EU-style “effects” as opposed to “What does the contract say?” approach comes to UK competition law at last.
Beating the competition and staying within the law and staying within the law
Topic: Competition Law
New development: The Competition Act 1998
Background:
Competition lies at the heart of any successful market economy and is crucial to the protection of consumers' interests and the efficient allocation of resources. It is a process whereby undertakings constantly try to gain an advantage over their rivals and win more business by offering more attractive terms to a customer or by developing better products or more effective ways of meeting their requirements. UK competition law has been criticised as being unduly technical and for not containing sufficient sanctions against genuinely harmful anti-competitive conduct, while unnecessarily catching many innocuous agreements. It did not prohibit any particular kinds of conduct and had become a burden for businesses and cumbersome for the authorities to operate. In the UK we are currently going through a radical reform of our competition legislation to make it a more effective in promoting competition and to allow businesses to enter into arrangements which allow them to trade commercially.
What has changed:
The framework of the new system is set out in the Competition Act 1998 ("the Act") which introduces two prohibitions: one of agreements (whether written or not) which prevent, restrict or distort competition and which may affect trade within the UK; the other of conduct by undertakings which amounts to an abuse of a dominant position in the market which may affect trade within the UK.
The Act introduces effective powers of investigation and enforcement including "dawn raids" and the imposition of heavy fines in the case of infringement.
The Director General of Fair Trading at the Office of Fair Trading ("OFT") will be responsible for enforcing the new legislation. The Act will radically change the OFT's powers of investigation and enforcement. The UK will move from having one of the most permissive competition regimes in the world to one of the toughest. It will become more important, for example, to carefully consider the extent and the effect of any provisions in advertising agreements relating to exclusivity between the parties and/or restrictions which prevent one or both parties from, for instance, accepting advertising from certain other companies or which generally restrict the way in which a party carries on business.
Another issue which will need to be considered before entering into any agreement is the extent to which exclusive partnering and co-branding arrangements may fall foul of the new legislation. If these types of issues are not considered at the outset, when entering into agreements, parties risk being investigated by the OFT, the agreement being unenforceable, being fined of up to 10% of turnover and a risk of action from third parties (such as competitors or customers) who may recover any loss which is attributable to the infringing arrangements.
The Act came into force on 1 March 2000.
What happens next:
Companies currently have a "transitional" period in which to conduct compliance checks on their current trading practices and train staff to comply with the new law. Guidance is available on what kind of agreements or arrangements are likely to be prohibited past 1 March 2000.
