Competition law: an overview

Last updated: 12 February 2020

Estimated reading time: 9 minutes

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With the world getting smaller and communication getting faster, markets are becoming increasingly competitive and relationships between businesses ever more important. Competition law seeks to reduce the risk of unfair competitive practices and protect both consumers and businesses.

Although these are objects which few people would disagree with, getting to grips with the law as it stands in the UK and its interaction with EU law can be a daunting prospect. Given that the UK’s competition law regime is one of the most stringent in the world, it is important for you to have a broad understanding of what competition law is, how it works, how you can reduce your chances of falling foul of it and your position if you are found to be in breach. This note seeks to explain these issues and provide some practical tips that businesses may wish to consider under the guidance of our commercial law specialists

Jump to:

  1. What is competition law?
  2. UK competition law and EU competition law
  3. How will Brexit impact on competition law?
  4. What is the Competition and Markets Authority (CMA)?
  5. What is the Chapter I prohibition under the Competition Act?
  6. Are there any exclusions or exemptions to the Chapter I prohibition?
  7. Cartels under competition law
  8. What is the Chapter II prohibition under the Competition Act?
  9. Are there any exclusions or exemptions to the Chapter II prohibition?
  10. What are the consequences of breaching Chapter I or Chapter II or a cartel offence?
  11. Anti-competitive behaviour: What to look out for

What is competition law?

Competition law aims to keep competition in the markets fair and to prevent organisations which are dominant in a market from abusing their position. It protects both consumers and businesses from unfair, abusive and anti-competitive practices.

A competitive market results in businesses having equal rights in, and access to, the market and provides consumers with increased choice at a fair cost.

UK competition law and EU competition law

At present, UK competition law and EU competition law are closely aligned.

The UK legislation essentially sets out two prohibitions, the Chapter I prohibition and the Chapter II prohibition, which correspond to Articles 101 and 102 in the EU competition legislation.

When considering UK competition matters, the authorities and the courts must also consider the EU position and ensure consistency between the two if the EU is, or may be, affected by the matter.

For example, if a matter arises under the Chapter I prohibition which may have an appreciable effect on trade between EU states, Article 101 must also be considered, and an arrangement cannot be prohibited under the Chapter I prohibition unless it is also prohibited under EU law. 

How will Brexit impact on competition law?

Brexit is only likely to affect competition law following the end of the transition period. 

  • During the transition period, the current regime continues to apply.
  • Following the transition period, any arrangements or behaviour that has an effect in the EU will continue to be governed by EU competition law. Potentially, this could result in UK and EU investigations about the same matter being run in parallel and having different outcomes, although the UK Government has stated that there will be no fundamental change to the competition law regime following Brexit.

What is the Competition and Markets Authority (CMA)?

The CMA is the competition authority in the UK, which enforces UK competition law and issues guidance regarding competition law and anti-competitive and abusive practices.

The CMA can begin investigations into potentially anti-competitive or abusive practices either on its own initiative or after receiving a complaint. The CMA has broad powers, both in terms of investigations and in enforcement.

These powers include:

  • On-the-spot investigations at business premises. Notice is not required to be given and the CMA may speak to employees and take copies of any documents to assist with its investigation
  • Entering and searching domestic premises of individuals who are associated with a business under investigation
  • Putting interim measures in place to stop any anti-competitive behaviour while an investigation is underway
  • Imposing fines; and
  • Ordering the ceasing or modifying of activities which breach competition rules.

Certain sectors (for example, water, gas and telecommunications) also have their own regulatory authorities which work together with the CMA to ensure compliance with competition law.

What is the Chapter I prohibition under the Competition Act?

The Chapter I prohibition prevents anti-competitive arrangements within the UK. Breaking the wording down into sections helps to explain the position:

  • There must be some agreement or arrangement…

The agreement does not need to be in writing and even arrangements which the parties do not consider to be legally binding can be caught.

  • Between two or more separate undertakings…

Agreements between group companies do not usually fall within the prohibition. Agreements between undertakings at different levels of the production, supply and distribution chain are known as vertical agreements and are usually less likely to infringe Chapter I, whereas horizontal agreements, which are between businesses on the same level, are more likely to be considered anti-competitive as they involve agreement and planning between competing undertakings.

  • Which might affect trade within the UK…

It is sufficient that trade is or could be affected in only part of the UK.

  • And which results in preventing, distorting or restricting competition appreciably.

The legislation includes a list of examples of such arrangements, such as price fixing and setting output levels and investment control. But these are non-exhaustive, and it is for those involved in the arrangement to decide whether it falls foul of the prohibition or not. If the object of the arrangement is to restrict competition, it is probable that it will infringe Chapter I but arrangements which have the effect of restricting competition may also be caught.

Are there any exclusions or exemptions to the Chapter I prohibition?

Yes, there are some exclusions and exemptions to the Chapter I prohibition.

Chapter I exclusions include:

  • Certain mergers and joint ventures
  • Arrangements entered into to comply with legal requirements
  • Arrangements agreed by the Secretary of State on public policy grounds
  • Arrangements entered into relating to services of general economic interest, and so on.

