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Competition law


Competition law

This page contains the following:

Introduction to competition law

Brexit and competition law


Competition regulators


EU and UK legislation regulating anti-competitive agreements and concerted practices


Relevant market tests

What's new on this topic

State aid control


Groceries Code Adjudicator

PubCo Code


Restraint of trade at common law


Enforcement of competition law and consequences of infringement


Merger control at EU and UK level

 

Introduction to competition law

Competition law seeks to protect consumers and business undertakings from the effect of the lack of competition in the provision of goods and services, such as restricted choice, poor quality, price fixing and other inefficiencies.

Although the perception may be that competition law is mainly the concern of large enterprises, in fact the owners and managers of businesses of all sizes need to be aware of the impact of competition law, chiefly for two reasons:

* Even a small or medium sized enterprise (“SME”) may infringe competition law if it has a significant share of the 'relevant market' in goods or services. The sanctions for infringement may be considerable.

* A business adversely affected by unlawful competitive behaviour by a cartel, anti-competive agreements or concerted practices, or by the economic effect of a merger of other enterprises, needs to be aware of competition law, s that it can assert its own rights and protect its position in the marketplace.

Competition law in the widest sense has effect in the following ways:

* common law principles making certain agreements which are in restraint of trade, unenforceable and void;

* legislation regulating anti-competitive agreements and concerted practices, both at UK level and at EU level;

* legislation regulating abuse of a dominant position, again both at UK level and at EU level;

* legislation controlling business takeovers and mergers, again both at UK level and EU level;

* sector specific regulation of economic activity, e.g. telecommunications, energy supply;

* EU competition law regulates 'state aid'

The European Commission monitors and controls state aid in the EU by requiring member states to notify the Commission in advance of proposed state aid in order to ensure compliance.

There are a few exceptions to the notification requirement, namely:


•if your measure falls within the de minimis regulation ie you are giving less than 200,000 euros over 3 fiscal years


•measures which are covered under a pre-existing and approved scheme


•measures falling within the General Block Exemption regulation

Given the purpose of this Site, our aim in this section is to address the aspects of competition law most likely to be of concern to owners and managers of SMEs.

Competition law guidance is available from the Competition and Markets Authority.

Further reading on general competition law

Competition Law Risk

This short guide has been jointly published with the Institute of Risk Management to help businesses comply with competition law. It provides a basic overview of competition law, outlining the steps businesses and risk professionals can take to help identify and reduce competition law risks. It also outlines what to do if competition law has been breached and provides case studies with key learnings.

Competition law and Brexit

During the transition period, EU competition law will continue to have effect. Thereafter it will cease and the EU Commission will cease to be involved in domestic UK competition law. For further information, see Promoting competition and ensuring markets work well after Brexit.

What's new

29/01/2020: Guidance on the functions of the CMA under the Withdrawal Agreement

The CMA has published guidance designed to explain how EU Exit affects the CMA’s powers and processes for competition law enforcement (‘antitrust’, including cartels), merger control and consumer protection law enforcement during the transition period, towards the end of that period, and after it ends. The guidance also explains the treatment of ‘live’ cases, which are those cases that are being reviewed by the European Commission or the CMA during and at the end of the transition period.

The guidance is a ‘live’ document which may be subject to change, particularly in the light of further political and legal developments.


EU competition law

The EU Commission provides an overview of EU competition law.

Competition regulators

The EU Commission is responsible for the development of EU competition policy and competition law enforcement.

In the UK, the Office of Fair Trading (OFT) was formerly responsible for the general enforcement of competition law. However, the Competition and Markets Authority (CMA) was legally established on 1 October 2013 by the Enterprise and Regulatory Reform Act 2013. The CMA became fully functional on 1 April 2014. The CMA is responsible for:

* investigating mergers which could restrict competition;

* conducting market studies and investigations where there may be competition and consumer problems;

* investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions;

* bringing criminal proceedings against individuals who commit the cartels offence under the Enterprise Act 2002;

* enforcing consumer protection legislation under the Consumer Protection from Unfair Trading Regulations 2008 to address practices and market conditions that make it difficult for consumers to exercise choice;

* cooperating with sector regulators and encouraging the regulators to use their competition powers;

* considering regulatory references and appeals and carrying out other competition roles when these powers are transferred from the Competition Commission and the Office of Fair Trading in April 2014.

