United Kingdom: Significant court judgments and heightened civil enforcement highlight cartel crackdown

In summary

This article provides an overview of cartel enforcement action in the United Kingdom during the period from April 2022 to April 2023, including significant court judgments and civil enforcement by the UK Competition and Markets Authority. It also highlights major developments following the United Kingdom’s exit from the European Union and developments regarding broader reform proposals.

Discussion points

• UK civil enforcement under section 2 of the Competition Act 1998 or article 101 of the Treaty on the Functioning of the European Union
• Recent competition director disqualification orders and judicial proceedings
• Antitrust reform proposals

Referenced in this article

• Competition and Markets Authority
• Office of Communications
• Office of Rail and Road
• Competition Appeal Tribunal
• Section 2 of the Competition Act 1998
• Article 101 of the Treaty on the Functioning of the European Union
• Chapter I of the Competition Act 1998
• Company Directors Disqualification Act 1998

Introduction

The UK Competition and Markets Authority (CMA) is the primary enforcement authority in the United Kingdom for civil cartels under the Chapter I prohibition under section 2 of the Competition Act 1998 (CA98) and for criminal cartels under section 188 of the Enterprise Act 2002 (EA02).

Criminal cartels include agreements relating to price-fixing, the sharing of markets or customers, limiting production or supply, or bid-rigging. Breaches of Chapter I can give rise to fines of up to 10 per cent of global group turnover for a company and disqualification from serving as a director for up to 15 years for an individual. Participation in a criminal cartel may also give rise to the imposition of a five-year prison sentence or unlimited fines (or both) for an individual, and disqualification from serving as a director for up to 15 years.

Until the end of the Brexit transition period on 31 December 2020, the CMA was also the primary enforcer in the United Kingdom with regard to article 101 of the Treaty on the Functioning of the European Union (TFEU). With the UK’s exit from the EU, the CMA set up several new functions, including the Subsidy Advice Unit (SAU), the Office for the Internal Market (OIM) and the Digital Markets Unit (DMU), to take on new responsibilities. The DMU, the CMA’s vehicle for the UK government’s pro-competition digital regulatory regime, has already been set up in shadow form pending legislation.

On 23 March 2023, the CMA published its annual plan for 2023 to 2024.^[1] The CMA set out its ‘medium-term priorities for the next 3 years’ as well as areas of focus for the next 12 months, beginning 1 April 2023.

In the medium-term, the CMA says it intends to focus on:

• consistent action in areas where consumers spend the most time and money;
• protecting consumers from harmful practices, particularly vulnerable consumers;
• encouraging growth of emergent sectors;
• enabling open access for innovating businesses; and
• supporting the transition of the UK economy to a net zero economy.

The medium-term priorities of the CMA above inform the specific areas of focus for 2023 to 2024. The CMA has stated that for the next 12 months it will focus in particular on:

• protecting consumers in areas of essential spending and where people are under particular financial pressure;
• identifying potential competition issues within UK labour markets;
• fostering effective competition in digital markets; and
• supporting sustainable growth of the UK economy.

Civil enforcement under article 101 and Chapter I

In the second half of 2022 and in early 2023, the CMA issued infringement decisions in the market for the supply of replica sports merchandise^[2] and in the construction industry.^[3] The CMA accepted binding commitments to end suspected infringements of the Chapter I prohibition in respect of the market for ferry crossings on the Dover-Calais route.^[4] The CMA also issued a ‘no grounds for action’ decision closing an investigation into suspected anticompetitive agreements in relation to a procurement process run by the Home Office for contracts to supply services at two immigration removal centres.^[5]

Over the same period, sectoral regulators, including the Office for Communications (Ofcom) and the Office of Rail and Road (ORR), which have concurrent competition law powers with the CMA, also took enforcement action against cartel activity:

• Ofcom issued an infringement decision imposing a fine of £1.5 million on a company for infringing competition law by exchanging competitively sensitive information in connection with a procurement exercise for the Police service relating to specialist communications equipment and services.^[6]
• The ORR accepted binding commitments from the Rail Assessment Centre Forum to open up its rules of membership and procedures for accepting new members, in order to open up the market for the provision of train driver psychometric testing services.^[7]

Supreme Court proceedings

Costs judgment in Pfizer/Flynn confirms appellants can recover costs from the CMA

The Supreme Court handed down its judgment on costs in CMA v Flynn Pharma and CMA v Pfizer [2022] UKSC 14 (Pfizer/Flynn) in May 2022. While this is not a case involving a breach of the Chapter I prohibition, the judgment will have implications for the CMA in its cartel enforcement activities and for parties seeking to appeal CMA actions.

In 2016, the CMA fined Pfizer and Flynn for breaches of article 102 TFEU and Chapter 2 of the CA98 in relation to excessive pricing for epilepsy medication.^[8] Pfizer and Flynn appealed the CMA decision and the Competition Appeal Tribunal (CAT) remitted part of the decision back to the CMA for consideration.^[9] The CAT ordered the CMA to pay part of Pfizer’s and Flynn’s costs under Rule 104(2) of the CAT Rules 2015.^[10] Rule 104(2) states that the CAT may ‘make any order it thinks fit in relation to the payment of costs’. The CMA appealed the order and the Court of Appeal set the order aside.^[11] The Court of Appeal held that the CAT had disregarded the principle that where a court’s power to make an order about costs does not include an express general rule or default position, the starting point is that no order for costs should be made against a public body that has been unsuccessful in bringing or defending proceedings in the exercise of its statutory function. Pfizer and Flynn appealed the judgment of the Court of Appeal to the Supreme Court.

