Last year, 2008 was remarkable for anti-trust/competition law enforcement:
- The EC Commission imposed its highest fine in any case to date for anticompetitive behaviour.
- The fines, imposed on car class producers, totalled more than €1.3bn with the record highest individual fine of €896m being imposed on the French company, Saint-Gobain
- The US Department of Justice imposed its second highest criminal fine, $400m, on LG Corporation in its LCD investigation
- The EC Courts confirmed fines on a consultancy firm which acted as coordinator (but not a market participant) of an information sharing and price fixing cartel
- The UK courts for the first time jailed three businessmen for their roles in a market sharing and information exchange cartel, and disqualified them each from acting as a director of a company or being involved in the administration of a company for up to 7 years
- The Chinese authorities introduced its new Anti-Monopoly Law which is substantially based on US and EU precedents
- The average jail sentences imposed by US courts for anti-competitive behaviour on foreign defendants rose to 31 months
- Competition authorities around the world increasingly coordinated their enforcement activities. For example, five authorities (from the US, Canada, EU, Japan and Korea) have co-ordinated their investigation into cathode ray tubes. Additionally, the US, EU, UK, French, Italian and Japanese competition authorities have been coordinating their investigation in the marine
- hose case
- The UK competition authorities for the first time, raided, with a court order, the home of an business executive in a criminal investigation into alleged anti-competitive behaviour
- The EC Commission imposed a record fine of €38m on E.ON for breaking a seal applied during an inspection to preserve documents
- The French competition authorities imposed a record fine against steel brokers and sellers for price fixing through a sham trade association. The largest individual fine was €301m
- The EC Commission for the first time launched a sectoral inquiry with unannounced dawn raids notwithstanding that it was not investigating any specific allegations of anti-competitive behaviour
More than 110 countries around the world, from North and South America, Europe, Africa, Middle East, Far East, Asia and Australasia, have competition laws in place or are in the process of introducing them.
These laws apply to the dealings of all businesses with their competitors, customers and suppliers. In most cases, countries will apply their competition laws where competition within their territory is distorted even where the relevant activities have taken place outside the country and irrespective of any contractual choice of law clause.
Competition/anti-trust laws around the world broadly follow similar principles. Apart from rules governing mergers, competition/anti-trust laws generally have two key prohibitions:
- not only to formal written agreements but also to informal ‘understandings’ or any ‘meeting of minds’ between businesses; competition laws also apply to activities of trade and professional associations, and
- a ban on any abuse of power by companies in a dominant market position.
Price fixing, market sharing and customer allocation arrangements are classic examples of potentially anti-competitive behaviour and are rarely considered acceptable by competition authorities.
Less obvious, but potentially equally anti-competitive, are exchanges of market sensitive information among competitors. Exchanging or disclosing to competitors information which might affect competitors’ (or your) market behaviour is unlawful. On the other hand, the circulation by a trade association of historic information which is aggregated in such a way that it does not reveal competitively sensitive information about any individual business, is not generally objectionable.
Another form of anti-competitive agreement is bid-rigging. This is a criminal activity in the UK and many other jurisdictions worldwide. Any decision to enter (or not to enter) a bidding process in response to an invitation to tender must be taken independently. It is unlawful to discuss with competitors whether or not to make a bid, the price at which to bid, or to allocate contracts among competitors.
Abuse of dominant market position
In Europe, there is a rebuttable legal presumption that a company which has a share of 50% of any product or service market is a dominant position. A company may, however, be in a dominant market position with a lower market share.
Being dominant is not problematic in itself but any abuse of that market power is unlawful. Abuses may include long term exclusivity agreements, tying and bundling, refusal to supply, unfair prices, loyalty rebates which foreclose competitors, or unjustified discrimination among customers.
Consequences of infringing competition law
The consequences of infringing competition law are wide ranging and potentially extremely costly:
(a) enforcement agencies have the power to impose significant fines for infringement. For example, the European Commission may impose a fine of up to 10% of a company’s worldwide group annual turnover
(b) third parties harmed by the agreement or conduct may seek damages from infringers
(c) in some jurisdictions (notably the US, UK, Ireland, France and possibly Australia), individuals involved in infringements may face criminal sanctions including fines or imprisonment
(d) in the UK and Ireland directors whose companies infringe competition law may face disqualification for up to 15 years from acting as a director or being involved in the administration of a company
(e) anyone involved in a competition law infringement is risking his or her employment
(f) evidence shows that involvement in a competition law infringement investigation may have an adverse effect on an investigated company’s share price, and an adverse effect on the reputations of the business and the individual participants.
A company which admits its involvement in an infringement to the authorities and co-operates with the investigation may be entitled to leniency. Depending on the circumstances, this may amount to a reduction of up to 100% in fines and relief for individuals from criminal prosecution. However the degree to which leniency will be available in an individual case will depend on the specific circumstances and the jurisdiction in which it is sought.
In the UK, individuals who report alleged cartel activity to the Office of Fair Trading may be rewarded with a payment of up to £100, 000.
What you can do to ensure your business complies with competition law
All businesses should have a competition law or antitrust compliance policy and should have procedures in place for dealing with and resolving competition law issues as they arise with their legal advisers.
There should be regular training programmes for all employees, especially those who regularly interface with customers, suppliers or competitors, and there should be audits of contracts and commercial policies.