The UK enforcement agencies
The Competition and Markets Authority (CMA) is responsible for the UK enforcement of general competition law (antitrust) – specifically, the domestic law prohibitions of anticompetitive agreements and abuse of dominance under the Competition Act 1998 (CA98), and (while the United Kingdom remains a member state of the European Union) articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). The CMA also:
- has jurisdiction to review qualifying mergers and to undertake market-wide competition investigations under the Enterprise Act 2002 (EA02);
- is the primary prosecutor in criminal cartel matters; and
- determines certain regulatory appeals from sectoral regulators.
Most competition law decisions can be appealed to the Competition Appeal Tribunal (CAT), an independent, specialist judicial body. The CAT is able to conduct a full merits review of CA98 and articles 101 and 102 TFEU decisions, whereas merger control and market investigation decisions are reviewable on judicial review grounds alone. CAT judgments may be appealed to the Court of Appeal (or, for Scottish cases, the Court of Session) and, ultimately, the Supreme Court. Private actions alleging infringements of CA98 or (while the UK remains an EU member state) articles 101 or 102 TFEU can be brought before the High Court or the CAT, which gained enhanced powers to hear private competition law actions in 2015.
Under a system of shared competences known as ‘concurrency’, the United Kingdom’s sectoral regulators are able to exercise general competition law powers within their respective sectors:
- the Financial Conduct Authority (FCA) for financial services;
- the Payment Systems Regulator (PSR) for payment systems;
- Ofcom for communications and postal services;
- Ofwat for water;
- Ofgem for energy in Great Britain;
- Northern Ireland Authority For Utility Regulation for energy in Northern Ireland;
- the Office of Rail and Road for railway services;
- the Civil Aviation Authority (CAA) for airport operation and air traffic services; and
- Monitor for healthcare in England.
Sectoral regulators must consult closely with the CMA on their enforcement activity and the CMA has the power to take a competition law case away from a sectoral regulator in certain circumstances.
As noted in the Handbook of Competition Enforcement Agencies 2018, the United Kingdom is due to leave the European Union on 29 March 2019. At the time of writing, there is considerable political uncertainty over whether Brexit will take place on that date and, if it does, whether it will take place on the basis of the Withdrawal Agreement that has been negotiated by the UK government and the EU or whether the UK will fall out of the legal framework of the EU Treaties with no deal in place. Currently, the domestic CA98 prohibitions mirror articles 101 and 102 TFEU and the CMA and sectoral enforcers enforce both regimes, as members of an EU-wide European Competition Network of competition authorities. The EU and UK merger control regimes are also closely connected. As a result, the implications for the UK competition regime (which are summarised at the end of this chapter) will be significant in either scenario. Of course, in the unlikely event that Brexit is abandoned altogether, the regime would remain as it is now.
Despite the CMA’s expressed determination to achieve a high level of antitrust enforcement, 2018 saw a dip in activity compared with 2017, with the opening of four new formal investigations and the adoption of only two infringement decisions. This may reflect the extent to which resources are committed to ongoing investigations, including a large number of abuse of dominance investigations in the pharmaceuticals sector and some complex Phase II merger control reviews. Inevitably, preparations for a possible ‘no deal’ Brexit will also be absorbing resources.
Regarding to the CMA’s infringement decisions, on 28 March 2018, the CMA issued a decision finding that two of the main suppliers of bagged household fuels (including charcoal for barbecues, fire logs and coal) infringed EU and UK competition law by rigging bids and exchanging confidential and competitively sensitive pricing information, for which it imposed fines totalling £3.4 million.
In its second infringement decision of the year, the CMA ruled on 25 October that an agreement between Heathrow Airport and the Arora Group regarding the lease of the latter’s Sofitel hotel at Heathrow’s Terminal 5 infringed CA98. Specifically, the CMA objected to Arora’s agreement to a tenant’s covenant that prevented Arora from charging non-hotel guests cheaper prices for parking in the Sofitel hotel’s car park than those charged at other car parks at the airport. While Heathrow Airport was fined £1.6 million, Arora was not fined as it benefited from immunity under the CMA’s leniency regime. This is the first time that the CMA has issued an infringement decision against a restriction in a land agreement.
On 17 April 2018, the CMA launched an investigation into alleged anticompetitive practices in relation to musical instruments and equipment. Since the investigation is at an early stage, no further details are available at the time of writing.