The Supreme Court held that there is no legal principle that all public bodies are protected from an adverse costs order when losing a case they brought or defended in the exercise of their public functions in the public interest. Consequently, the Supreme Court reinstated the CAT’s decision to award costs against the CMA.

The Supreme Court’s judgment outlined that where a public body is unsuccessful in defending an appeal, the relevant court or tribunal must have regard to the potential ‘chilling effect’ on the public body, to the extent costs orders are routinely made against it in these proceedings. In this regard, the Supreme Court distinguished the CMA from other public bodies such as local authorities, the police and professional disciplinary bodies, noting that the volume of decision-making by these bodies is of an ‘entirely different’ order to that of the CMA, which typically only issues a limited number of decisions each year under CA98.

The Supreme Court noted that the way in which the CMA is funded mitigates concerns that these awards could have an adverse impact on the CMA’s ability to exercise its powers. The CMA offsets its litigation costs against penalty income received under CA98 and is also incentivised (by virtue of the fact penalties are a proportion of turnover) to pursue infringements by large undertakings despite the fact that these undertakings may have more proclivity and resources to pursue an appeal.

The ruling also pointed to policy reasons for holding public bodies to account when exercising wide-ranging powers and the fact that parties to CA98 investigations are not able to recover any costs from the investigation stage before the adoption of a decision. The Supreme Court decided that these point in favour of ‘subjecting the CMA to the discipline associated with having to pay the successful appellant’s costs if ultimately the CAT concludes that the infringement decision or the fine imposed was not well-founded’.

The Supreme Court’s judgment has wide consequences for businesses considering appeals against decisions by the CMA as the Supreme Court has endorsed that the general principle that ‘costs follow the event’ is the starting point in considering whether to award costs against the CMA. The judgment does not, however, preclude the CAT from reconsidering any potential chilling effect in future cases. Furthermore, the decisional practice of the CAT shows a general willingness to make substantial reductions to costs awarded against the CMA.

High Court and CAT proceedings

CAT hears multiple appeals in pharmaceutical proceedings, and road tests new and novel procedures

In the period under review, the CAT heard several significant appeals to CMA decisions issued in the pharmaceutical sector, including in relation to the CMA’s infringement decision in respect of Hydrocortisone tablets relative to allegations of pay-for-delay and excessive pricing in breach of the Chapter I prohibition and the Chapter II prohibition respectively (the Hydrocortisone Appeals).^[12] The Hydrocortisone Appeals were brought by pharmaceutical companies, including Advanz Pharma, Auden McKenzie and Allergan, as well as the PE house Cinven.^[13]

On 31 January 2022, the CAT ruled on the conduct of the Hydrocortisone Appeals^[14] as well as separate appeals brought against the CMA’s decision in respect of Liothyronine tablets relative to allegations of excessive pricing in breach of the Chapter II prohibition (the Liothyronine Appeals).^[15] In the light of the length and complexity of the two decisions, the Notices of Appeal, and the CMA’s defence in each one, the CAT determined that the traditional way of dealing with appeals to CMA decisions would not work well. Therefore, it introduced a new and novel trial procedure for the progress and case management of the two sets of appeals, requiring the appellants and the CMA to cooperate in the production of ‘ambulatory drafts’ in respect of each appeal.

Further to the ambulatory draft process, parties would work together to document matters that are non-contentious between them and to identify and demarcate areas of controversy and dispute with ‘the battle lines clearly demarcated but not resolved’. The process is intended by the CAT to give it a clear appreciation of the matters that the parties view to be common ground and therefore not to be examined by it, in order to enable the final hearing of complex appeals to focus on the matters in dispute in relation to which the parties would address the CAT.

The CAT noted that it is ‘unworkable’ for every party to be in agreement before a section can be included in an ambulatory draft, and explained that if that were the case, ‘either agreement will never be achieved, or else the points of controversy (which the Tribunal wants articulated, not buried) will be lost, either in substance or in nuance, as the parties struggle towards compromise wording that satisfies all except the Tribunal’. The CAT said that in practice this means that multiple, but not necessarily all, parties will draft sections of an ambulatory draft but that there should be consultation when this drafting takes place and that ‘the Tribunal will stand ready to provide guidance – should this be needed – in relation to what would assist it’. The CAT also noted that the parties should proceed in working on these drafts on the basis that they will be published.

This is an important change in the CAT procedure and, if adopted more widely going forward, is likely to give rise to a material increase in the cost of bringing an appeal against decisions of the CMA given the additional time and fees that parties must expend in preparing and seeking to agree the drafts. During the case management phase^[16] the President of the CAT pointed to the possibility for a potential costs sanction that could be in-built into the process should the Tribunal deem a draft to be culpably unhelpful.

