UK: Of Lance Armstrong And Competition Law Risk

Last Updated: 14 October 2015
Article by Ruth Ireland

"Two things scare me. The first is getting hurt. But that's not nearly as scary as the second, which is losing." - Lance Armstrong

Lance Armstrong is a word famous US sportsman, cancer survivor and seven times Tour de France winner. However he has now been stripped of those titles after a doping scandal. He may be the perfect example of the hero to zero phenomena: a sporting legend that beat his competitors and a killer disease before his reputation was completely trashed with doping allegations.

Some would say he cheated to achieve a competitive advantage in his field. Others have argued that doping was rife in cycling at the time, and he was just the one who got caught. Either way, his reputation will never recover.

Unfair competition in business is as much of a no-no as performance enhancing drugs are in sport, and the consequences can be as damaging.

The quotations throughout this article are all Lance Armstrong's.

Awareness of competition law in UK businesses – ignorance is no defense

"The question that lingers is, how much was I a factor in my own survival, and how much was science, and how much miracle?"

In April 2014 the UK Office of Fair Trading and the Competition Commission merged to form the Competition and Markets Authority (CMA). The CMA sets out to promote competition for the benefit of consumers, both within and outside the UK; and to make markets work well for consumers, businesses and the economy.

Its responsibilities include investigating examples of anti-competitive behaviour and law enforcement.

In spring 2015 the CMA published a study on UK business awareness of competition law, anti-competitive behaviours and the penalties for violations. The study included interviews with over a thousand senior sales people. On average, these employees identified only 4.2 of the ten true/false statements correctly.

These results indicate an alarming lack of awareness that could put businesses at serious risk of breaching competition law. Additionally, this lack of awareness may limit a business in asserting its own rights to protect its position in the marketplace.

The legal framework

"Extraordinary allegations require extraordinary evidence."

Businesses operating in the UK are subject to UK and EU competition law. As civil law, the standard of proof is somewhat less than Mr Armstrong suggests it might be in the world of sport. This is, on the balance of probabilities, that the defendant is more likely liable than not liable. The burden of proof lies with the claimant rather than the prosecution.

Anti-competitive behaviour which may affect trade within the UK is prohibited by the Competition Act 1998 and the Enterprise Act 2002. Where this behaviour extends to other EU states it is prohibited by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Other global territories - in particular the US- have similar anti-trust laws.

What is anti-competitive behaviour?

"The riskiest thing you can do is get greedy."

The two main types of anti-completive activity prohibited in law are:

  • Anti-competitive agreements (eg cartels, fixing prices, bid rigging, sharing markets or sources of supply, limiting production etc)
  • Abuse of a dominant market position (eg imposing unfair trading terms, predatory pricing, refusal to supply etc)

What are the consequences of non-compliance with contract law?

"There's no rule, no law, no regulation that says you can't come back. So I have every right to come back."

Well, there may be a few reasons why you wouldn't come back from contract law breaches, including:

  • Substantial fines (up to 10% of group turnover)
  • Void and unenforceable commercial agreements
  • Civil damages
  • Individual criminal sanctions for serious breaches (particularly for engagement in cartel activity with the possibility of up to five years in prison and/or substantial fines)
  • Director disqualification
  • Reputational damage arising from lengthy investigations.

What should Internal Audit be asking?

"Hard work, sacrifice and focus will never show up in tests."

But some of these issues might:

  • 'Tone at the top' – is there a clear commitment to competition law compliance from the board down? Is there an appropriate risk appetite towards non-compliance?
  • Is competition law risk management integrated into the businesses wider risk management process and has it identified the key risks and the key risk areas for non-compliance?
  • Are identified risk mitigations being monitored and what assurance is the board receiving on their effectiveness?
  • Do the business and its employees in key risk areas understand competition law and the consequences of non-compliance? Are these employees aware of what behaviours are not permissible? Is this backed up by appropriate training for existing and new employees?
  • Is there a competition law compliance policy in place (not only may this reduce the risk of non-compliance, but if the organisation is investigated its existence may be taken into account and could result in a smaller fine)? Does this link with other business ethics and code of conduct policies? Are there whistleblowing arrangements in place?
  • Is there a regular review of practices and agreements for compliance with contract law by the legal or compliance teams?
  • Is all contact with competitors logged and monitored?

Given the potential consequences of non-compliance on a business, we believe that competition law risk should be on the radar for internal audit in commercial organisations.

"There comes a time in every race when a competitor meets the real opponent, and understands that it's himself."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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