Jemima Stratford is a barrister at Brick Court Chambers, London,who specialises in European law including competition law, and in human rightslaw. Jemima is co-author with fellow barrister James Flynn of Competition:Understanding the 1998 Act (Palladian, 1999)
The Competition Act 1998 introduces radical and long overdue reforms of UKcompetition law. When the Act received Royal Assent on 9 November 1998, itmarked the culmination of more than ten years of debate and reform proposals bysuccessive governments. After the Act comes fully into force on 1 March 2000, UKcompetition law will at long last contain prohibitions on anti-competitiveagreements and anti-competitive conduct similar to those which already apply tobusinesses under European law. Infringement of these prohibitions will expose abusiness to the risk of fines of up to 10% of its UK turnover.
The Competition Act 1998 will repeal substantial parts of existing UKcompetition law, including the Restrictive Trades Practices Acts 1976 and 1977,the Resale Prices Act 1976, and most of the Competition Act 1980.
The Chapter I Prohibition
The new prohibition on anti-competitive agreements is contained in Chapter Iof Part I of the Act (ss 1-16), and hence is called ‘the Chapter Iprohibition’. It is closely modelled upon what is now Article 81(1) of the ECTreaty, after the re-numbering introduced by the Treaty of Amsterdam (formerlyArticle 85(1)). Section 2(1) of the Act provides that:
‘Subject to section 3, agreements between undertakings, decisions byassociations of undertakings or concerted practices which –
- may affect trade within the United Kingdom, and
- 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.’
There are three principal points to note about this prohibition. Firstly, itis all ‘subject to section 3’, which provides for a wide range of agreementsto be excluded from the Chapter I prohibition. The exclusions are listed in schs1 to 4 to the Act, and matters likely to be of particular relevance to ITlawyers include mergers which fall under the Fair Trading Act 1973, andconcentrations in respect of which the European Commission has exclusivejurisdiction under the EC Merger Regulation. Agreements which are subject tocompetition scrutiny under the Broadcasting Act 1990 are also not subject to theprohibition.
Furthermore, s 50(1) of the Act gives the Secretary of State the potentiallyvery significant power to exclude vertical agreements from the scope of theprohibition. The draft Order on vertical agreements which has been publisheddefines a vertical agreement as one between two or more undertakings, eachoperating at a different stage of the economic process for the purposes of thatagreement, and which agreement is in respect of the supply or purchase (or both)of goods for resale or processing or in respect of the marketing of services.Vertical agreements would be excluded from the Chapter I prohibition, so long asthey were not price fixing agreements, and subject to a right on the part of theDirector General of Fair Trading (the DGFT) to clawback in the event that anexcluded vertical agreement might in fact be seriously detrimental tocompetition. However, it is important for IT lawyers to note that Governmentofficials have expressed the view that the power to exclude vertical agreementscontained in s 50 does not extend to licences of intellectual property rights.In practice, many such agreements would benefit from block exemption in the ECby virtue of Commission Regulation 240/96/EC in any event.
Second, and in contrast to Article 81 of the EC Treaty, there is norequirement under the Chapter I prohibition that trade between Member Statesmay be affected by the agreement in question, only that trade within theUnited Kingdom may be so affected. Clearly the prohibition under the UK Actwill bite on many more and smaller agreements than are presently subject to theEC Treaty rules.
Third, s 2(2) of the Act contains an illustrative list of types of agreement,practice or decision which would infringe the prohibition. These examples mirrorexactly the list in Article 81(1) of the EC Treaty, and include price fixing,discriminatory terms and unjustifiable tying. However, in accordance withestablished European case law, the Chapter I prohibition will apply only wherean agreement brings about an appreciable restriction or distortion ofcompetition. The DGFT has indicated that generally an agreement will beconsidered to have no appreciable effect on competition if the undertakings’combined market share of the relevant market does not exceed 25%, and so long asthe agreement is not price fixing, imposing minimum resale prices, or part of anetwork of similar agreements which have a cumulative effect on the market inquestion.
Where an agreement falls foul of the Chapter I prohibition, it is void (s2(2)), although where it is possible under general principles of Englishcontract law to sever the offending clause or clauses this may save theagreement.
Like Article 81(3) of the EC Treaty, ss 4-11 of the Act make provision forexemption from the Chapter I prohibition. There are four kinds of exemption:
- individual exemptions, which the DGFT may grant in relation to an agreement that has been notified to him (ss 4 and 5)
- block exemptions, which may be adopted by the Secretary of State in the future (none have yet been adopted) (ss 6-8)
- parallel exemptions, where an agreement satisfied one of the EC block exemptions, or would do so if it were to affect trade between Member States (s 10)
- exemptions for ‘other agreements’ (a narrow category, which could include, for example, non-EU air transport) (s 11).
In practice individual exemptions and parallel exemptions will be of thegreatest practical importance to IT lawyers and businesses. For example, asoftware licensing agreement which fell within the terms of the TechnologyTransfer Block Exemption (Regulation 240/96/EC) would also benefit from aparallel exemption under the Act.
The Chapter II Prohibition
Sections 17-24 of the Act are contained within Chapter II of Part I of theAct which is entitled ‘Abuse of Dominant Position’. Accordingly, s 18 of theAct prohibits conduct which amounts to an abuse of a dominant position; it isclosely modelled on Article 82 of the EC Treaty (formerly Article 86). Section18(1) provides that:
‘Subject to section 19, 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.’
