Following Brexit, EU competition law continued to apply in the United Kingdom until 31 December 2020 as part of an agreed Transition Period. In this LawFlash, we summarise how the end of the Transition Period is likely to impact the enforcement of competition law in the United Kingdom going forward, the extent to which UK competition agencies and courts are free to diverge from EU principles and case law, and our initial thoughts on the future landscape of competition law in the United Kingdom.
The United Kingdom (UK) exited the European Union (EU) on 31 January 2020. Thereafter until 11:00 pm on 31 December 2020, there was a Transition Period. Pursuant to the UK-EU Withdrawal Agreement 2019, the United Kingdom continued to apply and be subject to EU competition law throughout the Transition Period.
On 24 December 2020, the EU and the UK reached a Trade and Cooperation Agreement (TCA), which defines the trading relationship between the EU and the UK following the end of the Transition Period, including the arrangements in relation to competition law and antitrust.
It is fair to say that the TCA does not set out much detail with regard to competition law enforcement. Further information in that regard is to be found in the UK Withdrawal Agreement,[1] the UK Withdrawal Act,[2] the Competition SI[3], and the Implementation SI.[4]
In this note we set out the main takeaways on the effect of Brexit on competition law, together with our initial observations as a result of our experience with regard to a number of ongoing investigations by the UK antitrust authority, the Competition and Markets Authority (CMA).
Article 101 of the Treaty on the Functioning of the European Union (TFEU), like its functional equivalent, Chapter I of the UK Competition Act 1998 (CA98), prohibits arrangements between businesses that have as their object or effect the restriction, distortion, or prevention of competition between EU member states (or in the United Kingdom in the case of Chapter I CA98), unless they can be shown to give rise to benefits to consumers that outweigh any restrictions of competition. Such anticompetitive arrangements can arise directly or indirectly between competitors, and/or between companies at different levels of the supply chain, such as between a supplier and its customers.
Article 102 TFEU, like Chapter II CA98, prohibits the abuse of a dominant position. Dominance is generally defined as a firm’s ability to behave independently of its competitors, customers, suppliers and, ultimately, final consumers. In broad terms, a business may be considered to have market dominance if it has a market share of around 40% or more in a relevant market. While dominance is not an infringement, it is prohibited for a firm to abuse its dominance. Companies found to have breached Articles 101 or 102 TFEU and/or Chapter I or Chapter II CA98 are liable for fines of up to 10% of their worldwide group turnover, while in the UK individuals may incur personal liability which may be civil or criminal in nature.[5]
The TCA aims to provide a “level playing field” in the way that UK and EU businesses are regulated. In respect of competition law, the TCA enshrines a commitment by the UK and the EU to maintain effective competition laws that will address anticompetitive agreements and abuses of a dominant position, and to ensure the enforcement of competition law by independent authorities in a transparent, fair and non-discriminatory manner.
The TCA also emphasises the importance of co-operation with regard to developments in competition policy and enforcement activities. In practice, this means that the European Commission (Commission) and the national competition authorities of EU member states may exchange information with the CMA to the extent this is permitted by law, and vice versa. This is important since, for example, the Commission will no longer have jurisdiction to conduct dawn raids in the UK or to request the CMA to do so on its behalf with regard to suspected Article 101 or Article 102 infringements.
Since 1 January 2021, the UK antitrust agencies, the CMA and concurrent regulators, are no longer able to investigate and enforce Article 101 and Article 102 TFEU.
That being said, Articles 101 and 102 will continue to apply to conduct by UK firms that is implemented or produces effects within the EU, which may also include UK conduct to the extent that it produces effects within the EU, as has traditionally been the case with regard to third states (that is, non-EU member states). Since 1 January 2021, such conduct will be investigated and enforced by the Commission or the national competition authorities of EU member states.
Furthermore, the Commission will continue to have competence over the UK elements of “Continued Competence Cases,” that is, cases that were initiated but not concluded by the Commission before the end of the Transition Period.
In summary, broadly the following will apply:
We expect the CMA to be very active in antitrust enforcement following the UK’s break from the EU. Whilst in the past the CMA (like all national EU antitrust agencies) had to take the back seat where the Commission took up an investigation, it is now able to run an investigation under UK competition law in parallel with an investigation by the Commission and to focus on the UK market specifically.
Parallel investigations will inevitably give rise to significant additional costs, delays, and complexity for businesses, despite the EU’s and UK’s commitment in the TCA that their respective competition authorities will cooperate and coordinate where this is permissible by law. The risk of parallel investigations will require firms to think about their strategic options. In relation to leniency applications, it should be borne in mind that the protection afforded by applications to the Commission will not extend to fines, prosecution, or disqualification proceedings in relation to a UK investigation and vice versa.
The CMA is also free to pursue its own agenda as it seeks to lead the way in terms of key antitrust reforms, including in the digital sector. The impetus for digital reform in the UK has resulted in the CMA proposing, among other things, the establishment of an enforceable code of conduct to govern the behaviour of platforms that are designated as having “Strategic Market Status” (a new and novel concept) and novel approaches with regard to algorithms (see our recent CMA Paper and Consultation on Impact of Algorithms on Competition and Consumer Welfare and below). In this context, we may also see the CMA leaving behind traditional enforcement methods and making more use of “market tools” to intervene against big tech companies.
