Competition Law - Do You Know the Risks?by Giles Warrington, Partner, Pinsent MasonWhen people think of competition law, they sometimes think of representatives of traditional industries meeting in hotel meeting rooms and dividing up a market between them. But competition law can be far more subtle than this, and covers a broad range of sectors, including those potentially providing the meeting rooms. There is parallel EU and UK legislation designed to protect competition in UK markets. This legislation prohibits: (1) anti-competitive agreements between businesses; and (2) the abuse of a dominant position by a business. This article focuses principally on the first prohibition. Why is it important for MIA members to be aware of competition law? A breach of competition law can have significant consequences for a business and for individuals involved. In addition, directors of companies which infringe competition law face the possibility of directors’ disqualification for up to 15 years. No directors' disqualification orders have yet been made under the relevant legislation, but the OFT has recently made it clear that it intends to pursue such orders much more actively in future. The OFT has made it clear that it would not only pursue such orders against directors who participated, or knew of and did nothing to stop, the anti-competitive behaviour, but also those who should have known of it. The OFT's position creates strong incentives on directors to ensure their companies have extensive competition law compliance programmes. So what is an Anti-competitive Agreement? The prohibition on anti-competitive agreements catches a wide array of agreements, arrangements and what are known as concerted practices which are deemed to have the object or effect of appreciably preventing, restricting or distorting competition. Anti-competitive agreements can arise between organisations at different levels of a supply chain, for example between a supplier and a venue operator, or they can arise between competitors. Anti-competitive agreements or arrangements between competitors generally present the most serious types of infringement of competition law. There should be no surprises that Competition law prohibits serious cartel activity. This includes agreements to fix prices (or any element of prices or price changes), share markets (e.g. dividing up customers), limit output or capacity (e.g. limiting the availability of meeting capacity during peak periods of demand), impose collective boycotts and to rig tenders. Even if common action along these lines is not agreed, even discussing such activities could infringe the rules. The hotels sector at least could be said to have a degree of "regulatory form". For example, in 2007, a Danish Inns and Hotels association (as well as two of its senior management) was fined for prohibiting its members from advertising accommodation at rates below those offered through the association. Information Exchange Serious breaches of competition law can also arise through information exchanges between competitors. Again, the hotels sector has been in the firing line. For example, in 2005, the French Competition Authority found that six "top-end" Parisian hotels had regularly exchanged detailed and confidential data (such as that relating to new offers and occupation/vacancy rates) and data on elements of their future marketing plans; it imposed fines on the hotels concerned. Competition law is concerned about exchanges of information which remove the "uncertainties inherent in competition". Potentially illegal information exchanges between competitors are those which relates to conference/meeting rates (recent, present or future), or any aspect of pricing policy, sales data, costs data and marketing plans. A recent European case involving Dutch mobile phone network operators meeting under the auspices of an industry association highlights the risks of information exchange between competitors. A single meeting at which the companies had discussed commission payments made to dealers was found to be capable of resulting in a breach of competition law. Even though the information exchange was a "one-off" and no agreement in the traditional sense was reached, the information exchanged was found to have had the potential to influence the companies' conduct on the market. This case also highlights the risks inherent in industry associations. The Competition Authorities recognise that trade associations can lead to significant benefits to members and the efficiency of markets generally. However, participations in such associations must be careful to ensure that not only are the activities of the trade association legitimate (for example, any market statistics prepared by the trade association should generally only be provided to the members in aggregate form and not broken down by member), but that their attendance at trade association meetings does not lead to anti-competitive behaviour "on the side". It is often what happens at the fringes of a trade association which is of interest to the Authorities rather than the core activity of the Association itself. Other Agreements with Competitors Other types of agreement between competitors can raise competition law concern, but the competition law treatment of such arrangements often depends on the economic circumstances of the agreement, and the rationale for the agreement. Such agreements would include joint purchasing, outsourcing between competitors or to a third party (e.g. one competitor outsourcing reservations to a competitor), and cross-referral arrangements etc. Such agreements should be subject to careful competition law review before they are entered into. What can businesses do to protect themselves? This article has presented a mere snapshot of the rules. However, even on this alone, it is clear that there are significant risks for those who do not take the appropriate mitigation steps. Businesses can go some way to protecting themselves against through ensuring that employees understand what they can or can't do. In some cases, this may take the form of a formal compliance programme, whereas for other business it may simply be a case of ensuring employees are aware of competition law. An effective compliance programme could also go some way to mitigate against fines by showing that the company took comprehensive steps to comply with competition law, for example in the case of a "rogue" employee. The OFT has provided helpful guidance on the main features that must be included as a minimum for a compliance programme to be regarded as "effective". They include:
However, the OFT has recently warned against "box-ticking" exercises. The key to an effective compliance programme is to develop a compliance culture within an organization, which must come from the top down. Giles Warrington is a partner in the EU & Competition team at Pinsent Masons LLP This article does not constitute legal advice and you should seek separate legal advice if you are affected by any of the topics discussed |