What's new

30/01/2020: CMA publishes research papers on the funeral services market

The CMA has published a set of research papers on its work in enquiring into the funeral and crematoria services market. An overview of the work is set out in the paper Funerals market investigation: Overview of key research and analysis.

The CMA has set out a range of possible remedies that may be effective in

addressing possible competition issues which it “may” find in the provision of funeral

director services at the point of need. The four possible remedies that are being considered are:

* the introduction of a quality regulation regime;

*measures to promote greater information transparency;

* price controls; and

* local authority procurement of funeral director services.

The CMA has received evidence that some funeral directors provide poor quality with respect to their care for the deceased, which falls below commonly acceptable minimum standards, and that the existing monitoring regimes are not sufficient to prevent this.

Parties wishing to comment on any of the papers being published today

should send their comments to Funerals@cma.gov.uk by 27 February 2020.

 

EU and UK legislation regulating anti-competitive agreements and concerted practices

Competition law derives both from EU legislation and UK common law and legislation. In general terms, EU competition law applies in the case of economic activity affecting trade between EU member states, whereas UK competition law is concerned with economic activity within the UK.

The EU law is derived from Articles 101-102 of the Treaty on the Functioning of the European Union and implementing regulations. UK competition law is based mainly on Chapter 1 of the Competition Act 1998 which mirrors the EU legislation..

EU and UK competition rules apply in parallel to forbid or regulate three main types of economic activity by 'undertakings' (i.e. individuals and legal entities which carry out an economic activity):

* agreements and other forms of co-operation between undertakings which may affect trade between Member States or trade within the UK and which prevent competition;

* abuse by an undertaking of a dominant market position;

* takeovers and mergers of undertakings (see below 'Merger control')

Exempted agreements

At both the EU and UK levels, an agreement may be exempt from the prohibition if it meets certain criteria, i.e.:

* if it contributes to improving production or distribution, or promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit;

* the agreement must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives, or afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.

The EU Commission and the OFT may grant exemption to a category of agreements. Further, a court may grant exemption if it is satisfied that the above conditions are satisfied.

Relevant market tests

The concept of the "relevant market" is crucial in the application of competition law. In order to assess the economic effect of undertakings' activities, it is neccessary to define the market in which they operate. service.

Market definition provides a framework for competition analysis. For example, market shares can be calculated only after the market has been defined and, when considering the potential for new entry, it is necessary to identify the market that might be entered.

Further guidance is obtainable from:


EU Commission: Notice on the definition of relevant market:


OFT guidance on market share


What’s new on this topic [see What’s new page or archive for full item]:

22/01/2020

CMA fines guitar maker £4.5m for illegally preventing price discounts

The CMA has fined Fender Europe £4.5 million for breaking competition law by preventing online discounting for its guitars. The decision was directed at Fender Musical Instruments Europe Limited (a UK company) which the CMA decided was directly involved in the infringement and to Fender Musical Instruments Corporation as its parent company (a US corporation).

2/01/2020

Court of Appeal upholds CMA decision on online sales ban by Ping

Ping Europe Limited v Competition and Market Authority

Court of Appeal 21/01/2020

Neutral Citation Number: [2020] EWCA Civ 13

The Court of Appeal has upheld the CMA’s finding that a golf equipment supplier acted illegally by banning online sales of its products.

The Court of Appeal’s judgment dismissed an appeal made by Ping Europe Ltd against an infringement decision and £1.25 million fine, after the Competition and Markets Authority (CMA) found it had broken competition law by stopping retailers from selling its clubs on their websites.

