Rawlison Butler
A Brief Guide to
Competition
Law
Introduction
UK and EU competition laws are
complex.
Transgressions can result in the
imposition of substantial financial
penalties, adverse publicity and, for
the most serious offences, criminal
proceedings and sanctions.
So what do companies, directors, senior
managers and business owners need
to know and do to stay within the law?
In this guide, we provide an overview
of the EU and UK competition law
framework, and highlight some key
considerations.
What is competition law and what is
its purpose?
Competition law is about ensuring
a level playing field and fairness in
commercial dealings for consumers and
businesses alike.
There are certain sector-specific
requirements but, for most businesses,
there are 3 main areas to consider:
•
•
•
Anti-competitive agreements
Abuse of a dominant market
position
Merger control
There are separate EU and UK
competition laws, although the UK
competition law framework closely
mirrors the EU framework in many
respects.
Merger control is not covered in detail
in this guide but please contact us if
you require further information.
“Competition law is about ensuring
a level playing field and fairness in
commercial dealings for consumers
and businesses alike”
The EU Framework
•
Abuse of a Dominant Market
Position – the abuse by one or
more undertakings of a dominant
market position in all or a
substantial part of the EU in a way
which may affect trade between
EU Member States is prohibited
under Article 102 of the TFEU.
Abuse can include unfair purchase
or selling prices, and putting
companies at a competitive
disadvantage compared to other
companies by applying dissimilar
conditions to equivalent
transactions.
•
EU Merger Regulation – the
control of mergers and joint
ventures between large companies
operating in the EU.
In the EU, competition matters are
within the remit of the European
Commission and cover the following:
•
Anti-Competitive Agreements –
these are agreements (which don’t
have to be in writing) between
‘undertakings’ (i.e. businesses),
decisions by associations of
undertakings or ‘concerted
practices’ which may affect trade
between EU member states and
which have as their object or
effect the prevention, restriction
or distortion of competition
within the EU.
Such agreements are prohibited
under Article 101(1) of the
Treaty on the Functioning of the
European Union (TFEU) but some
limited exemptions do apply.
Rawlison Butler Competition Law
The UK Framework
•
Abuse of a dominant market
position - The ‘Chapter II
Prohibition’ under the CA prohibits
the abuse of a dominant market
position which has or is capable of
having an effect on trade within
the UK. This is very similar to
Article 102 TFEU but is, again,
confined to competition within the
UK.
•
Merger regulation - the Chapter
I and II Prohibitions under the
CA do not apply to mergers or
joint ventures which qualify for
investigation under the UK merger
control regime or where there
is a concentration with an EU
dimension which comes within the
remit of the European Commission
under EU Merger Regulation.
UK competition laws are set out in the
Competition Act 1998 (CA) and the
Enterprise Act 2002 (as amended).
In the UK, competition matters are
dealt with by the Competition &
Markets Authority (CMA) and cover the
following:
•
Anti-Competitive agreements the ‘Chapter I Prohibition’ under
the CA prohibits agreements (again
they don’t have to be in writing)
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.
This is very similar to Article
101(1) TFEU except that it is
confined to competition within the
UK.
“In the UK, competition matters
are dealt with by the Competition
& Markets Authority (CMA)”
Examples of commercial issues we
regularly encounter are:
•
Lack of sufficient management
depth - Once owners withdraw
from the businesses
•
Insufficient commitment - By
key people to the business
•
Overreliance - On a key customer
or supplier
•
Key asset valuation - Are assets
under-valued or over-valued?
Are there assets which should be
excluded from the sale process?
Often informal arrangements
regarding occupation of property
owned by a key shareholder
should be formalised rather than
left to be dealt with in a sale
process
Rawlison Butler Competition Law
Interaction between EU and UK
competition law
When interpreting questions under
the CA, the CMA and the English
courts are obliged to apply the
‘consistency principle’, which means
they must interpret any questions
that arise in a manner which is
consistent with any interpretation of
Articles 101 and 102 of the TFEU by
the Court of Justice of the European
Union, the General Court and the
European Commission, and individual
case decisions of the European
Commission and European courts.
Anti-competitive agreements
For competition law purposes,
agreements are treated as either
‘horizontal’ or ‘vertical’ agreements.
A horizontal agreement is one
between two or more entities
operating at the same level in a supply
chain, such as agreements between
manufacturers or between wholesalers.
By their very nature, horizontal
agreements do give rise to potential
competition law concerns. Examples of
horizontal agreements are price-fixing
agreements, collaborative tendering,
joint ventures and research and
development collaboration agreements.
a) The EU position
A vertical agreement is one between
two or more entities operating at
different levels in a supply chain,
such as between a manufacturer and a
wholesaler or between a manufacturer
and a distributor. Examples of vertical
agreements are exclusive distribution,
selective distribution, franchising,
exclusive purchasing and agency
agreements.
However, there is recognition that
many agreements that could be anticompetitive, for example, distribution,
franchising and technology licensing
agreements, can and do in many
instances have positive commercial
benefits.
“If an agreement comes within
the Chapter I prohibition, it will be
void and unenforceable”
Commercial agreements which may
affect trade between EU Member States
and which have as their ‘object or
effect’ the prevention, restriction or
distortion of competition within the EU
are generally prohibited.
Therefore, a system of what are known
as ‘block exemption’ regulations
(see ‘Block exemptions’ below) was
introduced. Provided that a commercial
agreement is drafted so as to come
within the terms of the relevant block
exemption regulation, the agreement
will not be treated as anti-competitive.
b) The UK position
The Chapter I Prohibition under the
CA prohibits agreements that have an
effect on trade within the UK or a part
of the UK, and restrict competition
in the UK or a part of the UK. The
effect on trade and competition must
be an ‘appreciable’ one. In the UK,
there is no legislative definition of
‘appreciablity’. In the EU, agreements
are unlikely to appreciably affect
trade between member states if the
aggregate market share of the parties
on the relevant market in the EU
does not exceed 5%; or, in the case
of horizontal agreements, if the
aggregate annual EU turnover of the
parties in the relevant products does
not exceed €40 million or, in the case
of vertical agreements, if the annual
EU turnover of the supplier in the
product concerned does not exceed
€40 million.
