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“True Brexit” Happened: Impact on Competition Law
After formally leaving the EU early in 2020, the UK on 31 December finally left the EU’s single market and customs union at the end of the transitional period. Despite the Trade and Cooperation Agreement (TCA) agreed between the EU and UK in late December, this will impact businesses and individals in a number of ways.
On the competition law front, for most companies active in the EU or UK, there will be no immediate change. In particular, the UK has adopted the various EU block exemption regulations, which, provided the relevant conditions are satisfied, automatically exempt a range of common commercial agreements from competition law.
In addition, the basic competition law bans on anti-competitive agreements and abuse of dominance remain in place in the UK. This means activities such as cartels, exchange of competitively sensitive information between competitors, resale price maintenance and the imposition of exclusivity arrangements by dominant companies remain illegal in the UK. UK companies must also — as is the case for companies from any third-party country — comply with EU competition law when trading in the EU.
The one area of competition law which will see immediate practical changes is subsidy control, since to a large extent (but not completely), the UK is no longer subject to the EU state aid rules. A new UK subsidy control regime came into force on 31 December. Unfortunately, far from simplifying matters, the new regime is without doubt more difficult to navigate than the EU regime.
The UK government has published guidance to help public sector bodies check for legality prior to awarding subsidies. This explains that a public authority will now need to determine whether its subsidy carries any appreciable risk of triggering a dispute with a trade partner under the terms of the World Trade Organization subsidy rules which bind the UK, as well as the UK’s free trade agreements (including the TCA) and the EU Withdrawal Agreement. (The latter relates to the Northern Ireland part of the UK and provides that the EU state aid rules continue to apply in certain circumstances which are relevant to trade between Northern Ireland and the EU.) This is in addition to assessing whether the proposed subsidy falls within the scope of UK domestic law obligations relevant to subsidy control. The relevance of each will need to be taken into account when awards of public funding are made.
The guidance comments that potential subsidy recipients (i.e., companies and other bodies) may also wish to read it to understand existing and new obligations placed on public authorities. That is certainly the case, since ultimately the recipient is most at risk from illegally awarded subsidies. Before receipt, a UK recipient must, as it did when the EU rules applied, take its own view on the legality of a subsidy award to it.
EU Court Rules on Sport Regulations
On 16 December 2020, the General Court of the EU (EUGC), the EU’s second-highest court, handed down an important judgment on an appeal from a European Commission decision which concerned the organisation of sporting events. This was the first time the EUGC has ruled on a Commission decision finding that rules adopted by a sports federation do not comply with EU competition law.
The case concerned the International Skating Union (ISU), the sole international sports federation recognised by the International Olympic Committee for the purpose of managing and administering figure skating and speed skating. The ISU also carries out a commercial activity entailing the organisation of various speed-skating events.
An independent company had sought to organise a speed-skating competition involving events in a new format in Dubai. This had to be abandoned since skaters affiliated to national federations that are members of the ISU are subject, under the ISU’s statutes, to a pre-authorisation system, which includes “eligibility rules.” By virtue of those rules, in the version relevant at the time, a skater’s participation in an unauthorised competition exposed him or her to a penalty of a lifetime ban from any competition organised by the ISU.
The European Commission found in 2017 that these eligibility rules were incompatible with EU competition law since their object was to restrict the possibilities for professional speed skaters freely to take part in international events organised by third parties and, therefore, they deprived those third parties of the services of athletes necessary to organise those competitions. The Commission ordered the ISU to put an end to the infringement.
The EUGC found that the Commission was correct to conclude that there was an infringement of EU competition law. The ISU was obliged to ensure, when examining applications for authorisation, that third-party organisers of speed-skating competitions were not unduly deprived of access to the relevant market, to the extent that competition on that market is distorted. The ISU retained broad discretion to refuse to authorise competitions proposed by third parties and the penalties against athletes were disproportionate. Finally, although it was legitimate for the ISU to establish rules seeking to avoid the risks of manipulation of competitions from sports betting and to ensure that sporting competitions meet common standards, the rules adopted went beyond what is necessary to achieve such objectives and were not proportionate.
The case is a good reminder that, although rules set by sporting bodies in relation to events and their competitions are to some extent specially treated under EU and UK competition law, there are limits to this and impacted third parties can challenge the rules.
UK CMA Imposes Fines for Information Sharing and Collusion
The UK Competition and Markets Authority (CMA) recently imposed significant fines for cartel activity in the construction industry. The case shows that it is not only price fixing, market sharing or bid rigging which can be treated as a cartel; other activities are just as dangerous.
The CMA found that two suppliers of groundworks products colluded illegally for nearly two years by sharing confidential information on future pricing and commercial strategy. They also coordinated their commercial activities to reduce uncertainty, including monitoring each other’s prices and challenging quotes they deemed too low.
The two companies were fined more than £11.2 million and £3.7 million, respectively. Showing the benefits of identifying an infringement and then whistleblowing, a third groundworks company was not fined as it brought the illegal activity to the CMA’s attention and fully cooperated with the investigation.
The CMA has investigated companies in the construction industry several times in recent years. Examples of the CMA’s action against cartels in the industry include fining office fit out companies £7 million with six directors disqualified, fining pre-cast concrete pipe firms £36 million with two directors disqualified and disqualification proceedings against two other directors ongoing, and fining rolled roofing lead firms £9 million.
UK CMA Secures Supplier Commitment Not to Withdraw Product
Under EU and UK competition law, it is illegal for a dominant company to engage in an abuse of that dominant position. The concept of an abuse is wide and can include removing products from the market, refusal to supply and similar activities. A recent case shows the UK CMA proceeding against such activity following a complaint and obtaining a result very quickly.
The CMA launched an investigation in October 2020 into an alleged strategy adopted by a pharmaceutical company of withdrawing a bipolar drug from UK patients so they would need to switch to alternative, more expensive treatments, including one owned by the same company.
Immediately after the CMA opened its investigation, apparently launched following a complaint, the supplier paused the withdrawal of its product and entered into price negotiations with the UK Department for Health and Social Care (DHSC). This resulted in a new price being agreed.
The supplier then offered formal commitments to the CMA to address competition concerns regarding its strategy to withdraw the drug from UK patients. Those commitments, lasting five years, were accepted and mean the product will continue to be supplied on terms agreed with the DHSC. The company will also be unable to threaten to withdraw the product to obtain an unjustified price increase.
The CMA was careful to point out that protection for consumers does not end once the commitments expire, as the supplier must still ensure that it acts in accordance with the law. In other words, compliance with competition law is an ongoing obligation whether or not formal commitments are in place.
Additional European competition law news coverage can be found in our news section.
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