On 13 November 2018, the CMA launched an investigation into suspected anticompetitive arrangements in the financial services sector. Even though the FCA (as the dedicated financial services regulator) has invested substantial resources in expanding its competition enforcement capabilities, it has agreed that the CMA should lead this investigation. The reasons for this are currently unclear.
On 11 October 2018, the CMA launched an investigation into the Atlantic Joint Business Agreement between American Airlines, British Airways, Iberia and Finnair. This follows from a European Commission investigation of that agreement in 2010, which was closed on the basis of commitments from the participants to address competition concerns with respect to six routes. Those commitments will expire in 2020, after Brexit is due to have taken place. Five of the six routes covered by the commitments are between US cities and the United Kingdom. Since the European Commission may have lost the ability to consider the impact of the agreement on competition in the UK by 2020, the CMA has decided to review the competitive impact of the agreement in anticipation of the expiry of the commitments. This is the first case in which the consequences of the impending decoupling of the EU and UK competition regimes are being addressed in a live investigation. We are likely to see more in the future.
The CMA has demonstrated a renewed willingness to use its powers to punish directors engaged in harmful anticompetitive practices. On 10 April 2018, the CMA announced that it had secured legally binding undertakings to disqualify two directors involved in an estate agency cartel for three and three-and-a-half years respectively. This is only the second time that director disqualification undertakings have been secured in connection with a breach of competition law. The first was in December 2016, when the CMA secured a five-year disqualification order against a director engaged in cartel conduct concerning the online sale of posters. On 6 February 2019, the CMA published new guidance on competition disqualification orders aimed at streamlining the process for obtaining an order. This indicates that disqualification is likely to feature more frequently in future cases.
The sectoral regulators continued to display their willingness to enforce competition law in 2018. On 28 February 2018, the PSR opened its first competition enforcement investigation, following dawn raids at a significant number of sites across the United Kingdom. On 14 August 2018, Ofcom fined Royal Mail a record £50 million for abusing its dominant position in relation to the supply of bulk mail delivery services in the UK by introducing discriminatory prices against operators that sought to compete with Royal Mail. On 12 October 2018, Royal Mail filed an appeal against Ofcom’s decision with the CAT, the main hearing for which is due to take place in July 2019. In a further significant development, on 21 February 2019 the FCA issued its first-ever competition infringement decision. This imposed fines totalling £414,900 on three asset managers for exchanging confidential fee information in the context of one IPO and one placing.
On the merger control front, the CMA issued a total of 62 Phase I decisions in the financial year 2017–2018. This was broadly consistent with previous years (62 in 2015–16 and 57 in 2016–17). Of these 62 cases, 41 were cleared unconditionally and nine were referred for a Phase II review. Notably, recent decisions have demonstrated the CMA’s willingness to use its enforcement powers in merger cases. On 11 June 2018, the CMA imposed its first-ever fine for breaching an interim order intended to prevent integration during a Phase II investigation, fining Electro Rent £100,000. The decision was appealed to the CAT, which issued its judgment in favour of the CMA on 11 February 2019. The following day, the CMA imposed a second fine on Electro Rent (of £200,000) for a separate breach of the interim order. Following on from the CMA’s first ever fine for failure to respond to an information request, which it issued against Hungryhouse in November 2017, these decisions demonstrate the CMA’s more aggressive approach to merger control proceedings.
Significant changes are in progress with respect to the review of mergers on public interest grounds. On 11 June 2018, new thresholds came into force increasing the ability of the government to review transactions in specified sectors (military, quantum technology and computing hardware) to assess their impact on national security. On 24 July 2018, the government published details of an entirely new regime for the scrutiny of foreign investments with potential national security implications. As and when it comes into force, a large number of transactions are likely to become reviewable, with a large proportion vulnerable to the imposition of additional conditions to address national security concerns or outright prohibition.
At the time of writing, the CMA’s only live market investigation (of investment consultants) was continuing, with the final report due in March 2019. Unusually, no new market investigations were opened in 2018, although several (lighter touch) market studies have been launched. On 29 November 2018, the CMA published the interim report of its funerals market study, finding that problems exist in the market that may justify a full market investigation. Notwithstanding the fact that the sector was subject to a full market investigation as recently as 2014, on 9 October 2018 the CMA announced a market study into the statutory audit market, amid growing concerns about statutory audits.
Sectoral regulators also showed a willingness to launch market studies in 2018. On 14 March 2018, the Office of Rail and Road launched a market study into the supply of ticket vending machines and automatic ticket gates. On 24 July 2018, the PSR announced its intention to carry out a market review into the supply of card-acquiring services in the UK and published draft terms of reference for consultation. On 31 October 2018, the FCA also published terms of reference for a new market study into general insurance pricing practices, focusing primarily on home and motor insurance.
