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UK competition law prohibits anticompetitive behaviour by firms that are active on the UK market. The Competition Act 1998 (CA98) contains two main prohibitions the content of which is consistent with the application of Article 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). This guide looks at Chapter I prohibitions, this is a prohibition on agreements and concerted practices.
Section 2 of the Competition Act 1998 provides:
(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which—
(a) may affect trade within the United Kingdom, and
(b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom,
are prohibited unless they are exempt in accordance with the provisions of this Part.
(2) Subsection (1) applies, in particular, to agreements, decisions or practices which—
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
(3) Subsection 1 applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom.
(4) Any agreement or decision which is prohibited by subsection (1) is void.
(5) A provision of this Part, which is expressed to apply to, or in relation to, an agreement is to be read as applying equally to, or in relation to, a decision by an association of undertakings or a concerted practice (but with any necessary modifications).
(6) Subsection (5) does not apply where the context otherwise requires.
(7) In this section “the United Kingdom” means, in relation to an agreement which operates or is intended to operate only in a part of the United Kingdom, that part.
(8) The prohibition imposed by subsection (1) is referred to in this Act as “The Chapter I prohibition”.
For the purposes of the clarity, lets break down section 2 of the CA98 into main elements.
The CA98 does not provide the definition of the term “undertaking” for the purposes of competition law. Therefore, the OFT held that the concept undertaking “covers any natural or legal person engaged in economic activity, regardless of its legal status and the way in which it is financed”. The key point in this definition is that for the purposes of competition law an undertaking has to be involved in an economic activity. For these purposes, an undertaking could be partnerships, companies, firms, and even public entities.
Chapter I prohibition applies to agreements between undertakings operating on the same level of production and agreements between undertakings operating on the different levels of production and trade. According to the OFT, the scope of a term agreement is very wide and it can cover any agreement “whether legally enforceable or not, written or oral; it includes so-called gentlemen’s agreements”. The law goes even beyond that and includes those agreements which are concluded via letters or telephone calls. Furthermore, an agreement does not have to be legally binding to be caught by section 2 of the CA98.
Trade associations are considered to be the most common examples of decisions by association of undertakings. The OFT provides that “the key consideration is whether the object or effect of the decision, whatever form it takes, is to influence the conduct or coordinate the activity of the members”. For instance, in Northern Ireland Livestock and Auctioneers’ Association, the OFT concluded that the non-binding recommendations the Association issued for its members in relation to the appropriate amount of commission they should charge for the purchase of livestock was a decision within Chapter I prohibition.
The main difficulty with the concerted practices is that the term is difficult to distinguish from agreements. The OFT explained that “the key difference is that a concerted practice may exist where there is informal cooperation without any formal agreement or decision”. This interpretation does give an idea that, in certain cases, an informal cooperation between undertakings will be enough to fall within Chapter I prohibition.
According to the OFT, the concerted practices may be held to exist if:
As a general rule, antitrust authorities and the courts consider the object of an agreement in question. If it is not clear whether the agreement has as its object to prevent, restrict or distort competition, then the effects of the agreement would be at the centre of the investigation.
UK competition law borrows the definition of the concept “object” from the European Commission’s Guidelines on the application of Article 101(3) which contains a good explanation on the distinction between agreements by object or effect.
According to the European Commission (the Commission) “restrictions of competition by object are those that by their very nature have the potential of restricting competition. These are restrictions which […] have such a high potential of negative effects on competition that it is unnecessary […] to demonstrate any actual effects on the market”. The agreements of price-fixing and market sharing are automatically held to have as their object the restriction of competition. This provides that only hard-core violations of competition law are considered to be harmful and against the very objective of the Community law. UK competition law applies the same rules when it comes to assessing the heart of an agreement and this was confirmed by the High Court.
The examination of the effects of the agreement takes place only if the agreement does not have as its object the restriction of competition. In such a case, competition authorities take into account both actual and potential effects on competition. According to the Commission, “[…] the agreement must have likely anti-competitive effects. […] For an agreement to be restrictive by effect it must affect actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods and services can be expected with a reasonable degree of probability”. UK competition law adopted the same position in relation to anti-competitive effects of the agreements under investigation.
An agreement will only fall within Chapter I prohibition if its object or effect has an appreciable restriction, prevention or distortion of competition. Competition authority uses the Commission’s Notice on Agreements of Minor Importance which applies various market share thresholds in order to identify which agreements do not have an appreciable restriction on competition within Article 101. According to the Commission’s Notice, agreements between actual or potential competitors do not appreciably restrict competition when their market shares are below 10 per cent; if the agreements are not between actual or potential competitors, then these agreements are not considered to have an appreciable restriction of competition if the parties’ market shares are below 15 per cent. However, the Commission’s Notice does not apply to hard-core agreements like price-fixing, market sharing and output restrictions.
The list in section 2(2) of the CA98 is the exact copy of anti-competitive agreements under Article 101(1) TFEU. It should be remembered that the list is non-exhaustive; therefore, competition authority could include any other similar agreement if it satisfies the requirements of section 2 of the CA98.
Chapter I includes agreements which might have an appreciable object or effect to restrict competition in the UK market:
For the purposes of competition law, price-fixing, market sharing, bid rigging and limitation of the supply or production of goods and services are considered to be hard-core cartels.
UK competition law, following the EU precedent, contains various exemptions which, in an agreement satisfy certain criteria, protect the agreements from Chapter I prohibition.
s. 9 Exempt Agreements.
(1) An agreement is exempt from the Chapter I prohibition if it—
(a) contributes to—
(i) improving production or distribution, or
(ii) promoting technical or economic progress,
while allowing consumers a fair share of the resulting benefit; and
(b) does not—
(i) impose on undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
(ii) afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.
(2) In any proceedings in which it is alleged that the Chapter I prohibition is being or has been infringed by an agreement, any undertaking or association of undertakings claiming the benefit of subsection (1) shall bear the burden of proving that the conditions of that subsection are satisfied.
S. 9(2) of the CA98 clearly places the burden of proof on an undertaking under investigation to show that the benefits of s.9(1) of the CA98 are satisfied. In other words, s.9 contains two negative and two positive components. The agreement has to improve production and promote technical progress but it should not impose any restrictions. And whatever result is achieved it has to be for the benefit of the consumers.
The UK competition authority will apply the Commission Guidelines on the Application of Article 81(3) [now Article 101(3)] when considering the application of s.9(1) of the CA98 in the UK market.
s.6 of the CA98 allows the Secretary of State to adopt block exemptions which could contain various conditions upon the agreement. EU competition law also has a list of block exemptions which are applicable to agreements which fall under Chapter I prohibition.
According to the rules set out by the EU, if an agreement or conduct affects trade between Member States, then competition authorities and the courts have to apply both the national competition rules and Articles 101 and 102 TFEU. The UK, for such reasons, adopted section 60 which requires that there should be a consistency, if possible, in the application of domestic and EU competition law.
Nothing in this guide is intended to constitute legal advice and you are strongly advised to seek independent advice on matters that affect you.