|March 22, 2012|
Previously published on March 2012
On 15 March 2012, the UK Government finally announced its long-awaited proposals for the reform of the UK competition law regime. This follows a consultation launched by the Department for Business, Innovation and Skills (BIS) in March 2011.
Although the reforms will not be as radical as originally feared, BIS has proposed a number of key changes to the existing regime, which will require primary legislation. As expected, the competition functions of the Office of Fair Trading (OFT) and Competition Commission (CC) will be combined within a new Competition and Markets Authority (CMA), which should be operational by April 2014. Although this will remove the current institutional separation, which guarantees a 'fresh pair of eyes' on in-depth market and merger investigations, Government will attempt to replicate the best features of the CC within the new CMA. This will mean that final decisions in mergers and market cases will continue to be taken by a panel of semi-independent experts, rather than permanent agency staff.
While there is too much detail in the Government's 129 page document to cover in a short client briefing, the following proposed changes are particularly noteworthy.
The Criminal Cartel Offence
Since June 2003, it has been possible to sentence an individual (but not a company or firm) to up to five years imprisonment if he or she agrees with one or more other persons that at least two undertakings will engage in price-fixing; limitation of production or supply; sharing customers or markets; or bid-rigging. Currently, this offence will be committed only if the agreement is entered into dishonestly.
BIS has confirmed that it will remove the dishonesty element from the criminal cartel offence, on the grounds that this will improve enforceability and increase deterrence. This change is likely to raise serious concerns for businesses, given the scope for legitimate commercial arrangements to fall within the offence, for example because they involve an element of customer allocation.
Until now, the dishonesty element has provided an important safeguard to keep agreements that are entered into honestly from being caught, given the fact that there is no scope to introduce arguments concerning efficiency or consumer benefits into the cartel offence analysis. Dishonesty is a concept that individual employees can generally understand and use as a basis for their actions.
Although BIS indicates that there will still be a "mental element" to the offence, this will apparently be met merely by having an intention to enter into an agreement and as to the operation of the arrangements in question. Although BIS states that it will be a defence for the parties to publish the details of the arrangements before they are implemented, apparently in the little-read London Gazette, this introduces a degree of formalism and bureaucracy that is unlikely to be used in practice, particularly given likely legitimate concerns over commercial confidentiality.
Overall, this change threatens to catch perfectly benign commercial agreements, such as sales joint ventures or bidding consortia, and thus potentially make individual employees involved in negotiating and executing such arrangements for their employers criminally liable. While it will be hoped that the CMA will not target such arrangements, this may offer limited comfort, given the severe consequences of a criminal prosecution and conviction for the individuals concerned.
The Role of Government in Competition Enforcement
The BIS paper states that "it is vital that the CMA is independent and is seen to be independent". Nevertheless, it goes on to state that Government intends to publish an annual "high level strategic steer", for the CMA to "reflect upon". Although this is apparently intended to outline the long term goals of the Government in relation to competition and growth, rather than dictate day to day actions in individual cases, it may well influence the CMA's behaviour on the margins, particularly on market investigations. In addition, a promised Government "performance framework" for the CMA may influence the number of antitrust decisions being taken by the CMA and thereby adversely affect its ability to prioritise.
BIS also proposes extending Government powers to intervene in market investigations on public interest grounds, i.e. wider issues of concern that do not arise from competition issues on a market. In future, the Secretary of State will have the power to appoint independent experts to the CMA panel to advise him on such public interest issues. Crucially, he will take any decision on remedies in such cases, rather than the CMA. This is a potentially worrying development, as it gives elected politicians the power to interfere with the processes of an independent competition authority, and potentially impose powerful remedies on businesses, on grounds that are potentially open-ended, subjective and potentially influenced by political rather than economic considerations. As such, this marks a reversal of the trend of the last decade to remove politicians from the work of the competition authorities.
The antitrust regime will be amended in an attempt to provide greater procedural fairness, particularly by providing for a clearer separation of powers between investigators and those taking the final decision.
BIS has also accepted the OFT's recommendation that the "serious, irreparable damage" threshold for interim measures be replaced to allow the OFT to take prompt action to prevent "significant damage". This lower threshold may pose a risk to businesses under investigation, potentially requiring them to amend their businesses practices even before an anti-competitive practice has been proven, based on an untested notion.
BIS also plans to consult on new proposals to make it easier for consumers and small businesses to bring private court actions based on competition law claims. Potential proposals include extending the current right to bring opt-in collective actions to businesses as well as consumers, introducing a 'fast track' procedure before the Competition Appeal Tribunal for hearing "simpler cases", and giving the CMA powers to order infringers to implement consumer redress schemes.
BIS has stepped back from major change to the current merger regime, which is generally seen to work well. As a result, the proposed changes largely flow from the merger of the OFT and CC. Notably, merger fees will be increased from 6 October 2012, with the highest fee rising from £90,000 to £160,000 (an increase of 78%) for mergers where the target is worth more than £120 million.
As in the merger control field, changes to the market investigation regime are largely procedural (apart from the public interest issue already noted above). For example, initial 'market studies' will be placed on a statutory footing for the first time and the CMA will be obliged to complete these within 12 months. The maximum time limit for full market investigations will be reduced from the current 24 months to 18 months.
At present, sectoral regulators share the OFT's powers to enforce the antitrust rules, alongside their sector regulatory powers. While this will stay, the CMA will be given new powers to oversee the regulators' use of these powers and take cases away from them in certain circumstances. These changes materially change the balance of power between the CMA and sectoral regulators, and effectively give the CMA a leading role within the UK regime that is similar to that of the European Commission within the European Competition Network.
The OFT currently has consumer protection powers that operate alongside its competition enforcement powers. The Government is consulting separately on a proposal not to transfer the OFT's consumer protection powers to the CMA but instead to devolve them to local trading standards bodies. This would represent a major dilution of consumer protection at a national level and was one aspect of the proposed reforms that was particularly unpopular with the OFT. There is no indication in today's paper as to what will happen on this front.
Overall, today's paper heralds a period of significant uncertainty and change for the UK competition regime, albeit not as much as appeared possible a year ago.