UK Competition Act 1998

The UK legislation applies to agreements, decisions and practices implemented or intended to be implemented in the United Kingdom. Agreements subject to the prohibition are void.  In accordance with general principles of legality and contracts, they may potentially be severable if the balance of the agreement can stand by itself.

The 1998 Act refers to the prohibition on anti-competitive agreements as the Chapter I prohibition.  It refers to the prohibition on abusive dominant position as the Chapter II prohibition.

The Chapter I prohibition prohibits agreements, decisions and concerted practice between or by and between undertakings or associations of undertakings, which are implemented in the UK, which have the object or effect  of prevention, restriction or distortion of competition in the UK.

The Chapter 1 prohibition sets out types of agreements which may potentially be covered.  Agreements include legally binding agreements but also concerted practices involving understandings and coordinated behaviour implied.

Market analysis is necessary in order to understand, whether the agreement has the object or effect of preventing, restricting or distorting competition.  Restrictions may be permissible if they are necessary for legitimate reasons. There must be an appreciable effect on competition under EU court interpretations.

Appreciability does not apply where the agreement involves price fixing, market sharing or imposition of resale prices.  Similarly, if it is part of a network agreement with cumulative effects, the appreciability test does not apply.

Notifications and Exemptions

Under the original 1998 legislation, provision was made for notification of potential breaches.  The Office of Fair Trading could grant exemptions in accordance with criteria specified in the legislation.  Agreements could seek negative clearance or exemption in the same way as under the EU provisions.The EU and the UK legislation have been  reformed with removal of the requirement for individual exemptions.

The 1998 legislation allows for blocks exemptions.  The Competition Act Public Transport Ticketing Scheme Block Exemption Order 2001 exempts public transport ticketing schemes in accordance with the terms and conditions of the statutory instruments.  Agreements which enjoy the benefits of the EU Block Exemption Regulation or certain decisions of the Commission are exempt or if they would have such exemption if they had effect on trade between Member States.

The UK has aligned the UK law with the Vertical Agreements Block Exemption Regulation.

Agreements are excluded to the extent that the merger provisions apply.  In this case, Part III of the Enterprise Act 2002 applies so that this control only operates.

The 1998 legislation had originally excluded certain designated professional association rules from the prohibition and certain land agreements.  These have now been removed from the scope of the exemption and are potentially within the scope of the prohibition.

Cartels / Price Fixing

The most notorious form, breach of the Chapter I prohibition is a cartel.  This will operate horizontally between businesses, which should otherwise compete. Classically, price-fixing is involved or other collective actions.

There have been several instances of very significant and high-profile cartel infringement decisions by the Office of Fair Trading and the CMA.  This has included price-fixing and rigging in the construction industry, airlines industry.  The competition authorities have a range of  enforcement options including leniency programs, prosecution, early resolution and settlement, together with very considerable fines.  Very considerable fines may be imposed.

The Competition Appeal Tribunal has indicated that arrangements that are necessary to achieve a proper, commercial objective will not or may not constitute an anti-competitive infringement at all.  This is more likely to be available where in the circumstances there is no appreciable increase in the price by reason of the action.

Resale price maintenance schemes and agreements arise, where a manufacturer or distributor seeks to maintain minimum or other benchmark prices.  These are generally strictly prohibited.  In principle, it may be possible to justify such agreements where they promote competition and bring objective benefits such as improvement in the distribution channels and infrastructure.  However the position remains that price-fixing is difficult to justify.

The UK Court of Appeal has held that if every retailer discloses to a supplier future pricing intentions in circumstances where he may be taken to intend that the latter will make use of the information to influence market conditions by passing it to other retailers, and it is in fact passed on in circumstances where the third-party may be taken to know the circumstances in which it was disclosed and the third-party uses the information in determining his pricing arrangements.

All three parties may be regarded as parties to a concerted practice having as its object, the restriction or distortion of competition.  The position is stronger, where there is reciprocity in the sense that the third party discloses to the supplier its future pricing intentions in circumstances where it may be taken to be intended that it will be used to influence market conditions by passing that information back.

Multilateral discussions and coordination between retailers or retailers and manufacturers, which results in an allocation of a minimum price is likely to be characterised as a retail sales as being in breach of the Chapter I prohibition.

Parties may infringe the prohibition through a series of bilateral agreements with key market participants for linkage of prices.  The parties need not be necessarily in agreement with each other, but the anticompetitive agreements made lie through the series of links, the agreements, network of agreements. An indirect exchange of pricing intentions may constitute a breach. Coordinated price increases may be the evidence of the requisite concerted practice.

In principle, there may be parallel behaviour.  However, where the involvement is referable to conclusion, the prohibition applies.

Non-Infringing

In some case, cooperation may be the only commercially justifiable way to launch a new product or enter a new market.Market analysis is necessary in order to understand, whether the agreement has the object or effect of preventing, restricting or distorting competition.  Restrictions may be permissible if they are necessary for legitimate reasons. There must be an appreciable effect on competition under EU court interpretations.

Appreciability does not apply where the agreement involves price fixing, market sharing or imposition of resale prices.  Similarly, if it is part of a network agreement with cumulative effects, the appreciability test does not apply.

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