Chapter I exemptions include:

  • Block exemptions. Certain types of agreement can be deemed exempt from the Chapter I prohibition at the request of the Secretary of State. At present, the only block exemption covers public transport ticketing schemes. Certain conditions must be satisfied before an agreement can fall within the block exemption.
  • Parallel exemptions. EU block exemptions also apply and agreements that fall within any of these or a decision by the European Commission will be exempt from the Chapter I prohibition. However, the CMA can cancel this exemption or impose certain conditions on an arrangement if it would have a significant effect in the UK. Currently, EU block exemptions include vertical agreements, technical transfer agreements and joint R&D agreements. 
  • Benefits exceed anti-competitive effects. Individual arrangements can be exempt from the Chapter I prohibition if their benefits are greater than their anti-competitive effects, for example, certain arrangements between pharmaceutical companies to develop new medicines.

Cartels under competition law

Cartel agreements and arrangements are criminal offences under UK competition law. Certain activities are deemed cartel behaviour, such as price-fixing, limiting supply or production, bid rigging and market sharing. To fall within the cartel offence, the activity does not need to fall within the Chapter I prohibition but the parties to the activity need to operate at the same level of the production, supply and distribution chain (that is, there must be a horizontal agreement) and the agreement must be reciprocal between the parties.

What is the Chapter II prohibition under the Competition Act?

The Chapter II prohibition seeks to prevent dominant businesses from abusing their market position if it may affect trade in the UK or part of it. It is worthwhile noting that although the dominant position and the effect on trade must be within the UK, the actual abuse could take place elsewhere.

Breaking the wording down into sections helps to explain the position:

Dominant position

A significant amount of market power is likely to result in a business being deemed to hold a dominant position. Although a market share of less than 40% is unlikely to be considered dominant. However, businesses acting together will be treated accordingly in determining market share.

Abusive conduct

Holding a dominant position in the market will not trigger Chapter II in itself; there must be an abuse of that position. ‘Abuse’ is not defined but there is a non-exhaustive list of actions which may constitute abuse, including unfair pricing, unjustifiably refusing to supply and tying (where a business agrees to supply another business, provided that the other business also buys other unconnected products from the supplier). An objective justification for the abusive behaviour may be taken into account by the CMA.

Are there any exclusions or exemptions to the Chapter II prohibition?

Yes, there are exclusions to the Chapter II prohibition, although no exemptions on the basis that abuse can never be of any benefit.

Chapter II exclusions include:

  • Certain mergers and joint ventures
  • Arrangements entered into to comply with legal requirements
  • Arrangements agreed by the Secretary of State on public policy grounds
  • Arrangements entered into relating to services of general economic interest, and so on.

What are the consequences of breaching Chapter I or Chapter II or a cartel offence?

From a legal point of view, breaching the Chapter I or Chapter II prohibitions may result in a significant fine and potentially, disqualification from acting as a director. Whereas being found guilty of a cartel activity is a criminal offence.

In addition, the adverse publicity and reputational damage which can ensue from anti-competitive or abusive behaviour should not be under-estimated nor should the amount of management time required to be spent in relation to a CMA investigation.

Consequences of breaching Chapter I

  • Fines up to 10% of the business’ worldwide turnover for the last financial year. Agreements between businesses with a group turnover of £20 million or less are immune from fines, unless the agreement relates to price-fixing or the CMA withdraws the immunity
  • The relevant restrictions in the agreement or the agreement itself will be void and unenforceable
  • Order to cease or amend the arrangement
  • Claims for damages or injunctive relief may be made by third parties who have suffered loss
  • Directors may be disqualified for up to 15 years.

Consequences of breaching Chapter II

  • Fines up to 10% of the business’ worldwide turnover for the last financial year. Where conduct is considered to be of ‘minor significance’ (that is, the business’ turnover for the last financial year was not more than £50 million) the business will be immune from a fine unless the CMA considers that the conduct is still an abuse
  • The relevant restrictions in the agreement or the agreement itself will be void and unenforceable
  • Order to cease or amend conduct
  • Claims for damages or injunctive relief may be made by third parties who have suffered loss
  • Directors may be disqualified for up to 15 years.

Consequences of being guilty of a cartel offence

  • Imprisonment of up to five years and/or an unlimited fine
  • Extraditable offence.

Failure to comply with the relevant investigations may also have financial consequences and, in the case of cartel activity, is a criminal offence.

Arguing that the business was not aware, or had no knowledge, of the competition rules cannot be used as a defence and it is therefore vital that businesses seek appropriate advice in relation to any potential competition issues.

Fines may be reduced if the business has a compliance programme in place, there is a settlement between the business and the CMA with the business admitting its breach or, in the case of cartels, a cartel member ‘whistle blows’.

The CMA can also accept binding commitments or approve voluntary redress in respect of the infringement of the Chapter I or Chapter II prohibitions. A binding commitment allows the relevant business to voluntarily offer to address the competition issues raised without agreeing that there has been any infringement, while voluntary redress allows the relevant business to compensate those who have suffered loss as a result of its anti-competitive behaviour.

Anti-competitive behaviour: What to look out for

  • Be wary of any agreement or arrangement with a competitor, even if these are discussed in a purely social situation. Anti-competitive behaviour can arise from what appears to be a friendly discussion or the enhancing of a business relationship
  • Obtain professional legal advice in any matter that could potentially be anti-competitive or an abuse of power. It is important that advice is obtained as soon as possible and preferably, before the arrangement is entered into
  • Ensure that current arrangements comply with competition law and review these on a regular basis
  • Provide regular and up-to-date training to employees regarding competition law and how to spot potentially anti-competitive or abusive practices. Many law firms are happy to conduct training sessions or workshops for their clients
  • Put in place a competition compliance programme.
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What next?

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