State aid control

EU competition law has an additional dimension as regards 'state aids', i.e. the regulation of financial and other aid which a member state may give to private enterprises which may affect competion between member states. See the EU Commission pages on state aid

Groceries Code Adjudicator

The Groceries Code was introduced in 2010 by the Competition Commission following the 2009 Competition Commission investigation. The Groceries Code obliges the large retailers to deal fairly and lawfully with their suppliers on areas including: unilateral variations to supply agreements; compensation payments for shrinkage/wastage/retailer forecasting errors; allowing suppliers to choose their on suppliers for things such as haulage and packaging.

The Groceries Code does not cover issues such as: price setting; relationships between indirect suppliers to the supermarkets; food safety and labelling; and the Voluntary Dairy Code or horsemeat mis-labelling.

The Groceries Code Adjudicator was established under the  Groceries Code Adjudicator Act 2013 to rule on and enforce the Groceries Code. It is the UK’s first independent adjudicator to oversee the relationship between supermarkets and their suppliers. It ensures that large supermarkets treat their direct suppliers lawfully and fairly, investigates complaints and arbitrates in disputes.

The Groceries Supply Code of Practice defines groceries as:

food (other than that sold for consumption in the store), pet food, drinks (alcoholic and non-alcoholic, other than that sold for consumption in the store), cleaning products, toiletries and household goods.”

The definition does not include:

“petrol, clothing, DIY products, financial services, pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products.”

The Groceries Code is only concerned with direct supplies of groceries to one of the listed retailers, namely:

* Asda Stores Limited, a subsidiary of Wal-Mart Stores Inc
* Co-operative Group Limited
* Marks & Spencer plc
* Wm Morrison Supermarkets plc
* J Sainsbury plc*
* Tesco plc
* Waitrose Limited, a subsidiary of John Lewis plc
* Aldi Stores Limited
* Iceland Foods Limited, a subsidiary of the Big Food Group
* Lidl UK GmbH

PubCo Code

For information about the PubCo Code, see: Public house

Restraint of trade under common law

English common law has developed through a series of decided cases the general principle that a person is entitled to exercise any lawful trade or calling as and where he wishes, and any restrictions are unenforceable unless they are strictly necessary to protect a legitimate business interest, and are not unreasonable in the public interest or in the interests of the parties.

The principle extends to economic activity beyond the ordinary meaning of the word 'trade', and may include contracts restricting the way in which a tradesman carries on his business on a piece of land, and to restraints imposed by the rules or practices of professional or other bodies controlling particular activities.

Although the importance of the common law in this area has diminished  following statutory regulation, the common law principles are still relevant in the folowing areas:

* Post-employment restrictions in employment contracts;

* Non-compete restrictions in agreements for the sale of a business, franchise agreements and joint ventures.

A contractual undertaking not to trade is void and unenforceable against the promisor as contrary to the public policy of promoting trade, unless the restraint of trade is reasonable to protect the interest of the purchaser of a business. The leading case is Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co [1894] AC 535.

Agreements which are caught by the above principles are treated in English law as void and therefore unenforceable as between the parties. However, they are not unlawful in the sense that third parties may take action against them even if affected by the agreement, in contrast to the position under modern anti-competition legislation.

09/07/2014: Court rules on remedy for breach of non-compete clause by sellers of business

One Step (Support) Limited v Garner and Garner
[2014] EWHC 2213 (QB)

In this case, the claimant company purchased a business from the defendants who agreed not to compete with the business sold and not to solicit customers for a certain period.

The High Court ruled found that the defendants had breached the non-competition and non-solicitation clauses. The question arose as to what remedy the claimant company was entitled to.

Enforcement of competition law and consequences of infringement

Infringement of the law may lead to severe civil law sanctions and, in the UK, criminal law in certain circumstances, both on the undertaking itself and on its directors. Measures which can be taken include:

Regulatory enforcement

* Investigations: both the EU Commission and the OFT have extensive powers of investigation including the ability to carry out without notice compulsory searches at business premises and inspect and take away documents (so-called “dawn raids”).

* Fines: Undertakings may be fined an amount up to 10% of group world turnover.