Prior to the end of the Transition Period, Section 60 CA98 provided that UK competition authorities and courts must, as far as possible, interpret UK competition law in a manner that is consistent with EU competition law, including the case law of the European courts, and must have regard to any decision or statement of the Commission.
Section 60 CA98 has now been revoked and replaced with a new Section 60A. Section 60A applies to all cases from 31 December 2020 onwards, including ongoing CMA investigations and court cases that were “live” on 31 December 2020 relating to conduct before 1 January 2021.
The CMA, concurrent regulators and the English courts are no longer required to interpret UK competition law consistently with the case law of the European Court, which is no longer binding. New EU case law (reached after 31 December 2020) is not binding on the UK antitrust agencies or the English courts.
However, Section 60A CA98 provides that the UK antitrust agencies and the English courts are required to ensure consistency with EU competition case law and the Commission’s decisions reached prior to 1 January 2021, unless it is considered to be “appropriate” not to do so in the light of certain specified circumstances. In paragraph 4.22 of the CMA guidance on its Functions after the End of the Transition Period (CMA125) of 20 December 2020 (Guidance), the CMA points to Section 60A CA98 which sets out that such a departure from established EU case law may be appropriate in the light of the following factors:
In January 2021, the CMA began contacting companies that were under investigation by the CMA to notify them that, following the end of the Transition Period, EU law no longer applies in the UK and the CMA will continue its investigation of suspected infringements on the basis of UK competition law in relation to conduct that took place both before and after 31 December 2020. In its approaches, the CMA has been keen to note that, whilst Section 60A CA98 requires the CMA to act with a view to ensuring that there is no inconsistency with pre-existing EU case law and principles, the CMA is nonetheless allowed to depart from such case law and principles where it considers that it is “appropriate” to do so.
This may be an indication that the CMA is setting the ground for a divergence from established EU case law and decisional precedent even with regard to conduct and investigations preceding 1 January 2021, and that it will seek to rely on Section 60A CA98 in order to do so.
For example, in light of statements by the CMA to date, it is possible the CMA will seek to diverge from EU precedent with regard to procedure and rights of defence. It is also possible that the CMA will seek to diverge from established EU precedent with regard to the substantive analysis of anticompetitive agreements or abuse of dominance. If that were to be the case, we would expect a very litigious future, with companies appealing CMA decisions. Such an approach by the CMA would be in line with its increasing reliance in a number of ongoing investigations on its so-called “margin of appreciation” as a means of moving away from established case law and from established economic and legal principles that may run counter to the CMA’s analysis. Furthermore, since the English courts will no longer have the ability to refer questions of interpretation of EU law to the European courts (which is currently a key component driving consistency in competition law interpretation), a gradual divergence over time becomes an even more likely prospect.
As we discussed in our recent LawFlash on the CMA Paper and Consultation on Impact of Algorithms on Competition and Consumer Welfare, the CMA may have given us a flavour of things to come in its recent Algorithms research paper. For example, with regard to abusive conduct, in a departure from established competition law, the CMA suggests that a firm may abuse its dominance unknowingly and “unintentionally.” With regard to anticompetitive agreements, the CMA puts forward a novel proposition on what it describes as“autonomous tacit collusion,”where complex and sophisticated pricing algorithms learnindependentlyto tacitly collude, without having been instructed to suppress competition by human operators. The CMA says that this could give rise to a situation in which firms “unwittingly” and “unintentionally” collude on the market. The CMA’s suggestion with regard to so-called autonomous tacit collusion is a material departure from the established Chapter I CA98/ Article 101 TFEU case law and gives rise to significant questions on the meaning of collusion. As we said in our LawFlash, a departure from the requirement to show a “meeting of minds” in order to find the existence of anticompetitive collusion would turn competition law on its head.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Frances Murphy
[1] See Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 13 December 2019.
[2] See European Union (Withdrawal) Act 2018, c.16, of 27 June 2018.
[3] See Competition (Amendment etc.) (EU Exit) Regulations 2019, No.93, of 22 January 2019.
[4] See Competition (Amendment etc.) (EU Exit) Regulations 2020, No. 1343, of 19 November 2020.
[5] Company directors may be disqualified from serving as a director for a period of up to 15 years, whilst the participation in a hardcore criminal cartel (namely, bid-rigging, price fixing, market or customer sharing, or limitation of output or supply) may also lead to the imposition of a five-year prison sentence, unlimited fines, or both for the individual.
[6] As described below, claimants will be able to bring actions, including damages claims in the English courts with regard to Commission infringement decisions issued reached before 1 January 2021.
[7] However, while adherence to any commitments entered into by parties to the investigation will continue to be monitored by the Commission, any UK aspects of their commitments may be transferred to the CMA.
[8] That is, where the Commission issued a Statement of Objections or a request for the parties under investigation to express their interest in engaging in settlement discussions.
[9] As described below, claimants will be able to bring actions, including damages claims in the English courts with regard to Commission infringement decisions that may be reached after 31 December 2020 in respect of Continued Competence Cases (including cases that have not yet exhausted the appeals process).
[10] However, the Commission may transfer the UK aspects of any commitments to the CMA.
[11] The CMA may have been investigating the relevant conduct both under EU and UK competition law.