The Hydrocortisone Appeals (and the Liothyronine Appeals) were heard in late 2022 and early 2023. The CAT has reserved its judgment.

Extraterritorial restrictions on the CMA’s ability to exercise its information gathering powers in CA98 investigations

The CAT and the High Court upheld challenges lodged by BMW and Volkswagen respectively over the extra-territorial effect of the CMA’s information gathering powers under CA98.

In the context of its ongoing investigation into potential infringements of the Chapter I prohibition related to the recycling of end-of-life vehicles,^[17] the CMA had sent each of BMW and Volkswagen formal notices requiring the production of certain documents and information pursuant to section 26 CA98 (known as section 26 notices).

Section 26(1) CA98 allows the CMA to ‘require any person to produce to it a specified document, or to provide it with specified information, which it considers relates to any matter relevant to the investigation’ and section 26 notices are a regular tool used by the CMA in conducting competition investigations. Penalties for failing to comply with a section 26 notice can include a fixed penalty of up to £30,000 or an amount calculated by reference to a daily rate (until failure to comply is rectified) of up to £15,000 per day or a combination of the two.

The CMA had addressed its section 26 notices both to BMW and Volkswagen’s UK subsidiaries as well as to BMW AG and Volkswagen AG, both of which are incorporated and domiciled in Germany and have no branch or office in the UK.

BMW AG and Volkswagen AG challenged the extraterritorial effect of the CMA’s section 26 notices: BMW AG appealed the CMA’s provisional penalty notice against it for failing to comply with the section 26 notice, and Volkswagen AG started judicial review proceedings against the CMA’s decision to send it a section 26 notice.

With the consent of the parties, the hearings were consolidated, and a single judgment was handed down on 8 February 2023.^[18]

It was common ground that BMW UK and Volkswagen UK had complied with the section 26 notices. They were legal persons sufficiently connected with the UK to be within the territory of the UK and accordingly subject to UK law. The judgment refers to this as being a ‘UK territorial connection’ – ie, where, as a matter of UK law, a person is subject to the territorial jurisdiction of the UK. It was also common ground in the proceedings that to the extent BMW UK and Volkswagen UK had in their possession or control documents that were located overseas (eg, on overseas servers), then the CA98 would have operated to require BMW UK and Volkswagen UK to produce these documents depending on the precise circumstances.

The central question of the proceedings was whether the words ‘any person’ in section 26(1) of the CA98 defines a person so as to embrace the concept of an ‘undertaking’ (section 59 CA98 says that a ‘person’ within the meaning of CA98 includes an undertaking) and whether, by serving a section 26 notice addressed to an undertaking as a whole, the CMA can require all legal or natural persons within that undertaking to provide responsive documents.

The judgment contains a detailed overview of the specific construction of an undertaking, a concept which has no definition in the CA98 but which is the basic unit of account for both EU and UK competition law. Only undertakings can be found to commit competition law violations and be sanctioned for such. The CAT conducted a detailed examination of the concept of an undertaking in Sainsbury’s Supermarkets v MasterCard Incorporated and held that an undertaking ‘designates an economic unit, rather than an entity characterised by having legal personality.’^[19]

The CMA argued that a section 26 notice addressed to the BMW undertaking or the Volkswagen undertaking would affect all legal or natural persons within that undertaking, wherever situated, provided one part of the undertaking has a UK territorial connection.

The court rejected the CMA’s interpretation as being ‘aggressively extraterritorial’, and held that, even though a section 26 notice can be addressed to an undertaking, the CMA must nonetheless serve such a notice on a natural or legal person within that undertaking with a UK territorial connection. Such an entity must notify all other group entities of the fact of that notice. However, the court held that whether or not those other entities must respond depends on whether or not they themselves have a UK territorial connection. Without such a connection, there is no obligation to respond.

Accordingly, the CAT allowed BMW AG’s appeal against the CMA’s penalty notice and the High Court determined Volkswagen AG’s claim for judicial review successful. It was declared that no section 26 notice sent to BMW AG or Volkswagen AG was effective: ‘Any assertion of an obligation in these companies to respond is ultra vires section 26. There is, quite simply, no power.’

The fact that Brexit means the CMA is no longer part of the European Competition Network of EU competition authorities – which has in place certain cooperation mechanisms that allow authorities to access documents held in other jurisdictions – compromises the CMA’s ability to undertake cross-border investigations against multinational organisations.

Following an application by the CMA, on 8 March 2023, the CAT granted permission to the CMA to appeal the ruling. The appeal is expected to be heard by the Court of Appeal in 2023.