* Criminal sanctions: in the UK, serious infringements of competition law such as operating cartels may lead to disqualification of directors and fines or even imprisonment of directors and other individuals concerned.

Civil enforcement by private action

* Invalidity of agreements: provisions in agreements which breach competition law are void and unenforceable.

* Third party legal action: undertakings in breach of competition law may be liable to actions for damages from customers and competitors who can show they have suffered damage arising from the infringement.

* Prohibition of takeovers and mergers: undertakings may be prohibited from proceeding with a takeover or merger or, if the transaction has already completed, undertakings may be required to dispose of undertakings acquired; see below.

As noted above, agreements which are caught by the English common law principles as in restraint of trade are void and therefore unenforceable as between the parties. However, they are not unlawful in the sense that third parties may take action against them or claim compensation even if affected by the agreement, in contrast to the position under anti-competition legislation.

EU law competition legislation and jurisprudence provides for persons affected by anti-competitive conduct to have an enforceable civil right to claim compensation. However such legal action is fraught with difficulty.

Under UK competition law, where a business undertaking has been found to infringe competition law by the Competition and Markets Authority or the Competition Appeals Tribunal (CAT), another business undertaking which claims to have been adversely affected by the infringement may claim monetary compensation before the CAT by way of a so-called ‘follow-on’ case [Competion Act 1998 s. 47A]. The CAT's jurisdiction has now been extended by reforms introduced by the Consumer Rights act 2015, whereby business undertakings may bring ‘stand-alone’ cases before the CAT, i.e. cases where no prior infringement decision has been made against the party whose actions are the subject of complaint (see What’s new on this topic).


Consumer Rights Act 2015

The Consumer Rights Act 2015 (CRA) has extended the jurisdiction of the Competition Appeal Tribunal (CAT). Its jurisdiction was previously restricted. It may hear appeals from decisions of the Competition and Markets Authority (CMA) and other sector regulators with competition powers. It may also hear so-called ‘follow-on’ cases. A party which alleges damage caused by behaviour which has already been found to be in breach of competition laws by the CMA, EU Commission and certain other regulators may bring a follow-on action.

Stand-alone claims: unlike a ‘follow-on’ case, in a ‘stand-alone’ claim, there is no decision by a competition authority on which the party which alleges damage may rely brings the action to prove an infringement. In Enron Coal Services Ltd (in liquidation) v English Welsh & Scottish Railway Ltd, the Court of Appeal ruled that the scope for the CAT to go beyond the findings of the initial infringement decision is extremely limited. This judgment is widely thought to be one of the contributing factors restricting the role of the CAT in competition law actions in the current regime. Businesses or consumers who wish to bring stand-alone cases must bring their case in the High Court of England and Wales, the Court of Session or the Sheriff Court in Scotland or the High Court of Northern Ireland.

Injunctions: whilst the CAT may award damages for follow-on actions, it does not have the power to grant injunctions (an order which prohibits a party from doing a particular act). This restriction prevents a party from obtaining redress from the CAT in the form of an order prohibiting, for example, anti-competitive pricing. At present, a party seeking an injunction would need to apply to the High Court.

Reforms: The CRA provides for follow-on cases to be brought before the CAT and to have the power to grant injunctions. There is also power to allow a fast-track procedure for claims to enable simpler cases brought by small and medium enterprises. In addition, the CRA will introduce enhanced rights for consumers seeking redress for UK or EU competition law infringements. At present, private, representative actions for such infringements can be brought by a specified body in the Competition Appeal Tribunal (CAT), but these can only be brought on an ‘opt-in’ basis ; i.e. a claimant has to choose to be involved in the action. However, only one such collective action has been brought since the relevant provisions were introduced. There are measures to improve the efficacy of the existing ‘opt-in’ provisions, and to introduce a new ‘opt-out’ regime more akin to the US class action system, where a claim is pursued on behalf of a specified class of unnamed claimants, who are deemed included in the action unless they have specifically chosen not to be involved.

