Enhanced Need For Competition Compliance

All companies, especially SMEs, urgently need to update their competition compliance policies. The government and courts have recently greatly increased the liability for violating competition laws by:

  • simplifying the criminal offence with the intention of bringing “as many new criminal cartel investigations as possible,”
  • prioritising enforcement in respect of SMEs (and called upon SMEs to educate themselves),
  • increasing penalties and widened those that can be held liable.

Need 1: Competition Law Applies to Small Business

A common myth, which should be debunked at the outset, is that competition law is only relevant to big business and SMEs do not need to concern themselves:

  • 77% of all firms do not know competition law very well or haven’t heard of it at all.
  • 18% think price-fixing is legal, 27% are unsure and only 55% know that it is illegal – it is illegal and also carries criminal penalties!
  • 23% of firms think it is legal to discuss prospective bids with competing bidders, 29% are unsure – this is illegal also carries criminal penalties.

Nothing could be further from the truth; recent cases have involved very small companies, including local operators and even ‘one-man bands’. Small estate agents, plumbers and roofing contractors operating in localised areas have caught the Competition and Markets Authority’s eye. The Federation of Small Businesses agrees:

“Competition law is a crucial part of doing business … Competition policy applies to businesses of all sizes and we encourage our members and all small businesses to make the most of this valuable resource.”

Need 2: Increased Penalties

The Criminal Offence: has recently been simplified to make it more effective, and it is expected to be used as much as possible. If found guilty, an individual may:

  • be imprisoned for up to 5 years and/or an unlimited fine,
  • have assets confiscated under the Proceeds of Crime Act 2002, and/or
  • if a director, be disqualified for up to 15 years.

Civil Penalties:

  • Fines can be up to 10% of worldwide group turnover.
  • Contracts can be declared void, which in certain cases can be more damaging than damages, if it is a key contract (supplying a major customer for e.g.).

Private Enforcement

  • Any person damaged by anti-competition can sue for damages or an injunction to stop the abuse, or for a contract to be void.
  • In the new class-action system all damaged persons are automatically included in a case brought by a single claimant – monetarily, this is a very powerful tool.

Need 3: Widening of who is Liable

In order to ‘get to the bottom’ of who is responsible, courts will always look beyond strict corporate structures. Thus;

  • Parent companies: are liable for subsidiaries’ abuses – the 10% turnover fine therefore applies to the parent’s turnover.
  • Facilitation: those that facilitate a cartel in full knowledge are liable, along with the cartelists. Anything which assists/facilitates could be caught.
  • Principal–Agent: principals are liable for the agent’s cartelisation if the agent acts within its mandate.
  • Outsourcing: controversially, where a company outsources a service and that service provider cartelises in the outsourced market, the company may be liable for that abuse, even if it did not know.

Need 4: Education – A (Very Brief) Introduction to Competition Law

Competition law prohibits agreements and arrangements, whether written or not, which prevent, restrict or distort competition (or intend to) that may affect trade within the UK. Prohibited agreements include:

  • price-fixing, bid rigging or market-sharing (with criminal sanctions),
  • limiting production or sales,
  • exclusivity agreements,
  • territorial restrictions,
  • exchanges of commercially sensitive information.

It also prohibits businesses that are ‘dominant’ from unilaterally unfairly exploiting their strong market positions. Dominance can be in very small, localised markets. Also, companies with a niche product or a small product market are vulnerable. Prohibitions include:

  • charging too much or too little, or unfair trading conditions,
  • discriminatory treatment of certain customers without objective justification, and refusals to supply essential components,
  • exclusivity provisions or rebates,
  • tying or bundling.

Need 5: It Isn’t All Bad News!

Competition law can be used as a carrot. It may be that you are the victim of someone else’s competition abuses. If this is the case you would have a claim for damages, and it can also be used to terminate onerous contracts.

What You Can Do

In view of the severe consequences of non-compliance and the ever-widening reach of where liability rests, we recommend that businesses undertake a review of their practices and implement a competition compliance policy.

This will minimise the risk of being non-compliant, but if the company does breach competition law, the existence of a compliance policy can mitigate punishment.