Civil investigations

Supply of Rangers FC-branded replica football kit

In December 2020, the CMA opened an investigation into suspected anticompetitive behaviour in relation to the pricing of Rangers FC-branded replica football kit. On 7 June 2022, the CMA issued a statement of objections with its provisional findings. Its final decision was issued on 27 September 2022.^[20]

The CMA found that Elite Sports and JD Sports breached competition law by fixing retail prices of Rangers FC-branded replica kits and other clothing products. The CMA further found that Rangers FC was involved, but only from September to mid-November 2018. The CMA found that Rangers had become concerned that at the start of the 2018/19 football season, JD Sports was selling the Rangers replica kit at a lower price than Elite. As Elite Sports was seen as the club’s retail partner, JD Sports seemingly undercutting the ‘official’ price led to negative fan reactions against the club. The CMA found that this resulted in an understanding among the parties that JD Sports would increase its retail price from £55 to £60. Despite Rangers not being a competitor to Elite and JD Sports because it was not active on the same level of the supply chain as them, the CMA said in its decision that it considered the nature of the agreement was ‘patently horizontal’ in nature and that Rangers could reasonably have foreseen that contacts between Elite and JD Sports could amount to anticompetitive price coordination.

The CMA also found that Elite and JD Sports – without involvement from Rangers – colluded over a longer period of time including in relation to other Rangers’ branded clothing, and on the level and timing of discounts towards the end of the football season so as to avoid competition between them.

Fines imposed on all three entities totalled over £2 million: Elite Sports were fined £459,000, JD Sports £1,485,000 and Rangers FC £225,000. All parties agreed to settle the case, benefiting from a settlement discount of 10 per cent, reflecting the companies’ agreement to cooperate and bring a quicker end to the CMA’s investigation. The fines for Elite Sports and JD Sports also included discounts under the CMA’s leniency policy, amounting to 15 and 45 per cent, respectively.

Supply of construction services

On 23 March 2023, the CMA issued a decision against 10 UK-based construction firms in which it found they had colluded to rig bids for demolition and asbestos removal contracts in the public and private sector between January 2013 and June 2018 and fined them a total of nearly £60 million.^[21] The CMA also brought successful claims against three directors from the firms involved for Competition Disqualification Orders (see further below). The 10 firms involved were: Brown and Mason, Cantillon, Clifford Devlin, DSM, Erith, John F Hunt, Keltbray, McGee, Scudder and Squibb.

The CMA opened its investigation in 2019. The investigation involved unannounced inspections of 15 business premises, interviews with over 35 persons and over 120 section 26 notices requiring the provisions of information or documents, including a review of emails, mobile phone communications and financial records. The CMA found that the firms had rigged bids related to 19 demolition and asbestos removal contracts worth more than £150 million. These involved contracts in London, the Southeast and the Midlands. The bid-rigging included cover bidding whereby one or more of the firms who agreed to submit bids deliberately priced to lose the tender. This led to customers paying higher prices or receiving lower quality services.

The CMA also found that seven of the firms were also involved in arrangements whereby the loser of the contracts was compensated by the winner. The value of this compensation varied but exceeded £500,000 in one instance. Some firms produced false invoices to hide this illegal behaviour.

By the time of the statement of objections, issued in June 2022, seven of the firms had admitted involvement in at least one instance of bid-rigging in the relevant period, apart from Erith and Squibb. Eight of the 10 firms ultimately agreed to settle and admit the infringement, receiving discounts from their individual fine as a result. Scudder and McGee also reported the conduct to the CMA under the CMA’s leniency policy and, therefore, benefited from a further discount.

As of 19 April 2023, Squibb has indicated that it intended to appeal the CMA’s decision.

No grounds for action decision in Heathrow and Derwentside immigration removal cases

In March 2022, the CMA opened an investigation into suspected anticompetitive agreements or concerted practices between Mitie Care and Custody and Mitie Group plc on the one hand, and PAE Incorporated on the other. The investigation related to ongoing procurement processes being run by the Home Office for contracts to supply certain services at two immigration, detention and removal centres.

The focus of the CMA’s investigation was whether PAE’s withdrawal from the tendering processes was due to an arrangement with Mitie in breach of Chapter I CA98.

As part of the investigation, the CMA conducted unannounced investigations at Mitie’s premises pursuant to section 28 CA98 and requested documents and information from each of the parties as well as third parties pursuant to section 26 notices. The CMA also received voluntary witness evidence from former and current employees of PAE and written submissions from each of the parties.

Following its investigation, the CMA found that the evidence pointed to PAE’s decision to withdraw from the tendering process to have been unilateral and not the result of any anticompetitive agreement or concerted practice. Specifically, the CMA did not find that any request was made, or pressure was exerted, or any incentives were offered by Mitie directly or indirectly to PAE to withdraw from the tender process. Accordingly, the CMA issued a no grounds for action decision on 14 February 2023.^[22]

No grounds for action decisions are issued under section 10(4) of The Competition Act 1998 (Competition and Markets Authority’s Rules) Order 2014 and are relatively rare in practice. Since the CMA was formed in 2014, it has issued only four such decisions.^[23]

A no grounds for action decision contains a reasoned assessment of the evidence and a final finding by the CMA that CA98 was not infringed.

