdraw the immunity following an investigation.
Due to the severity of the infringement involved, the following anti-competitive agreements will generally be considered to have an appreciable effect regardless of the market shares involved:
- Price-fixing agreements;
- Market-sharing agreements;
- Bid-rigging agreements;
- Agreements to limit production or supply; and
- Agreements which are part of a network of similar agreements that have a cumulative effect on the market in question.
Exemptions from Chapter I
An agreement that infringes the Chapter I prohibition may benefit from an exemption if the benefits to which it gives rise outweigh its anti-competitive effects. For this purpose, the criteria that must be satisfied – similar to those under Article 101(3) TFEU – are that:
- The agreement contributes to improving production or distribution, or to promoting technical or economic progress;
- It allows consumers a fair share of the resulting benefits;
- It only imposes restrictions which are indispensable to the achievement of the agreements’ objectives; and
- It does not allow the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
- All four exemption criteria must be satisfied.
- Chapter II: Abuse of Market Power
The Chapter II prohibition applies to any conduct by one or more undertakings that amounts to the abuse of a dominant position in a market if it might affect trade within the UK or any part of it. It should be noted that it is not the holding of a dominant position that is unlawful; it is the abuse of that dominant position. In In practice, most Chapter II infringements will involve:
- Pricing abuses. Unfair pricing practices include: excessively high pricing; predatory pricing (undercutting a rival with a view to eliminating him from the market); discriminatory pricing (charging different prices to similarly placed customers or the same prices to differently placed customers); and fidelity (or loyalty) pricing or discounting schemes, which are designed to discourage customers from placing business with a competitor.
- Refusal to supply. This includes refusal to supply customers without objective justification, and has led to the development under Article 102 TFEU case law of the “essential facilities” doctrine. According to this, the owner of a facility such as a sea port or an airport may, by virtue of such ownership, have a dominant position on a market, and the refusal to give access to the facility to competitors on non-discriminatory terms may constitute an abuse.
- Tying. This occurs where, for example, a supplier agrees to supply particular products or services only if the purchaser agrees to buy other unrelated products or services from the supplier. Tying clauses have led to some of the highest fines at EU level.
Although the dominant position must exist within the UK, and the effect on trade must be within the UK, the abuse could take place outside the UK. The “UK” includes any part of the UK, so that the prohibition could be applied to localised markets, such as the market for the provision of bus services within a particular area.
As with small agreements that fall under Chapter I, there is limited immunity from fines in the case of “conduct of minor significance”, defined as conduct by a firm with a turnover in the preceding financial year not exceeding £50 million. The immunity is limited because the CMA may decide to withdraw it following an investigation. There is no protection against third party actions for damages.
It should be noted that there is no possibility of exemption from the Chapter II prohibition, as there is a presumption that an abuse cannot create sufficient benefits to compensate for the restrictions brought by the Agreement.
- What are the Consequences of infringements of competition law?
If a company has been found to have intentionally or negligently infringed either the Chapter I or II prohibition of the Competition Act, that company may be ordered to cease or modify the agreement and fined up to 10% of its worldwide turnover for the previous business year. A company’s lack of knowledge of the relevant law is no defence.
Immunity from fines may be offered to “whistleblowing” cartel members and a reduction in fines may also be offered to leniency applicants under the CMA’s leniency and cooperation programme.
If an agreement has been found to be in breach of Chapter I prohibition, the whole agreement can be declared void – alternatively, the court can sever the unlawful clause and the rest if the surviving agreement may then be enforceable. Furthermore, third parties may seek different forms of redress for competition law infringements such as bringing an action for damages or an injunction in the civil courts.
There are also consequences for individuals:
(i) Disqualification as a Director: under the Enterprise Act 2002, the directors of a company that have been found to have infringed either the Chapter I or II prohibition of the Competition Act or Articles 101 or 102 TFEU may face disqualification.
(ii) Criminal Offences: The Enterprise Act made it a criminal offence for individuals to dishonestly enter into an agreement relating to a company’s involvement in “hard core” cartel activity. The cartel offence is legally separate from the Chapter I prohibition: the range of activities covered by the offence are much narrower than the range of conduct that can constitute a breach of Chapter I. It targets only prohibited “hard-core” cartel activities, namely:
- Direct or indirect price-fixing;
- Limitation of supply or production;
- Market or customer sharing; and
The companies involved must operate on the same level of production or supply and the agreements must be reciprocal.
An individual who is found guilty of the cartel offence will be liable to a criminal sentence of up to five years imprisonment instead of, or in addition to, an unlimited fine. This will also be an extraditable offence (e.g. to the USA if the cartel infringement also affected that jurisdiction).
It is possible for an individual to seek protection from prosecution by “whistle-blowing” and co-operating with the CMA. The CMA may grant “no-action” letters to individuals who would otherwise be liable for prosecution as long as they were not the ringleader or instigator of the cartel and provided that they admit the offence, supply evidence of the existence of a cartel and co-operate fully throughout the investigation.