Competition/Antitrust Law and Brexit: Immediate Practical Points for Business

July 12, 2016

Brexit will impact competition (or antitrust) law in the UK. There will likely be material changes in procedural law in particular. Changes to substantive law will probably be less significant, at least for most companies, but there are still issues which companies need to consider.

These procedural and substantive changes will not be immediate (and there will likely be transitional provisions dealing with Brexit itself and the UK’s new trading arrangements with the EU), but there are steps which we recommend companies take now in relation to competition law.

1. Reinforce the Message That Competition Law Continues to Apply in the UK

This has been said frequently, but it’s important to remember that EU law continues to apply in the UK. In any event, substantive UK competition law is in effect the same as EU competition law. Therefore, competition law continues to apply in the UK in exactly the same way today as it did before the referendum vote.

We recommend that businesses disseminate this message to all relevant staff. They should be reminded that competition law compliance messages, including from training sessions, still apply and that this will be the case going forward (including after Brexit).

They should also be reminded that discussions with competitors in relation to the implications of Brexit should not take place without guidance (see further below). Businesses’ preparations for and view of the impact of Brexit will often be confidential and therefore will not be the type of information that competitors should learn.

2. Be Careful With Discussions on the Impact of Brexit

Brexit raises significant commercial, legal and other issues for businesses, and therefore there may be a desire to discuss it with competitors (either directly or in a trade association or elsewhere). However, as mentioned, EU and UK competition law continues to apply in the normal way and therefore these discussions, if they involve confidential commercial information, are dangerous.

We recommend that no discussions with competitors take place in relation to Brexit without competition law guidance being provided in advance.

3. Consider the Post-Brexit Options but Take Care With Joint Lobbying

We recommend that every business considers which of the likely post-Brexit arrangements between the EU and the UK is appropriate for it and consider lobbying for that option. Broadly, the most likely options are: membership of the EEA (currently the EU plus Norway, Iceland and Liechtenstein), a customs union with the EU (like Turkey has), a series of bilateral agreements (like Switzerland has), a free trade agreement (like Canada has negotiated but does not yet have), and a “third party” relationship based on the WTO rules.

Relevant here is the general direction of EU competition law post-Brexit. There have already been calls for changes to EU competition law, particularly to allow “national champions” to be created in the EU (through more lenient application of the merger control rules) and to allow greater state intervention (through a relaxation of the state aid rules). Businesses concerned about this would probably want to lobby for EEA membership, since this, while not providing for the same benefits and clout as EU membership, should of the options being considered allow for the greatest level of input into these types of decisions.

Joint lobbying by competitors is in principle permissible under EU competition law, but again we recommend that competition law guidance is provided in advance.

4. Review Trading Agreements

The form of many agreements (or at least certain clauses within them) is driven by competition law considerations. For many businesses, the most obvious example is distribution agreements, in particular, limitations on the ability to impose restrictions on distributors concerning pricing and cross-border sales in the EU and EEA.

Given the uncertainty as to the shape of post-Brexit arrangements, it is not possible to make changes at this stage in order to ensure compliance with competition law going forward (or indeed to make sure that a business is not unnecessarily limited in its activities). We recommend that instead businesses review their existing agreements so they are aware of clauses which may not operate as originally intended post-Brexit, which might be changed post-Brexit to its advantage (e.g., as to restrictions on cross-border sales in an exclusive distribution agreement), or which might no longer be legal post-Brexit (e.g., because a block exemption may no longer continue to apply). When the position post-Brexit is clearer, renegotiations or termination can be considered.

This applies to UK agreements and non-UK agreements which might affect the UK. An example of the latter is a distribution agreement which permits (per the current law) the distributor always to make passive sales into the UK from other EU countries. Depending on the law post-Brexit, it may be possible to limit such sales.

A similar point applies to precedents and new agreements. The impact of Brexit on relevant terms should be analysed and agreements need to allow for this (e.g., whether, post-Brexit, a relevant EU block exemption would apply or not).