Other civil enforcement action

In the period under review, the CMA launched investigations into suspected anticompetitive arrangements concerning the fragrance industry (conducting unannounced inspections in March 2023 coordinated with the US Department of Justice, the European Commission and the Swiss Competition Commission)^[24] and in the market for freelance services in the production and broadcasting of sports content.^[25]

Those are in addition to the CMA’s existing investigations into the Atlantic Joint Business Agreement (in April 2022, the CMA extended interim measures first imposed in 2020 until 2026 pending the investigation conclusion),^[26] Leicester City FC-branded products and merchandise,^[27] the recycling of end-of-life vehicles^[28] and the financial services sector.^[29]

The CMA also closed on administrative priority grounds an investigation into whether Meta and Google had entered into an anticompetitive agreement in relation to header-bidder services.^[30]

Competition director disqualification orders

The EA02 gave the UK competition authorities the power to seek competition director disqualification orders (CDOs) pursuant to which directors of companies found to have participated in a criminal cartel^[31] (cartel offence) may be disqualified from being a director for up to 15 years. Under the EA02, participation in a cartel offence may also give rise to the imposition of a five-year prison sentence or unlimited fines, or both.

However, this power was essentially unused until a change in the law, which provided that, for conduct after 1 April 2014, it was no longer necessary for the CMA to prove that an individual had acted dishonestly in committing the cartel offence to secure a CDO.

The CMA has demonstrated its determination to pursue CDOs by pursuing directors of firms that have been found by the CMA in its infringement decisions to have participated in a cartel offence and in respect of which the director concerned has played a role. Until recently, in the majority of cases where the CMA has sought a CDO, the proceedings were resolved by way of undertakings entered into between the relevant directors and the CMA. In one case, where an undertaking was not agreed, the CMA made an application to the High Court for a CDO, which was granted.^[32]

On 2 September 2022, the CMA issued proceedings in the High Court seeking CDOs against seven directors. The proceedings arose from the CMA’s decision on 3 February 2022 finding that Alliance Pharmaceuticals, Lexon, Medreich and Focus (now owned by Advanz Pharma) had entered into a market exclusion arrangement in relation to the supply of prochlorperazine POM, a prescription anti-nausea drug, that had as its object the restriction of competition in breach of Chapter I.^[33] The CMA fined them (and a former owner of Focus, the PE house Cinven) over £35 million. Advanz, Lexon, Alliance Pharmaceuticals and Cinven lodged appeals in the CAT against the CMA’s decision and penalties, which are due to be heard later in 2023 (the Prochlorperazine Appeals).^[34]

Under section 9A of the Company Directors Disqualification Act 1986 (as amended by the EA02), for the court to make a CDO, two conditions must be satisfied. First, an undertaking that is a company of which the person is a director must have committed a breach of competition law (the First Condition). Second, the court must consider that the person’s conduct as a director in relation to the breach makes him or her unfit to be concerned in the management of a company (the Second Condition).

Regulation 2 of the section 16 Enterprise Act 2002 Regulations 2015 allows the High Court (which hears CDO proceedings) to transfer the First Condition to the CAT for its determination insofar as it relates to an infringement issue (as defined in section 16(6) EA02).

Given the ongoing Prochlorperazine Appeals, on 18 October 2022, the High Court issued a consent order agreed by all seven of the directors that the First Condition should be transferred to the CAT for its determination. The CAT issued case management directions on 14 November 2022.^[35] The Prochlorperazine Appeals (and the related determination of the First Condition) will be heard between June and August 2023.

In the period under review, the CMA also secured CDO undertakings from three directors in relation to its investigation into the supply of construction services (see above). The duration of the undertakings preventing the persons from acting as directors for periods ranging from 4.5 to 7.5 years.

Reform proposals

Proposed reforms to competition policy

Reforming competition and consumer policy

In July 2021, the government published the consultation ‘Reforming competition and consumer policy’, posing a wide-ranging reform programme to the UK’s competition and consumer policies. The government received over 180 responses to the consultation from various stakeholders and engaged in round table discussions and bilateral engagements with interested parties.

In April 2022, the government presented to Parliament the outcome of the consultation setting out the reforms it intends to carry forward, many of which require legislation to implement.^[36] The government has indicated that it will ‘identify the appropriate legislative vehicle or vehicles as Parliamentary time and priorities allow’.^[37]

In addition to proposed changes to the CMA’s market inquiry, merger control and consumer protection regimes, the government has proposed the following reforms in the cartel enforcement space:

• an amendment to the Chapter I prohibition in CA98 so that it can apply to agreements, concerted practices and decisions that are implemented outside of the UK, provided the conduct has an effect within the UK;
• granting the CMA new evidence-gathering powers in CA98 investigations, including broader powers to interview individuals regardless of their connection to a business investigation, introducing a duty to preserve evidence similar to that used in criminal investigations, granting powers for the CMA to seize and sift evidence at domestic premises and strengthening the CMA’s powers to obtain information stored remotely;
• where the CMA issues interim measures in CA98 investigations, amending the appellate standard so that these appeals are assessed on more restrictive judicial review grounds, rather than a full review on the merits;
• amending the Serious Organised Crime and Police Act 2005 so that the CMA is a specified prosecutor and can use the Act’s assisting offender process to enhance its criminal cartel enforcement;
• removing statutory requirements on the CMA’s internal decision-making processes for findings of infringement in CA98 cases, allowing the CMA autonomy to determine its own processes;
• significantly bolstering the CMA’s ability to sanction companies for failing to comply with CA98 investigations, increasing penalties that are currently capped at £30,000 or £15,000 per day to up to 1 per cent of annual turnover or 5 per cent of daily turnover for the period of non-compliance; and
• introducing measures to impose fines on natural persons who conceal, falsify or provide false or misleading information.