Rawlison Butler Competition Law
If an agreement comes within
the Chapter I prohibition, it will
be void and unenforceable. If the
anti-competitive provisions can
be severed from the rest of the
agreement (this usually requires a
properly drafted agreement including
a severance clause), only the anticompetitive provisions will be void
and unenforceable.
But, an agreement will be exempt
from the prohibition if its benefits
outweigh its anti-competitive effects.
An agreement can be exempt if it
comes within a block exemption
made by an order of the Secretary of
State or by a Regulation adopted by
the European Commission, or if it
satisfies the conditions for individual
exemption.
Formerly, there was a system for
notifying and seeking approval of
individual agreements that were not
automatically exempt, but that is
no longer the case and businesses
must now make and rely on their own
assessment.
By way of example, for distribution
agreements these include:
•
any restriction on the buyer’s
ability to set its resale prices
(though maximum resale and
recommended prices are generally
permissible)
•
any restriction of the territory
into which, or of the customers
to whom, a buyer may sell the
contract goods or services subject
to certain exceptions and
•
the restriction of cross-supplies
between distributors in a selective
distribution system.
•
Also, to take advantage of
the vertical agreements block
exemption, neither the seller nor
the buyer can have a market share
exceeding 30% of the relevant
market.
Block exemptions
Agreements that would otherwise be
considered anti-competitive, can be
drafted to take advantage of, and to
come within, regulations issued by the
European Commission, known as block
exemptions.
Current block exemptions include
those for vertical agreements,
technology transfer agreements and
research and development agreements.
In addition to meeting the specific
requirements laid down in the relevant
block exemption, to take advantage of
a block exemption the agreement must
not contain any ‘hardcore’ or ‘blacklisted’ clauses.
“Agreements that would
otherwise be considered anticompetitive, can be drafted to take
advantage of, and to come within,
regulations issued by the European
Commission, known as block
exemptions”
Minor or small agreements
Under EU and UK competition law, the
effect on trade must be ‘appreciable’.
There are rules which apply to
agreements between small and
medium-sized undertakings as these
are rarely capable of appreciably
affecting trade between EU Member
States.
Such undertakings are those with
fewer than 250 employees and
have either an annual turnover not
exceeding €40 million or an annual
balance-sheet total not exceeding €27
million. Provided the agreements do
not contain any ‘hardcore’ clauses
and there is no cumulative effect,
vertical agreements entered into
by non-competing undertakings
whose individual market share in
the relevant market does not exceed
15% are generally considered to fall
Rawlison Butler Competition Law
outside the scope of Article 101(1) of
the TFEU. The market share is 10%
where the undertakings are competing
undertakings.
In the UK, small agreements or
agreements of minor importance
benefit from a limited immunity from
fines but are not exempt from the
Chapter I Prohibition. To qualify, an
agreement must be between parties
whose combined group turnovers in
their last financial year preceding the
infringement does not exceed £20
million but the immunity does not
apply to price-fixing agreements.
Abuse of a dominant market
position
It is not a sin to be a dominant player
in a market.
But, abuse of a dominant market
position, for example by colluding with
competitors to fix or impose unfair
purchase or selling prices, imposing
unfair trading conditions or limiting
production, markets or technical
development to the prejudice of
consumers, is unlawful and can give
rise to serious sanctions.
A dominant market position exists
where the economic strength of a
business enables it to prevent or
hinder effective competition on a
market by permitting it to behave to an
appreciable extent independently of its
competitors, customers and consumers.
The term ‘abuse’ is not defined but
includes unfair pricing practices,
refusal to supply and tying
arrangements.
Enforcement and sanctions
Competition authorities in both the EU
and UK have a broad range of powers
and sanctions at their disposal to
investigate and punish competition law
infringements.
Substantial financial penalties, based
on a percentage of turnover, can be
imposed and there are many published
examples of eye-watering penalties
meted out against transgressing
companies.
“Competition authorities in both
the EU and UK have a broad range
of powers and sanctions at their
disposal to investigate and punish
competition law infringements”
Dawn raids can be undertaken by
the investigating authorities, and
compliance is mandatory. Various
criminal offences exist, including
those of obstructing investigators
conducting an on-site investigation;
knowingly or recklessly destroying,
falsifying or concealing a document
requested or knowingly or recklessly
providing false or misleading
information.
Price fixing agreements and cartel
activity are amongst the most serious
of competition law breaches and can
give rise to criminal sanctions and
substantial fines.
Rawlison Butler Competition Law
How RB can help
Our Commercial team has extensive experience in advising businesses on EU and
UK competition law compliance and related issues, including ensuring commercial
agreements are drafted to come within applicable block exemptions, advising on
anti-competitive agreements and behaviour, and advising on abuse of market
dominance. In addition, we can assist with competition-related investigations and
dawn raids.
For further information on all our commercial services please contact:
Mark O’Shea
Partner, Commercial
Lisa Downs
Partner, Commercial
E [email protected]
T +44 (0)1293 558523
E [email protected]
T +44 (0)1293 558593
Disclaimer: This document is provided for information purposes only and does not constitute legal advice. Professional legal
advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this document.
Rawlison Butler LLP is a Limited Liability Partnership registered in England (number OC318343) and is authorised and
regulated by the Solicitors Regulation Authority. 11/15