Competition law as a strategic weapon - new opportunities from new laws

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

2014 sees a series of developments in both legislation and regulators which will increase the stakes for competition law enforcement in the UK. While this brings new risks and threats for businesses facing competition investigations or court claims, it also promises to open up fresh opportunities for businesses to make competition law a tool for achieving strategic objectives in the face of supplier cartels, dominant competitors or other situations where competition law offers a remedy.

Competition law can sometimes be seen as simply another box to tick in a company's routine compliance policies, somewhere between anti-bribery and health and safety, but often less comprehensible than either. But, whilst protecting the business from the risk of fines and investigations is of course important, competition law can play a much more valuable role if used selectively as a tool to ensure that the markets in which the business is operating are open and fair. This is becoming easier than ever for businesses in the UK thanks to a new regulator and new ways to bring competition challenges. This article answers some key questions on the use of these strategies.

When does competition law apply?

In essence, competition law boils down to three key provisions.

• Prohibition of anti-competitive agreements: Article 101 of the Treaty on the Functioning of the EU (TFEU) applies to any arrangement, whether a legally binding agreement or an informal understanding, which is aimed at or has the effect of preventing restricting or distorting competition. If an arrangement only affects the UK, an equivalent prohibition in Chapter 1 of the Competition Act 1998 will still apply.
• Prohibition of abuse of a dominant position: Article 102 TFEU provides that any business with a dominant position in a market - usually at least 40% market share, but can be less depending on market conditions - is prohibited from "abusing" that position by engaging in practices that could hinder competitors from entering or expanding in a market, or that could exploit customers who have no real alternative. Again, Chapter 2 of the Competition Act provides a UK-only equivalent.
• Merger control: a merger, acquisition or joint venture can be subject to review by the competition authorities under EU or UK merger control law to assess whether it will reduce competition to such an extent that it should be prohibited or permitted only subject to conditions such as divestment of competing businesses.

What types of practices are subject to competition law?

Each of these three provisions offers scope for using competition law to protect your business, or to open up new market opportunities. The following are examples only - your business and your markets will undoubtedly raise their own specific issues.

The prohibition of anti-competitive agreements can be used to challenge:

• a cartel amongst your suppliers keeping prices higher than they should be;
• a boycott of your business by customers or suppliers; and
• bid-rigging by potential suppliers so that you don't get the best deal.

The prohibition of abuse of a dominant position enables you to resist dominant or monopoly suppliers and customers in cases such as the following:

• refusal to supply essential products or license intellectual property;
• pricing that is excessive or less favourable than the dominant supplier gives to your competitors; and
• requiring you to take products or licences you don't want in order to be allowed access to the product you do want.

Finally, the merger control regime is your opportunity to stop your biggest competitors merging so that they dominate the market, or to stop a competitor acquiring your key supplier so that it can cut you off.

How do I use competition law?

Competition law is unusual in that there are two methods of enforcement, which can be used separately or in combination depending on strategic considerations.

• Complaint to a competition authority: you can file a complaint with an authority such as the European Commission, which can investigate, prohibit illegal activities or arrangements and levy significant fines up to 10% of global turnover.
• Sue in court: an increasingly common tactic is to go straight to court to stop illegal abuses or end illegal agreements, with interim injunctions and, importantly, damages claims, being key weapons.

Both of these options are enhanced by new developments in 2014.

What's new in 2014?

Five innovations are already in force or expected shortly that will significantly enhance challengers' rights in competition cases.

Firstly, the UK has a new competition authority, the Competition and Markets Authority (CMA). The CMA replaced the OFT and Competition Commission on 1 April 2014 with a remit to kick-start enforcement of competition law in the UK. Whilst the OFT was perceived as languishing behind other national competition authorities in prosecuting and concluding competition investigations, the CMA has a clear objective of bringing more cases and has been given increased investigatory powers to help it to do that. Expect more dawn raids on suspected infringers and more fining decisions.

Secondly, the UK merger control regime has been bolstered. Whilst it remains lawful to complete a transaction without notifying it to the CMA, the CMA has new powers to stop businesses integrating prior to clearance - even to stop completion of transactions. Again, the CMA is likely to be more pro-active in its investigations and therefore more open to complainants informing it of mergers that could raise competition concerns.

Thirdly, the Consumer Rights Bill currently before Parliament will introduce a new "fast-track" procedure for bringing competition claims before the Competition Appeal Tribunal (CAT), with the CAT established as the key forum for damages claims and injunctions based on competition law.

Fourthly, the EU is finally passing a Directive on damages claims which will promote more competition law based damages actions across Europe.

Finally, the UK's cartel offence, under which individuals can be fined and even jailed, is made more threatening by removing the requirement that an individual must have acted "dishonestly" for a conviction to be secured. If the CEOs of your competitors are willing to risk their company being fined in order to drive you out of the market, they are likely to be less relaxed at the prospect of complaints against them personally resulting in the CMA launching a criminal investigation.

The new climate for competition challenges

Historically, the UK business community has been relatively reluctant to bring competition law challenges, in contrast to the USA, where the vast majority of competition cases result from private companies suing each other. This reticence has largely disappeared in recent years and increasingly competition law is at the heart of strategy, especially in markets dominated by big players or subject to networks or potentially illegal agreements.

The new developments in the law outlined above - along with many more detailed improvements recently introduced - mean that competition law is, more than ever, an important factor in how you can ensure that your business can compete fairly.

Any information contained in this article is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. If you would like to discuss any of the issues raised in this article, please get in touch with your usual Olswang contact. This article was included in our Olswang Corporate Quarterly Spring 2014 publication.