The government’s consultation also sought feedback on whether to maintain the CAT’s on the merits review for CA98 appeals. The responses indicated that the vast majority of respondents felt that this was preferable to a judicial review standard for appeals against CA98 infringement decisions, and the government has decided to maintain this standard. The government has committed more generally to review the CAT Rules, which were issued in 2015. However, in relation to other areas of the CAT’s remit, the government has proposed that:

• appeals against interim measures imposed in CA98 investigations will be heard against a judicial review standard rather than a full on the merits appeal;
• the CAT will be granted the power to issue declaratory relief (ie, to issue a legally binding statement on the application of competition law to a certain set of facts); and
• the CAT (and other courts) will also be given the discretion to award exemplary damages for breaches of CA98.

Digital Markets Unit

In July 2020, the CMA published a detailed market study into online platforms and digital advertising, concluding that existing competition law tools were not sufficient to regulate the major online platforms.^[38] The CMA report concluded that the concerns identified in those markets are so wide ranging and self-reinforcing that the CMA’s existing powers are not sufficient to address them.

The CMA accordingly recommended:

• the establishment of the Digital Markets Unit (DMU), which will designate digital platforms that have strategic market status (SMS);
• the establishment of an enforceable code of conduct to govern the behaviour of platforms designated as having SMS; and
• the grant of powers to the DMU that will enable it to make a range of pro-competitive interventions, including the ability to break up platforms.

The DMU was officially established on 7 April 2021 on a temporary and non-statutory basis to focus on operationalising and preparing for the new regime. This involves building teams with the relevant capabilities, working closely with government to provide key insights to inform decisions about the new regime, and evidence gathering on digital markets. The non-statutory DMU is an interim solution pending government consultations that took place in 2021.

Further to those consultations, in May 2022, the government confirmed its plans to give enforcement powers to the DMU and reiterated that it ‘will bring forward legislation to implement these reforms when parliamentary time allows’.^[39] The DMU is expected primarily to the activities of companies with SMS and, therefore, set out an ex ante set of rules and conduct requirements for these firms designed to prevent anticompetitive harm in markets.

The Chapter I prohibition will remain applicable to SMS firms and any other firm which falls under the DMU as an ex post set of rules governing cartel conduct and other anticompetitive agreements.

Updates to CMA Rulebook – replacing retained EU block exemptions with UK-specific laws

Block exemptions recognise that certain agreements that restrict competition can be beneficial to competition. Following a recommendation from the CMA, the Secretary of State may make an order pursuant to section 6 CA98 exempting a category of agreements from the Chapter I prohibition.

Following the UK’s exit from the European Union, several EU block exemptions that were retained in EU law have expired or are close to expiry. Therefore, the CMA has consulted on and published its recommendations for these block exemptions to be replaced by new, UK-specific block exemptions and accompanying guidance.

Horizontal block exemption orders and guidance

On 28 June 2022, the CMA recommended the replacement of the EU’s existing horizontal block exemption regulations (retained HBERs), specifically the EU R&D block exemption regulation (retained R&D BER)^[40] and the EU specialisation block exemption regulation (retained Specialisation BER)^[41] upon their expiration on 31 December 2022.

The UK-specific horizontal block exemption orders (HBEOs), consisting of the R&D Block Exemption Order (R&D BEO)^[42] and Specialisation Agreement Block Exemption Order (Specialisation BEO)^[43] entered into force on 1 January 2023, with an expiry date of 31 December 2035. Existing agreements entered into force before 1 January 2023 will continue to benefit from the HBERs until 31 December 2024.

The Specialisation BEO covers agreements entered into between parties who are active in the same markets and who agree to cease from or refrain from producing a particular product (either unilaterally or on the basis of reciprocal agreements) and instead decide to obtain it only from another party or to manufacture the product jointly.

The retained Specialisation BER exempted specialisation agreements from the Chapter I prohibition where the combined market shares of the relevant parties did not exceed 20 per cent, providing a two-year grace period if the shares rose to 25 per cent (reduced to one year if it exceeded 25 per cent). The Specialisation BEO retains the core exemption (ie, for agreements where parties’ market shares are below 20 per cent) but simplifies the grace period such that a two-year grace period applies from the time the parties’ market share exceeds 20 per cent. It also sets out further practical guidance on the type of agreements that are in scope and amends the definition of ‘competing undertaking’ to include potential competitor (whereas the two had previously been treated separately). It also expands the scope of the exemption to include unilateral specialisation agreements between more than two parties.

The R&D BEO covers agreements relating to the conditions under which parties pursue R&D projects or agreements relating to the joint exploitation or commercialisation of the results of R&D.