Appeals and claims
The CAT has been busy in 2018 with competition appeals, reflecting the relatively high number of infringement decisions in 2017. On 7 June, the CAT held that the CMA had misapplied the relevant test when finding that Pfizer and Flynn Pharma unfairly priced their epilepsy drug and remitted the assessment of abuse of dominance finding back to the CMA for reconsideration. On 7 September 2018, it dismissed an appeal brought by golf club manufacturer Ping against a 2017 decision of the CMA finding that it had unlawfully prohibited two retailers from selling its golf clubs online via their websites.
A large (and increasing) number of private claims for damages are currently before the High Court and CAT, indicating the health of the relatively new UK regime. To cite a notable example of this trend, on 9 October 2018 the High Court handed down the first UK follow-on cartel damages judgment, in BritNed Development Limited v ABB. Although the High Court awarded the Anglo-Dutch power-grid joint venture, BritNed, only just over €11.5 million of its €180 million claim, this is still a significant milestone. The judgment is now subject to appeal to the Court of Appeal.
The year ahead
As noted previously, while the United Kingdom is due to leave the EU on 29 March 2019, at the time of writing it is unclear whether the UK will leave the EU with or without a deal on the terms of withdrawal and, in either case, whether Brexit will occur on 29 March or later. While the basic principles of UK competition law should remain broadly the same under either scenario, there are a number of important implications in a ‘no deal’ exit. In such an event, the European Commission’s ability to investigate the impact of conduct and mergers on competition in the UK would disappear overnight and the CMA would face a significantly increased workload in the enforcement of antitrust and merger control cases. The CMA is also set to take on the responsibility for enforcing a new UK state aid regime. The CMA has warned that, in such circumstances, it will have limited ability to take on new discretionary work (particularly new market studies and market investigations) and it will have to exercise its prioritisation criteria carefully due to the constraints on its resources. Fortunately, the CMA has been granted an increased budget by the UK government (a further £23.6 million in 2018–2019) to support its preparations. It has also published guidance for businesses on how it intends to proceed in mergers and antitrust cases in the event of a no deal exit. If the proposed withdrawal agreement is ultimately accepted, then the current competition regime will continue to apply during a transition period lasting until at least the end of 2020, with an option to extend to the end of 2022. This would be subject to the important proviso that the UK would no longer be represented on EU courts, within the European Commission or (unless invited) on advisory committees considering new legislation or decisions.
In 2019, we can also expect the publication of the UK government’s five-year statutory review of the current UK competition regime. As part of that review, the government will consider whether the current regime gives the CMA, and other sector-specific regulators, adequate tools to deal with anticompetitive behaviour. It will also look at the regime’s ability to handle novel challenges, with a particular focus on the digital economy. To inform that review, the CMA has appointed an expert panel to look at competition in the digital economy, in particular, the potential opportunities and challenges of the emerging digital economy. The expert panel is expected to publish a final report with its recommendations in early 2019. On 25 February 2019, the CMA set out a number of proposals for reform, in the form of a letter from its Chair to the Secretary of State for Business. As well as requesting various incremental changes to the CMA’s powers of investigation and enforcement, the letter includes proposals to introduce a mandatory filing regime for large mergers and to move criminal cartel enforcement from the CMA to the Serious Fraud Office. The government’s response is awaited with interest.
According to the CMA’s draft annual plan for 2019–2020, the CMA intends to maintain the same themes that it selected in its 2018–2019 Annual Plan to carry particular strategic importance, namely:
- protecting vulnerable consumers;
- improving trust in markets;
- promoting better competition in online markets; and
- supporting economic growth and productivity.
The extent to which it is able to discharge this mission effectively remains tied up with the outcome of the Brexit process.
69 Old Broad Street
Tel: +44 20 7583 4055
Fax: +44 20 7785 9355
Cooley’s lawyers solve legal issues for entrepreneurs, investors, financial institutions and established companies. Cooley’s UK practice has strengths across many of the firm’s core practice areas, among them corporate and M&A, venture capital, capital markets, technology and life sciences transactions, IP, complex high-stakes litigation, insurance and reinsurance, product compliance and liability, tax, competition, employment, compensation and benefits, fraud, data protection and privacy. Cooley has 1,000 lawyers across 14 offices in the United States, China and Europe.