In order to establish a breach of the Chapter II prohibition, it is necessaryto define the relevant market (comprising the product market, the geographicalmarket and the temporal market), to establish that one or more undertakings aredominant in that market, and to find conduct constituting an abuse. Dominance isdefined in the applicable European jurisprudence as: ‘a position of economicstrength enjoyed by an undertaking which enables it to prevent effectivecompetition being maintained on the relevant market by affording it the power tobehave to an appreciable extent independently of its competitors, customers andultimately or its consumers.’
Section 18(2) goes on to provide a non-exhaustive list of types of conductwhich may constitute an abuse. These include excessive pricing, predatorypricing, discriminatory pricing, refusal to supply and tying.
In contrast to the Chapter I prohibition, there is no possibility of anexemption from the Chapter II prohibition. However, a limited number of generalexclusions apply, including an exclusion for conduct resulting in mergers orconcentrations similar to the exclusion which applies to the Chapter Iprohibition.
The Role of Europe
As will already be apparent from this short description of the Chapter I andII prohibitions, European competition law has a very important role to playunder the new Act.
Section 60 is arguably the most important provision of the entire Act. Itseeks to ensure that, so far as is possible (and having regard to any relevantdifferences between UK and EC provisions), questions arising under the Act aredealt with in a manner which is consistent with the treatment of correspondingquestions arising in Community law. To comply with this aim, s 60(2)-(3) of theAct lays down that:
‘(2) At any time when the court determines a question arising under this Part, it must act (so far as is compatible with the provisions of this Part and whether or not it would otherwise be required to do so) with a view to securing that there is no inconsistency between –
- the principles applied, and decisions reached, by the court in determining that question; and
- the principles laid down by the Treaty and the European Court and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law.
(3) The court must, in addition, have regard to any relevant decision or statement of the Commission.’ (emphasis added)
In general terms, therefore, principles laid down by the EC Treaty andrulings of the European Court of Justice will be binding on the English Court(or the DGFT) when deciding an equivalent question under the Act, whereas theEnglish Court (or DGFT) is obliged only to ‘have regard to’ decisions orstatements of the European Commission.
Most commentators are agreed that the presence of s 60 in the Act probablymeans that the English Courts will be able to refer questions arising under theAct to the European Court of Justice in Luxembourg for a preliminary ruling inaccordance with the Article 234 (formerly Article 177) procedure. This couldprove an important mechanism for ensuring consistency between EC and domesticcompetition law.
However, there remain several areas of potential conflict and overlap betweenthe domestic and EC regimes. This is principally because after the Act comesfully into force on 1 March 2000, agreements or conduct which have an effect ontrade between Member States will be subject both to Articles 81/82 and to theChapter I or II prohibition.
There are four possible fora in which competition law issues may fall to bedecided, two for EC law and two for domestic law under the Act. The figure belowsets out the position.
Where the agreement or conduct in question has the necessary effect on tradebetween Member States, so that its legality could be determined under both EClaw and under the Act, it is important to understand the relationship betweenthese possible proceedings. Careful strategic and tactical decisions may berequired as to where, and using what law, it would be best to litigate, notifyor complain. Of course it may be possible in a particular case for a party torely upon both domestic and EC competition law simultaneously in a civil action,but such decisions may have important practical consequences on the speed andoutcome of any proceedings. Some guidance on the factors which must be takeninto account when considering where to notify, litigate or complain has been setout by the Office of Fair Trading in the Guidelines which it has published on‘The Chapter I Prohibition’ (OFT 401).
The Regulators
Certain industries, which were subject to specific sectoral regulation priorto the enactment of the Competition Act 1998, are placed by the Act under thedual control of the DGFT and their sectoral regulator for competition lawpurposes. Section 54 of the Act provides for the DGFT’s powers in relation tothe Chapter I and Chapter II prohibitions to be exercised concurrently by thosesectoral regulators. Schedule 10 to the Act, which is entitled ‘Regulators’,lists the sectoral regulators who are given these concurrent powers, anddescribes the industries to which the agreements or conduct must relate.
The concurrent jurisdiction which will be exercised by the Director Generalof Telecommunications (the DGT) under the Act is likely to be of particularrelevance to IT lawyers. The Competition Act 1998 significantly increases thepowers of regulators such as the DGT to apply competition law, and these powerswill include the rights to obtain information, to carry out on-the-spotinvestigations and to impose fines. The OFT and DGT have together publisheddraft Guidelines entitled ‘Application in the Telecommunications Sector’,which address the interplay between licensing powers and the powers of the DGTunder the new Act in some detail.
Conclusion
The Competition Act 1998, and the series of Guidelines to it which are beingpublished by the OFT, together amount to a substantial and in some placescomplex body of reforming legislation and explanatory material. It has only beenpossible to give an overview of some of the most important features of the newlegislation in this article, and IT practitioners would be well-advised to usethe transitional period before the Act comes fully into force in March 2000 tobring themselves, and their clients, fully up to speed on the relevantprovisions. A considerable amount of useful information is available on the OFTwebsite at http://www.oft.gov.uk/, including copies of all of the Guidelines,draft Guidelines and Procedural Rules which have been published to date.
Law relied upon | Forum | Nature of proceedings | Appeals available |
EC law | the European Commission | notification or complaint | to CFI and ECJ in Luxembourg (Arts 229 and 230 (ex Arts 172 and 173)) |
EC law | national courts | reliance on Arts. | to CA/HL. Possibility of reference to Luxembourg (Art 234). |
The Act | the Office of Fair Trading | notification or complaint | to Competition Commission, and to CA/HL on points of law. Possibility of reference to Luxembourg (Art 234). |
The Act | national courts | reliance on Chapters | to CA/HL. |