The retained BER exempted agreements between parties who were not competitors on relevant product markets for as long as the duration of the R&D lasted and, where the parties were to jointly exploit results of any R&D, the exemption would last for seven years from the time the products are first marketed. In situations where parties are competitors, the exemption applied for seven years only to the extent at the time the agreement was entered, the combined share of the parties did not exceed 25 per cent on the relevant market. A lot of the retained BER remains. However, the R&D BEO implements a new test for the block exemption to apply. Specifically, any agreement between undertakings competing in innovation (ie, parties who are independently engaging in R&D efforts covered by the agreement) will need to demonstrate that there are at least three or more competing R&D efforts that are comparable to that being pursued by the parties or that third parties will have the ability to independently engage in the R&D. This is to protect concerns about a loss of early-stage dynamic competition in research and innovation markets and could realistically mean a large number of agreements now fall outside the automatic exemption and would need to be assessed on their merits to determine whether they could lead to anticompetitive effects or efficiencies. The R&D BEO also simplified the grace period such that a two-year grace period applies where parties’ market shares exceed 25 per cent.

Each of the HBEOs also include provisions for the CMA to disapply the benefit of the block exemption in individual cases; however, this is expected only to be exercised in extraordinary circumstances.

On 25 January 2023, the CMA launched a consultation (which closed on 8 March 2023) on broader guidance on the application of the Chapter I prohibition to horizontal agreements (the Horizontal Guidance).^[44] The Horizontal Guidance is provided to help businesses self assess whether agreements with competitors or potential competitors (horizontal agreements) may fall foul of the Chapter I prohibition, and clarifies the scope and application of the HBEOs.

The draft Horizontal Guidance^[45] mirrors to a large degree the EU’s own draft revisions that were published in 2022. It provides clarity on matters such as information exchanges, bidding consortia, joint purchasing agreements, mobile infrastructure sharing, data pooling and standardisation agreements.

Container Liner Shipping Block Exemption Regulation

On 19 January 2023, the CMA opened a consultation^[46] (which closed on 23 February 2023), concerning whether to replace or vary the retained Liner Shipping Consortia Block Exemption Regulation (retained CBER) upon its expiration on 25 April 2024. The retained CBER provides a safe harbour for liner shipping companies (provided combined market shares of the companies involved remain below 30 per cent) intended to allow them to cooperate and form consortia in relation to the joint operation of linter shipping services, capacity adjustments in response to fluctuations in supply and demand, joint operation or use of port terminals and other ancillary activities.

The CMA’s preliminary position is to recommend the replacement of the CBER with a Liner Shipping Consortia Block Exemption Order (CBEO) and that letting the CBER expire without providing for a replacement would not be appropriate for the UK. The CMA’s view is that the retained CBER has proven appropriate and fit for purpose and that major changes in the CBEO would not be warranted.

The CMA will consider responses to the consultation before making a final recommendation to the Secretary of State for Business, Energy, and Industrial Strategy later in 2023.

Draft guidance on sustainability agreements

On 28 February 2023, the CMA published draft guidance (the draft Sustainability Guidance) to allow organisations to take action on environmental sustainability without ‘undue fear of breaching [UK] competition rules’.^[47] The draft Sustainability Guidance points to the CMA’s increasing focus of sustainability and environmental issues which is also reflected in the 2023/2024 Annual Plan medium-term priorities. The CMA recognises that ‘there are circumstances where collaboration between competitors may be needed to protect or enhance environmental sustainability’. Once finalised, the draft Sustainability Guidance is intended to supplement the Horizontal Guidance (see above).

The draft Sustainability Guidance primarily applies to the application of UK competition rules to two types of agreements:

• environmental sustainability agreements (ESAs); and
• climate change agreements (CCAs).

ESAs are agreements between actual competitors or potential competitors with an aim to prevent, reduce or mitigate any adverse impact of economic activities on environmental sustainability, or assess the impact of these activities on environmental sustainability. Examples include agreements aimed at ‘improving air or water quality, conserving biodiversity or promoting the sustainable use of raw materials’. This is narrower than the EC’s draft guidelines (published in 2022), which also cover matters such as animal welfare and human rights, and the CMA explicitly says that agreements pursuing ‘wider societal objectives’ fall outside the scope of the guidance.

CCAs are a subset of ESAs and cover agreements with the specific aim to combat or mitigate climate change and contribute towards UK climate change targets. Owing to the special category of threat posed by climate change, these types of agreements are to be treated more favourably by the CMA, and it proposes to apply its guidance more broadly. Examples of CCAs include agreements between manufacturers to phase out particular production processes involving the emission of CO2, agreements between delivery companies to switch to electric vehicles and agreements not to provide support such as financing and insurance to fossil fuel producers.

The draft Sustainability Guidance elaborates on agreements that are unlikely in and of themselves to infringe the Chapter I prohibition, and also those that are likely to benefit from exemption under section 9 CA98.

