International Trade Lawyers

In the UK competition law is governed by the Competition Act 1998. If an agreement also affects trade between EU member states (and subject to the evolution of the independent UK competition regime created as a  result of Brexit) the UK competition authorities will also apply EU law, namely Article 101 of the Treaty of the Functioning of the European Union.

An agreement may be caught by Chapter 1 of the CA 98 if it is an agreement:

• between undertakings, decisions by associations of undertakings or concerted practices;
• which may affect trade within the UK; and
• which has as its object or effect the prevention, restriction or distortion of competition within the UK.

The competition regime applies to agreements, decisions or practices which:

• directly or indirectly fix purchase or selling prices;
• limit or control production, markets, technical development or investment;
• share markets or sources of supply;
• apply dissimilar conditions to equivalent transactions;
• make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which have no connection to the subject of the contract.

Types of common commercial agreements or clauses which should be considered carefully for anti-competitive features are:

• Agency agreements;
• Distribution agreements;
• Restrictive covenants;
• Franchise agreements;
• Exclusivity agreements;
• Supply contracts;
• Research and development agreements;
• Intellectual property licences and agreements;
• Agreements or practices where undertakings exchange or share information;
• Tendering.

Further, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the UK (Chapter 2 of the Competition Act 1998). If trade between member states is also affected, EU law, namely Article 102 of the Treaty of the Functioning of the European Union, must also be considered.

For more detail on how these terms are defined, please see our pages on competition law issues affect commercial agreements here.

To assess dominance you first need to look at the relevant product market and the relevant geographical market.

Breach of competition law can have devastating effects including severe fines based on global turnover, criminal prosecution for the directors involved and serious reputational damage.  Therefore, businesses which hold dominant market positions should ensure their employees are properly trained on what behaviour will be considered abusive.

Chapter 2 of the Competition Act 1998 sets out the following non-exhaustive list of activities that may constitute an abuse of dominance:

• Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
• Limiting production, markets or technical development to the prejudice of consumers;
• Applying dissimilar conditions to equivalent transactions with other trading parties, placing them at a competitive disadvantage;
• Making the conclusion of contracts subject to the acceptance of supplementary obligations which have no connection with the subject of the contracts.

Abusive behaviour to be aware of includes:

• Excessive high pricing;
• Predatory pricing;
• Output restrictions;
• Refusals to deal;
• Discriminatory pricing;
• Unfair contract terms favouring some customers over others;
• Bundling;
• Tying; and
• Margin squeeze.

The types of behaviour set out above will only fall foul of Chapter 2 if the company exercising such behaviour is dominant in the market which may be affected.

The classic definition for dominance laid down by European case law is an undertaking which is in “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors and ultimately of the consumers.”

To assess dominance you first need to look at the relevant product and geographical markets in which you operate.

Once the market has been defined, it should be assessed whether you have market power. Do you have the power to: behave independently of competitive pressures which allows you to charge higher prices than if you faced effective competition, to engage in anti-competitive conduct and exclude or deter competition from the market?

The following thresholds are considered in assessing dominance. Where a company has a market share:

• exceeding 50%, dominance is presumed;
• less than 40%, the company is usually not considered dominant but may be dominant dependent on the circumstances;
• 24% or less, it is presumed not to be dominant.

Dominance can also be collective where two or more undertakings are able to behave to an appreciable extent independently from their competitors.  This can result from express agreements or licences between the relevant undertakings; the legal framework; or structural links.

Certain conduct will be excluded from Chapter 2, including:

• Mergers (a separate competition regime covers these);
• Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly insofar as the prohibition would obstruct the performance of the particular task assigned to it, for instance, postal services;
• conduct to comply with a legal requirement;
• conduct specified in an order of the Secretary of State to avoid conflict with international obligations; and
• conduct to comply with an order of the Secretary of the State where there are exceptional and compelling reasons of public policy.

The Competition and Markets Authority (CMA) (which replaced the OFT and Competition Commission) is responsible for ensuring compliance with competition law. Its responsibilities include:

• investigating mergers which could restrict competition;
• conducting market studies and investigations in markets 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 cartel offences;
• enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice;
• co-operating with sector regulators and encouraging them to use their competition powers;
• considering regulatory references and appeals.

If the Competition and Markets Authority finds that there has been a breach of competition law, depending on the offence committed:

• the agreement may be void and unenforceable;
• the undertaking may be ordered to cease or modify its conduct;
• the undertaking may be fined based on worldwide turnover;
• individuals involved (or those who ought to have known) may be disqualified as directors for up to 15 years; and
• individuals may be criminally prosecuted resulting in fines or imprisonment.

Third parties may also bring an action for damages in the high court or, in appropriate cases, an injunction may be sought.