Thursday, February 9, 2012

Competition Law Essay

Competition Law Essay

The Competition Act 1998 includes a lot of features been in the author’s draft Bill. Actually this brings UK competition law into line with the model of European Community (EC) that today has been adopted in some other member states. The Chapter I of the Act prohibits agreements and concerted practices, which preclude, restrict or warp competition in the United Kingdom (UK), unless they are freed under Article 85(3) or on the UK grounds equivalent to this Article.  A provision in analogous terms to Article 86 of Rome treaty (called the “Chapter II prohibition”) forbids abuses of chief positions in the UK. In both, the essentials of an effect on trade within the UK are substituted in the Act for that on trade between the EC member states. In the first case there is also the requirement that the decision, agreement or practice in the UK is or is intended to be executed similarly to the standard for the EC jurisdiction described by the European Court in the case of Wood Pulp.


A main clause provides that courts and tribunals “must act (so far as compatible with the provisions of this Part) with a view to securing that there is no inconsistency between (a) the principles applied and the decision reached by the court in determining that question; and (b) the principles laid down by the Treaty [of Rome] and the European Court, and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law” in determining questions arising under this legislation as well as “must, in addition, have regard to any relevant decision or statement of the [EC] Commission”.

Major of the UK laws on competition (apart from the mergers and acquisitions control and general investigations of oligopolies) are repealed, including sections 44 and 45 of the Patents Act 1997 which regulated the supply of patented agreements and tying and automatic extension provisions in patent licenses.

In brief, the UK Competition Act of 1998 spreads prohibitions equivalent to 85 and 86 articles to situations when EC law does not apply, as there is insufficient or no effect on trade of the United Kingdom and other member states.  The importance of the extension is not only in covering many situations that previously were not covered by described articles, but also in providing greater enforcement authority and proximity.

The competition authorities in the United Kingdom, applying the new prohibitions, have started investigations, connected with complaints, made out decisions and even faced appeals against those decisions. The Office of Fair Trading (OFT) has set strong fines on companies found to have breached the rules and has used its powers to launch so called ‘dawn raids’ that means unannounced inspections of the premises of those suspected in the rules infringing. At the same time, OFTEL and OFGEM (the utility regulators) have not hesitated to use their powers applying the new laws on competition to the sectors they are responsible for. In addition, regulations have been developed to govern the procedures of both the Competition Commission’s Appeal Tribunals and the OFT; secondary legislation has made exclusions from the powers of investigation, prohibition and rules for the penalties determination. Besides the OFT and the sector regulators have issued guidance to assist the Act interpretation. Moreover, cause of the Act applying by reference to the equivalent EC legislation on competition, this Second Supplement also involves the main developments in the met EC law on competition.

So, it contains:
1. New cases regarding the concept of ‘affecting trade between Member States’ and the meaning of an ‘agreement’;
2. New block exemptions on research-and-development agreements, vertical and specialization agreements;
3. Proposals for the ‘modernization’ of EC competition procedure. The proposals are likely to have a significant impact on the scope and operation of the Competition Act in the UK.

Though the Bill comprises these careful provisions for enforcement by public authorities, it does not specify what effect the prohibitions have on private rights stated in The Human Rights Act of 1998, which was incorporated by the European Convention on Human Rights into UK law.  The only express provision is section 2(4), which simply says that agreements prohibited under Chapter I are freed.  Provisions of previous legislative acts governed private rights are repealed. 

Various questions will have to be resolved according to the EC interpretation clause and general principle.

This includes the following:
  • Are agreements forbidden by Chapter I invalid? Does the invalidity affect provisions not restricting competition or being exempted? 
  • Does Chapter II also prohibit conduct?
  • Whether a person can claim damage in respect of the Chapter I or II breach? How much it influence if the claimant was party to the breach?
  • Has a person the right to claim an instruction restraining Chapter I or II breach?  If so, in what situation?
  • Whether conduct prohibited by Chapter II or I can affect the proprietary rights enforcement?  If so, in what circumstances?

Under conventional United Kingdom standards of established interpretation, the Act on Competition of 1998 might have been regarded as not conferring any private right on action for damages. The prohibitions defend the public interests and the Act provides an detailed enforcement and immunity system where agreements and conduct are notified to the OFT. If the careful arrangements protecting parties notified the OFT remain exposed to civil liabilities which could be very substantial one can say that the system seems to contradict them. 

That clauses in the Act which provide for the use of the OFT’s findings facts and information in court proceedings has been suggested to indicate that the Act confers rights to claim damages. On one hand, the fact of referring to proceedings related to the agreements validity could explain the provisions. On the other hand, the interpretation part of EC specifically explains that it applies to decisions as to the liability of an agreement for harm caused by its Community law infringement. So the position under Community law is necessary to be considered.

The European Court has considered Articles 85 and 86 to make direct effect and confer rights on private parties that must be protected by national courts. It has not definitely stated about ability to claim damages for private parties. Nevertheless, in accordance with EC law general principles, the protection of these rights in national courts must be efficient and not less favorable than that accorded to similar rights under national law. The UK Act could be considered to form the second criterion circular, but at the same time there is a strong argument based on the first criterion about the rights protection that would be ineffective in case damages could not be claimed.

The House of Lords majority strongly supports the opinion that damages can be claimed infringement for articles 85 and 86, but do not make a clear decision to this effect. Therefore the majority of the Court of Appeal expressed some doubt on this view, which seemed to hold that judicial survey provided an effective remedy for breach of article 30 against the state. However, it is submitted that the damages availability for infringement of articles 85 and 86 is highly likely to be confirmed.

These decisions are regrettable from the point of a person interest in the effective competition law enforcement. To an anti-competitive agreement third parties very often have a less concern and worse information than a party to expose its incompatibility with law on competition.  Moreover, the function of article 85 analysis of the Court of Appeal appears to be unduly restrictive, and it remains to be considered if it will be overturned. The main point is a question of EC law that should be directed to the European Court. To the UK Act interpretation the application of Chapter II should follow the result under Treaty’s Article 85.

In Gibbs Mew v. Gemmell The Court of Appeal said that the situation would be different under article 86 since the article imposed the duty only on the dominant party. However, an agreement making a dominant position abuse in infringement of article 86 or Chapter II is likely also to contradict article 85 or Chapter I. Also it could still be disputed that the victim cannot rely on its participation in such a kind of agreement even if damages were claimed under article 86. 

In spite of Gibbs Mew v Gemmell a party may still meet a prohibited agreement to claim damages for distortion as to its validity. 
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