5. Consider Litigation Strategy

Private competition law litigation (damages and other claims, particularly for injunctions) is expanding rapidly in the UK and the rest of the EU. This is now a genuine commercial weapon for businesses of all sizes.

General litigation issues are relevant in this context, too. Thus, for example, recognition and enforcement of judgments may be affected by Brexit, and general jurisdictional issues will arise. We therefore recommend that, as with other types of litigation, the impact of Brexit on private competition litigation is considered when planning strategy.

6. Use Legal Advisers to Ensure Privilege Protection

Post-Brexit, EU competition law will continue to apply to any company active in the EU (including UK or U.S. businesses which have no physical or legal presence there but only trade). The European Commission will continue to be the lead competition law regulator for the EU.

Against this background, companies need to recall that, for the purposes of EU competition law investigations by the European Commission, only advice from external EU/EEA-qualified lawyers is privileged. This means that, post-Brexit, advice from UK-qualified (in England and Wales, Scotland, or Northern Ireland) external lawyers would not be privileged for this purpose and would therefore have to be disclosed to the commission in any investigation (as is the case already in relation to advice from U.S.-qualified and in-house lawyers).

Some companies are taking the view that even now EU competition law advice needs to come from external lawyers qualified in an EU/EEA jurisdiction (other than the UK). McGuireWoods has undertaken its own contingency planning and its EU and UK competition law partner Matthew Hall (an English lawyer) is now also qualified in Ireland.

7. Consider State Aid

One branch of competition law in the EU is state aid. This bans aid in all forms from EU member state governments and public bodies to companies, unless a market investor would have done the same thing or the aid is exempted. There are several high-profile examples of state aid cases at the moment, not least involving taxation in Ireland, the Netherlands, Luxembourg and Belgium.

It’s not known what the position will be concerning EU state aid law post-Brexit, but some comments can be made at this stage.

Under the EEA option (see above), which would likely allow full access to the EU “single market,” it can be assumed that the UK would still be subject to the EU state aid rules. Under other options, it may be that the UK will be able to assist companies and industries in ways that it cannot do at the moment. However, the WTO Agreement on Subsidies and Countervailing Measures (the UK is a WTO member in its own right) controls the use of subsidies and regulates the actions countries can take to counter the effects of subsidies. Under the agreement, a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Alternatively, a country can launch its own investigation and ultimately charge extra duty (“countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

We recommend that businesses consider whether they have received aid in the past in the UK, whether they might be able to receive it in the future under a looser post-Brexit regime (and indeed, in the run up to Brexit, if the UK government already starts to provide aid), and also whether competitors might similarly benefit. This can impact investment and other decisions.

The other side of this issue is that UK-based companies established only in the UK may not in the future be able to challenge or complain about aid granted in other EU member states to their competitors (and nor would the UK government). If EU competitors are in a position to receive aid and this could impact the business, consideration should be given to what steps can be taken.

8. Consider Public Procurement

Public procurement law is an EU internal market issue, but is often “lumped in” with competition law so it is considered in this memorandum.

Any UK company which uses rights set out in the EU public procurement rules to access contracts in other EU member states needs to consider this issue. It’s not clear what the position will be post-Brexit, but some comments can be made at this stage.

Under the EEA option (see above), which would likely allow full access to the EU “single market,” it can be assumed that the UK would still be subject to (and companies would benefit from) EU public procurement legislation. Under other options, it seems likely that the UK would continue to remain a party to the Government Procurement Agreement (GPA), a WTO “plurilateral” agreement. The GPA rules are very similar to the EU public procurement directives and would give UK companies access to the procurement markets of the EU countries and a number of other major countries (including the U.S.). Post-Brexit, public procurement rules are therefore likely to be very similar to those today.

9. Consider Leniency

This is really a point for external advisers, but a company which applies for leniency at EU level (protection against regulatory fines in return for whistleblowing about a competition law infringement) should consider very carefully whether to do so in the UK at the same time. This is often done anyway, but could become a crucial issue post-Brexit, when the UK competition regulator is likely to run parallel investigations with the European Commission concerning the same behaviour.