UK Anti-Competitive Agreements

The UK Competition Act 1998 is a cornerstone of the UK’s legal framework designed to maintain and promote fair competition. It addresses anti-competitive practices, including agreements, decisions, and practices that may be detrimental to market competition. This legislation, along with subsequent amendments and related acts, forms a robust structure aimed at preventing monopolistic behavior and fostering a competitive marketplace.

Chapter I Prohibition

Chapter I of the Competition Act 1998 deals with agreements, decisions, and concerted practices that prevent, restrict, or distort competition. The Act states:

“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.” (Competition Act 1998, Chapter I, Section 2(1))

This prohibition, often referred to as the “Chapter I prohibition,” aligns closely with Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), which targets similar anti-competitive behaviors within the EU.

Chapter II Prohibition

Chapter II addresses the abuse of a dominant market position. It states:

“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 United Kingdom.” (Competition Act 1998, Chapter II, Section 18(1))

This section mirrors Article 102 TFEU and targets practices by dominant firms that exploit their market power to the detriment of competitors and consumers, such as unfair pricing, limiting production, or applying dissimilar conditions to equivalent transactions.

Market Analysis and Appreciability

Determining whether an agreement has the object or effect of restricting competition involves detailed market analysis. The Act provides guidance on factors to consider, emphasizing the need for an appreciable effect:

“An agreement falls within subsection (1) unless it is exempt in accordance with the provisions of this Part, but no account shall be taken of any agreement the effect of which is not appreciable in a market.” (Competition Act 1998, Chapter I, Section 2(2))

However, appreciability does not apply to hardcore restrictions such as price fixing and market sharing, which are presumed to have negative impacts on competition.

Exemptions and Block Exemptions

The Act originally allowed for individual notifications and exemptions through the Office of Fair Trading (OFT). However, reforms have since aligned UK law with EU regulations, removing the need for individual exemptions and focusing on block exemptions. For instance:

“The Chapter I prohibition does not apply to an agreement if it is exempt from the prohibition by or under any enactment.” (Competition Act 1998, Chapter I, Section 3(1))

Block exemptions are designed for specific categories of agreements that are deemed beneficial for competition, such as the Public Transport Ticketing Scheme Block Exemption Order 2001, which exempts certain public transport ticketing schemes from the prohibition.

Cartels and Price Fixing

Cartels represent the most serious breaches of the Chapter I prohibition. These horizontal agreements between competitors typically involve price fixing, market sharing, or bid rigging. The Act explicitly condemns such practices:

“Any agreement or concerted practice involving undertakings which, by object or effect, involves price-fixing, market-sharing or limitation of production or supply, is prohibited.” (Competition Act 1998, Chapter I, Section 2(5))

The enforcement of anti-cartel provisions has seen significant actions by the OFT and its successor, the CMA, particularly in high-profile industries like construction and airlines.

Enforcement and Penalties

The Competition and Markets Authority (CMA) is the primary enforcement body, inheriting responsibilities from the OFT and the Competition Commission (CC) following the Enterprise and Regulatory Reform Act 2013 (ERRA13). The CMA has robust powers to investigate, prosecute, and penalize anti-competitive practices.

For instance, the CMA can impose substantial fines for violations of the Competition Act:

“The CMA may impose on an undertaking a penalty of such amount as it considers appropriate if the CMA is satisfied that the undertaking has committed an infringement of the Chapter I prohibition or the Chapter II prohibition.” (Competition Act 1998, Schedule 8, Section 4(1))

The CMA also follows detailed procedural guidelines to ensure fair and transparent enforcement, such as those outlined in the Competition Act 1998 (Competition and Markets Authority’s Rules) Order 2014/458 and the CMA’s investigation procedures.