Agreements unlikely to infringe the prohibition

The types of ESAs that are unlikely to raise concerns under the draft Sustainability Guidance include agreements:

• that do not affect main parameters of business, such as price, quantity, choice and innovation (eg, internal corporate conduct, such as an agreement to reduce single-use plastics used in offices);
• for businesses to engage in joint initiatives that the parties could not do individually (eg, cooperating on early-stage scientific or technical research);
• made to comply with legal requirements provided that the legal obligation is absolute and not merely an encouragement or recommendation;
• to pool information about environmental sustainability credentials of suppliers or customers, or both, provided this does not involve the exchange of competitively sensitive information or an agreement to refuse to purchase from or supply specific customers (ie, a boycott);
• to develop industry standards aimed at making products or processes more sustainable or phase out non-sustainable products or processes as long as:
  • participation criteria are transparent;
  • no firm is obliged to participate;
  • any firm may participate on reasonable and non-discriminatory terms;
  • businesses are free to participate in alternate initiatives and sell products falling outside of such standards; and
  • businesses may go beyond minimum sustainability targets;
• phasing out or withdrawing non-sustainable products or processes where this does not lead to an appreciable increase in prices or reduction in product choice; and
• relating to industry-wide efforts to tackle climate change (eg, setting non-binding targets or establishing a common framework for target setting for unilateral target setting, disclosure and reporting of participants’ targets).

Agreements that may benefit from an exemption

ESAs could give rise to competition concerns under Chapter I CA98 because they are restrictive of competition by object (that is, they are harmful to the proper functioning of competition by their very nature) or because they restrict competition by effect. The draft Sustainability Guidance specifies that both restrictions could benefit from individual exemption under section 9 CA98 provided that the following four conditions of that section are met:

• the agreement must contribute to certain benefits, namely improving production or distribution or contribute to promoting technical or economic progress;
• the agreement and any restrictions of competition within the agreement must be indispensable to the achievement of those benefits;
• consumers must receive a fair share of the benefits; and
• the agreement must not eliminate competition in respect of a substantial part of the products concerned.

In relation to the first limb, the CMA sets out that relevant benefits to be considered when assessing ESAs include, for example: creating new or improved products with a reduced impact on the environment; the introduction of new, cleaner production or distribution processes; and increased innovation around energy-efficient processes. Any such benefits will need to be substantiated, objective, concrete and verifiable. Parties claiming the benefit of an exemption will need to demonstrate how likely benefits are to materialise and within what time frame and have evidence to support this.

Under the third limb, parties will also need to show that consumers receive a fair share of the relevant benefits. The CMA clarifies that these may include future benefits as well as those that accrue to indirect users of certain of the relevant goods or services. Benefits can accrue either directly (as a result of their consumption of the product) or indirectly (because customers value the broader environmental sustainability benefits of the agreement). The CMA gives the example of furniture producers cooperating not to import or produce furniture from unsustainable word production, which could lead to higher prices but may be supported by consumers who value the (indirect) benefit of not contributing to deforestation despite there being no objective (direct) benefit in terms of the quality of goods being sold. Again, the burden would be on parties to show that this was the case.

For CCAs, the CMA goes further and sets out that the relevant consumer benefits do not have to be limited to consumers of the relevant goods or services. Given the ‘exceptional nature of the harms posed by climate change’, the level of public concern, and the UK’s national and international legal commitments, the CMA considers that in assessing relevant consumer benefits companies may have regard to the totality of benefits to all UK consumers (not just those customers who are direct or indirect customers of a good or service) arising from the agreement. The CMA gives the example of delivery companies agreeing to transition to electric vehicles whereby the benefits of reduced CO2 emissions across the UK as a whole would be weighed up against potential harm to direct or indirect customers of delivery services (in the form of higher prices).

Consultation on the draft Sustainability Guidance closed on 11 April 2023, and the final guidance will be published in due course.

The CMA has been keen to emphasise its willingness for parties to engage with it informally around ESAs as part of its open-door policy. It has set up a Sustainability Taskforce as well as a dedicated portal for companies to submit queries. The draft Sustainability Guidance offers further incentives, noting that the CMA will refrain from issuing fines on any party that implements an agreement that was discussed in advance with the CMA and where the CMA did not raise competition concerns.

Guidance to employers on how to avoid anticompetitive behaviour

On 9 February 2023, the CMA published guidance^[48] (the draft Employer Guidance) warning employers not to engage in anticompetitive agreements that can negatively impact labour markets – the first time it has expressly done so. The CMA explicitly warns employers that collusion between employers is ‘illegal and there are significant financial and personal consequences’.

The draft Employer Guidance details three main types of anticompetitive behaviour in labour markets:

• no-poaching agreements: agreements between two or more businesses not to approach or hire each other’s employees, or not to do so without consent of the other employers;
• wage-fixing agreements: agreements between two or more businesses to fix employees’ wages or other employment benefits; and
• information sharing: sharing sensitive information about the terms and conditions a business offers to employees.

The CMA notes that the illegal agreements or practices may not be in writing but in the form of informal practices. These may cover freelancers and contracted workers as well as permanent salaried staff.

The draft Employer Guidance details actions that businesses, legal advisers and recruiters should follow to prevent anticompetitive behaviour and encourages any anticompetitive behaviour to be reported to the CMA.

The draft Employer Guidance comes shortly after the CMA opened its first investigation into suspected wage-fixing by sports broadcasters in respect of wages offered to freelance workers. Further, as set out above, the CMA’s annual plan for 2023/2024 notes that competition issues in labour markets are a key area of focus for the next 12 months.

The draft Employer Guidance does not concern restrictive covenants in employment contracts between an employer and an employee, such as non-compete or non-solicitation clauses.

Notes