UK: Competition Law: Managing Your Risk

Competition law compliance should be an important component of risk management strategies for every business. Recent developments have highlighted the importance to businesses of complying with competition law as regulators continue to step up their enforcement activities.

Why Is It Important To Comply?

The consequences of breaching competition law can be serious and far-reaching, and can result in one or more of the following:

  • The imposition of fines of up to 10% of a company's worldwide turnover;
  • Criminal prosecution of individuals, leading to possible imprisonment and disqualification from acting as directors;
  • The finding that anti-competitive agreements and practices are void and unenforceable;
  • The prohibition of transactions; and
  • The launch of private damages actions by those that have suffered loss as a result of anti-competitive behaviour.

Over recent years, the level of fines imposed by competition authorities for breach of competition law has increased. As Neelie Kroes, the European Commissioner for Competition said recently, "management and shareholders of companies that damage consumers and European industry by running cartels must learn their lessons the hard way – if you cheat, you will get a heavy fine".

For example, in November 2008, the European Commission fined four companies a total of e1.384 billion (including a fine of e896 million imposed on one company) for participating in a cartel in the car glass industry, the largest cartel fine ever imposed by the European Commission. In total, seven cartel decisions were issued by the European Commission in 2008, with total fines imposed amounting to over e2.2 billion.

National competition authorities also issue large fines for anti-competitive behaviour. In 2007, the UK's Office of Fair Trading fined British Airways £121.5 million for its part in the fuel surcharge cartel. Fines of this magnitude are not the exception.

Increasingly, key individuals involved in cartels are facing criminal prosecution. 2008 saw the first criminal convictions in the UK when three directors of a company involved in the international marine hoses cartel were each imprisoned for terms of up to 30 months. Furthermore, the trial is expected next year of four current and former executives and senior managers of British Airways charged in respect of the fuel surcharge cartel.

Often, for companies engaged in commercial relationships, an equally serious sanction is the fact that an anti-competitive agreement can be declared void and unenforceable. This may have far-reaching consequences for a company's commercial relationships with, for example, its suppliers and/or distributors.

There are also a growing number of private actions for damages brought by those who claim to have suffered loss as a result of anti-competitive behaviour. Damages actions can be launched as stand-alone actions or follow-on actions. Stand-alone actions involve a claim against a company alleging that there has been a breach of competition law which has caused loss or damage. In such actions, the claimant must first prove that there has been a breach of competition law and then prove that it has suffered loss as a result of that breach. Follow-on actions are brought by parties relying on a decision of a competition regulator that there has been a breach of competition law, meaning that the claimant merely has to show that it has suffered loss as a result of the anticompetitive behaviour. Private damages actions can be costly for those defending a claim, not only because of legal and other costs but also in terms of the level of damages that can be awarded.

To illustrate, the recent case brought against JJB in respect of a price-fixing cartel involving the sale of certain football shirts saw the retailer agree to pay £20 to every purchaser of the relevant shirts. The European Commission and national competition authorities throughout the EU are keen to see an increase in third party competition litigation and, as a result, are investigating ways to make it easier for claimants to launch such actions.

What Can We Do To Ensure We Comply?

One of the best ways to achieve compliance with competition law is to put in place a proper compliance programme. Bespoke competition compliance programmes can be designed for any business and may include any or all of the following components:

  • User-friendly compliance manuals;
  • Face-to-face training sessions for staff;
  • Computer and/or DVD based training programmes;
  • Access to a telephone helpline; and
  • Written updates and reminders.

A compliance programme can be set up alongside a competition audit to check if there are any existing issues.

If an audit does identify a breach of competition law that has occurred, the company will be in a position to manage its potential exposure, including the possibility of approaching the relevant competition authority to provide information about the breach in return for obtaining immunity or leniency from sanctions. Furthermore, a compliance programme may highlight potential breaches of competition law by third parties which may enable a company to launch a claim for damages if loss has been suffered.

Finally, in the event of a breach of competition law, if a competition compliance programme indicates that a company has made a genuine attempt to comply with competition law, this may be a mitigating argument to put to the relevant competition authority in arguing for a reduction in any fine.

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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