Merger control

EU merger control

EU merger control law derives mainly from Article 101 of the Treaty on the Functioning of the European Union and Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation).

The European Commission oversees the merger control regime or regulation of so-called 'concentrations' which have a 'Community Dimension'. A concentration has a Community dimension, if:

* the combined aggregate worldwide turnover (from ordinary activities and after turnover taxes) of all the undertakings concerned (in the case of the acquisition of parts of undertakings, only the turnover relating to the parts which are the subject of the concentration shall be taken into account with regard to the seller(s)) is more
than EUR 5,000 million (special rules apply to banks); and

* the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

In case these thresholds are not met a concentration has nevertheless Community dimension, if:

* the combined aggregate world-wide turnover of all the undertakings concerned is more than EUR 2,500 million; and

* in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million; and

* in each of at least three Member States included for the purpose of the second point above, the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and

* the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million,

unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

As a general rule, mergers that fall under the scope of the EU Merger Regulation are excluded from review under the UK merger control legislation - se below.

Further reading: EU merger regulation

UK merger control

The Enterprise Act 2002 (EA) replaced the former merger regulation in the Fair Trading Act 1973. Further significant changes were made by the Enterprise and Regulatory Reform Act 2013.

As a result of these changes, decisions on merger control are in general taken by the Competition and Markets Authority (CMA) which took over the functions of the former Office of Fair Trading (OFT) and the Competition Commission, rather than the Secretary of State; and mergers are assessed against a pure competition test, rather than the wider public interest test which formerly applied.

Special arrangements apply in the case of media mergers, water and sewerage undertakings and special public interest cases.

Merger situations

A merger must meet all three of the following criteria to constitute a relevant merger situation for the purposes of the EA:

1. Either two or more enterprises must cease to be distinct, or there must be arrangements in progress or in contemplation which, if carried into effect, will lead to enterprises ceasing to be distinct.

2. Either the UK turnover associated with the enterprise which is being acquired exceeds £70 million (‘the turnover test’) or the enterprises which cease to be distinct supply or acquire goods or services of any description and, after the merger, together supply or acquire at least 25% of all those particular goods or services of that kind supplied in the UK or in a substantial part of it; the merger must also result in an increment to the share of supply or acquisition (‘the share of supply test’).

3. Either the merger must not yet have taken place, or it must have taken place not more than four months before the day the reference is made, unless the merger took place without having been made public and without the CMA being informed of it (in which case the four-month period starts from the earlier of the time the merger was made public or the time the CMA was told about it). The four-month deadline may be extended in certain circumstances.

Generally, mergers are prohibited, or remedies required, if they would result in a substantial lessening of competition in a UK market.

For further detail, see UK merger control.

What’s new on this topic [see What’s new page or archive for full item]:

11/02/2020: CMA action is StubHub and Footasylum deals

Source: Competition and Markets Authority (CMA)

On 7 February 2020, the CMA served an initial enforcement order under section 72(2) of the Enterprise Act 2002 on Pugnacious Endeavors, Inc., PUG LLC and eBay Inc., in relation to the anticipated acquisition of the StubHub business of eBay Inc. by PUG LLC.

The order states that the CMA has reasonable grounds for suspecting that “arrangements” may be in progress or in contemplation which might  result in the businesses of PUG LLC and the international StubHub businesses ceasing to be

distinct.

The CMA has also announced its provisional finding thatg JD Sports’ takeover of close competitor Footasylum could leave shoppers worse off, both in-store and online. After its initial Phase 1 review raised potential competition concerns, the CMA’s Phase 2 investigation has provisionally found that the deal substantially lessens competition nationally.

The CMA is concerned that the loss of competition from the merger could mean that shoppers see fewer discounts, for example from clearance sales and Black Friday promotions, or receive a lower quality of customer service. It could also lead to less choice in stores and online. JD Sports and Footasylum both sell sports-inspired casual clothing and footwear in stores across the UK and online through their websites. The £90 million deal was announced and completed last year.

[Page updated: 11/02/2020]