Anti-Competitive Agreements

What is an anti-competitive agreement?

An anti-competitive agreement is an agreement whereby two or more companies operating as competitors in the same market make an agreement to do something together, for example to fix prices or limit production which has the result of reducing the competition on that particular market.  The best example of an anti-competitive agreement is between a group of companies who fix prices and limit production amongst other things. This is generally called a cartel and carries with it the toughest of penalties.

Why do we need markets to be competitive?

If companies are competing against each other in the same market then they will challenge each other to gain a competitive advantage by doing such things as lowering their price or improving the quality of the product. This in turn means that we, the consumer, will be able to buy high quality products at low prices.

If the companies do not compete and agree together to fix prices or limit production it means that the consumer or end user of the product will not have the best choice of product at the best price available to them.

UK Law and EU Law

Under UK law we see two sets of laws working together simultaneously. If an agreement made by a UK company affects trade solely within the UK then this will be governed by Section 1 of the Competition Act 1998 (Amended by the Enterprise Act 2002) whereas if an agreement made by a UK company extends beyond the UK to involve other European Union Member States then that will be governed by Article 81 of the EC Treaty.

The EU law in this case has been adopted into the UK law so both systems require the same requirements to be established.

What needs to be established for an agreement to be anti-competitive?

The following needs to be established:

  • That there was an agreement, arrangement or concerted business practice

  • Which appreciably prevents, restricts or distorts competition, and which  

  • Affects trade in the UK or EU respectively.

Which Agreements are seen as Anti-Competitive?

In order to establish whether an agreement is ant-competitive the object and effect of the agreement need to be examined rather than whether the agreement was in fact written down or not. Whether something has the object of restricting competition means if it was intended to restrict competition and whether something has the effect of restricting completion means if it has in fact restricted competition.

The following types of arrangement are generally prohibited under Chapter 1 and Article 81:

  • Agreements which fix prices (both purchase and selling prices)

  • Agreements which fix trading conditions, for example discounts

  • Agreements which limit or control production, markets, technical development or investment. Setting quotas is probably the best example of this.

  • Agreements which share sources of supply

  • Agreements which place other parties at a disadvantage. An example of this is placing different terms on different parties for the same kind of agreements.

What happens if a company is found to have breached Chapter 1 or Article 81?

If a company has been found to have breached either Chapter 1 or Article 81 then the punishments will be very severe and can range from the following:

  • A fine of up to 10% of the company’s global turnover

  • The certain provisions contained within the agreements which are deemed anti-competitive will become void and unenforceable. This often means that very lucrative agreements between businesses will fall apart due to the anti-competitive nature of some of the provisions

Is it just the Company who will liable?

Under Chapter 1 following the introduction of the Enterprise Act 2002 certain individuals involved in the agreements can be disqualified from becoming company directors and can even face criminal convictions such is the serious nature of ant-competitivebehaviour. In the UK there are also powers to search company offices and home offices of directors to seize documents detailing the nature of the ant-competitive agreements.

Are there any exemptions to the rule in Chapter 1 or Article 81

Even if an agreement seems to fit within the definition prescribed by either Chapter 1 or Article 1 it can be exempt if it falls within a block exemption or on the other hand if the benefits of the agreement outweigh the competitive disadvantages.

Block Exemptions

A block exemption is a group exemption which exempts certain types of agreements if they match the prescribed criteria specified in the block exemption.  Certain agreements may fall within the criteria of different block exemptions depending on the nature of the agreement and the sector involved.

I own a small company; do I need to be aware of these provisions?

Each and every business regardless of its size, sector or legal status needs to be aware of these provisions. Competition law applies across all markets in the UK and EU so if you’re small company is operating on one of these markets at home or abroad care needs to be taken when entering into agreements with other companies on the same market.