Cartel Offence

The Enterprise Act 2002 introduced a criminal offense for individuals involved in hard-core cartel activities. This was further refined by the ERRA13, which removed the requirement for proving “dishonesty” in cartel cases:

“An individual is guilty of an offense if he agrees with one or more other persons to make or implement, or cause to be implemented, arrangements relating to at least two undertakings involving prohibited activities such as price fixing, market sharing, limitation of production and supply, and bid rigging.” (Enterprise Act 2002, Section 188)

The ERRA13 introduced specific defenses and clarified circumstances where the offense would not be committed:

“The cartel offense does not apply where there is no intention to conceal the arrangements from customers or the CMA, or where reasonable steps are taken to disclose the nature of the arrangements to professional legal advisers before implementation.” (Enterprise Act 2002, Sections 188B(1-3))

Sectoral Regulators and Concurrent Powers

Several sectoral regulators have concurrent powers with the CMA to enforce competition law in their respective industries. These include:

• Office of Communications (OFCOM): Related to electronic communications, broadcasting, and postal services.
• Gas and Electricity Markets Authority (OFGEM): Pertaining to the gas and electricity sectors.
• Water Services Regulation Authority (OFWAT): Concerning water and sewerage services.
• Office of Rail Regulation (ORR): Associated with railway services.
• Civil Aviation Authority (CAA): Linked to air traffic services and airport operations.
• Financial Conduct Authority (FCA): Pertaining to financial services.
• Monitor: In relation to healthcare services in England.

These regulators collaborate with the CMA to ensure comprehensive enforcement across various sectors.

Memorandum of Understanding with the SFO

The CMA has a Memorandum of Understanding with the Serious Fraud Office (SFO) to clarify their roles in investigating and prosecuting cartel offenses. This agreement covers the exchange of intelligence, handling of initial inquiries, and case referrals to ensure efficient and effective enforcement.

Enterprise Act 2002 (as amended by ERRA13)

The Enterprise and Regulatory Reform Act 2013 (ERRA13) brought substantial changes to UK competition law enforcement by consolidating the functions of the Office of Fair Trading (OFT) and the Competition Commission into the Competition and Markets Authority (CMA). The Enterprise Act 2002 was also amended to enhance the CMA’s investigatory and enforcement powers.

Key updates include:

1. Removal of the Dishonesty Requirement:
   • The requirement to prove “dishonesty” for the cartel offense under Section 188 of the Enterprise Act 2002 was removed, simplifying prosecutions for hard-core cartel activities such as price fixing and market sharing.
2. New Defenses and Clarifications:
   • Section 188B of the Enterprise Act now provides specific defenses where there is no intent to conceal arrangements from customers or the CMA, or where reasonable steps are taken to disclose the arrangements to professional legal advisers.
3. Guidance on Prosecution:
   • The CMA issued new prosecution guidance, reflecting the removal of the dishonesty requirement and outlining the principles for determining whether to bring proceedings under Section 188(1) of the Enterprise Act.

Competition and Markets Authority (CMA) Guidelines

The CMA has issued several important guidelines post-2015 to enhance clarity and enforcement efficiency. These guidelines address procedural aspects, market definition, and specific sectoral regulations. Some notable documents include:

1. CMA’s Procedural Guidance (CMA8):
   • This guidance details the CMA’s investigative procedures in cases under the Competition Act 1998, emphasizing transparency, fairness, and thoroughness in investigations.
2. Market Definition Guidelines (CMA58):
   • Published in December 2020, these guidelines provide a comprehensive framework for defining relevant markets in competition cases, crucial for assessing the competitive effects of business conduct.
3. Merger Assessment Guidelines (CMA129):
   • These guidelines outline the CMA’s approach to assessing mergers, including criteria for evaluating whether a merger might substantially lessen competition.

Sectoral Regulation and Concurrent Powers

Sectoral regulators continue to play a vital role in enforcing competition law within specific industries. The CMA collaborates with these regulators to ensure consistent application of competition principles across sectors:

• Ofcom (Communications):
  • Ofcom has taken significant actions against anti-competitive practices in the telecom and broadcasting sectors, including investigations into mobile termination rates and broadband pricing.
• Ofgem (Energy):
  • Ofgem has pursued cases involving collusion and abuse of dominance in the gas and electricity markets, reinforcing fair competition and consumer protection.
• Financial Conduct Authority (FCA):
  • The FCA collaborates with the CMA on cases involving financial services, such as investigations into collusion in the foreign exchange market.