The Enterprise and Regulatory Reform Act 2013 (ERRA) received Royal Assent on 25 April 2013. The ERRA, among other matters, makes a number of changes to the UK competition law regime.
No area of the UK competition law regime has been left untouched, but in most areas the changes are predominantly procedural in nature; so for businesses seeking to ensure they comply with UK competition law the message is more 'business as usual' than 'back to the drawing board'.
Only a few of the competition law provisions of the ERRA came into force on enactment. The remaining competition law provisions will come into force on a date to be appointed by the Secretary of State.
The most eye-catching, and most heavily reported, change is the creation of the Competition and Markets Authority (CMA) to assume the competition law functions of the Office of Fair Trading (OFT) and the Competition Commission (CC), both of which will be abolished. The CMA is expected to take over from the OFT and the CC in April 2014.
The ERRA also rebalances the role of those sectoral regulators, such as Ofcom and Ofgem, that have concurrent competition law powers.
On the one hand, each regulator will now be under an explicit duty to consider whether it would be more appropriate to use its competition law powers before using its sector-specific powers, which should result in more competition law enforcement activity by those sectoral regulators.
On the other hand, the ERRA provides the CMA with the power to take over cases started by a sectoral regulator in certain circumstances and, in addition, grants the Secretary of State the power to amend statute to remove a sectoral regulator's concurrent competition law functions if he considers that it is appropriate to do so for the purpose of promoting competition within any market or markets in the UK, for the benefit of consumers. The long term future of the sectoral regulators as enforcers of competition law is therefore uncertain.
From a merger control perspective, perhaps the most noteworthy things are not the changes introduced by the ERRA, but what has not changed; the ERRA does not introduce a mandatory merger control regime in place of the current voluntary one (as had been trailed in the original consultation) and it does not change the current jurisdictional thresholds.
Nonetheless, the ERRA does contain a number of provisions aimed at strengthening the current voluntary merger control regime and making it more efficient. In particular:
- the CMA is granted the power to suspend all integration steps in both anticipated and completed mergers (rather than only completed mergers as is currently the case) and to require parties to reverse any integration steps already taken
- parties that take steps to integrate their merging businesses in breach of the CMA's orders will risk civil financial penalties of up to 5% of their aggregate group worldwide turnover
- certain statutory time-limits will be introduced, including turning the OFT's 40-working day administrative target into a statutory deadline for a decision in phase I (subject to the CMA's ability to 'stop the clock' if the CMA is waiting for the parties to provide it with information)
- parties will no longer be required to offer undertakings in lieu of a reference for a phase II investigation before they are aware of the phase I decision, as is currently the case; instead, the parties will have 5 working days from announcement of the phase I decision to offer any such undertakings
- the CMA may suspend the commencement of a phase II investigation for a period of up to 3 weeks at the request of the parties provided the CMA considers that there is a possibility that the merger will be abandoned
- the ERRA introduces penalties for failure by merging parties and third parties to reply to information requests in phase I.
The ERRA contains a number of provisions amending the market investigations regime. Those changes are predominantly aimed at making the regime more efficient.
First, the ERRA introduces statutory time limits to all stages of the process:
- At phase I (ie what is currently a market study by the OFT), the CMA will be required to publish a market study notice setting out the timeframe for completion of the study, its scope and the period for making representations to the CMA. Publication of that notice will trigger the start of a six month period in which the CMA must consult on a proposal to make a market investigation reference or publish a notice of its decision not to make a reference, and a twelve month period in which the CMA must publish its report setting out its findings and the action that will be taken as a result of the study
- At phase II (ie what is currently a market investigation by the CC), the time limit in which the CMA must publish its report is reduced from the current 24 months to 18 months (although that period may be extended by up to 6 month extension if the CMA considers there are 'special reasons' for doing so). If the CMA imposes remedies, it must make its final order or accept final undertakings within 6 months of the publication of its report (although, again, that period may be extended by up to 6 month extension if the CMA considers there are 'special reasons' for doing so).
Secondly, the ERRA extends the current investigation powers afforded to the CC in a market investigation so that the CMA will be able to make use of them at phase I as well as phase II.
Thirdly, the ERRA provides the CMA with a new power to impose interim measures to reverse pre-emptive action that has been taken, or to reverse the effects of such action, following a market investigation reference.
Fourthly, the CMA will be able to undertake 'cross-market investigations', which means that the CMA will be able investigate a specific feature or combination of features which exist in more than one market without having to investigate competition across the whole of each of these markets.
Finally, the Secretary of State has been given the power to request the CMA to investigate public interest issues alongside competition issues during a phase II market investigation, and to propose remedies which address any adverse effect on competition and any adverse public interest issue.
The vast majority of practitioners had viewed the antitrust regime as the area with the most pressing need for change; and many felt revolutionary change was needed. However, the ERRA appears to have changed very little.
The antitrust regime will continue to be an administrative regime in which the CMA is both investigator and decision-maker. The ERRA does, however, contain a number of provisions aimed at making that administrative regime work better. In particular:
- the CMA will have new powers to require individuals connected to a company involved in an investigation to answer questions (subject to the individual's privilege against self-incrimination and other safeguards)
- a system of civil penalties for failure to comply with investigations replaces the current criminal sanctions
- the threshold which determines when the CMA will be able to impose interim measures being lowered from 'serious irreparable harm' to 'significant damage', meaning that the CMA should be able to intervene more often to stop certain behaviour pending the outcome of its investigation
- the Competition Appeal Tribunal will have the power to issue warrants to enter premises as part of an investigation (in addition to the High Court).
In addition, the ERRA contains a power for the Secretary of State to introduce statutory time limits for antitrust proceedings. If the CMA is not seen to progress cases quicker than the OFT has done to date, then there must be a real possibility that statutory time limits will be introduced.
Criminal cartel offence
The most significant substantive amendments introduced by the ERRA, and the most controversial amongst competition law practitioners, relate to the cartel offence; the existing criminal offence for individuals who engage in cartel agreements which operates alongside the civil cartel investigations regime.
The ERRA removes the requirement that an individual must be acting "dishonestly" in order to commit the cartel offence. The Government had argued that this change was needed to make it easier for the CMA to prosecute the cartel offence and therefore maintain its deterrent effect. However, the proposed change attracted a great deal of criticism from practitioners, in particular over concerns it would create a strict liability offence, and could have meant that individuals were prosecuted and ultimately imprisoned for entering into arrangements that did not fall foul of the civil cartel rules.
In an attempt to address these concerns, the ERRA adds a number of exclusions from, and defences to, the redefined cartel offence.
The new exclusions provide that a person does not commit the cartel offence if:
- in the case of arrangements affecting the supply of goods or services, customers are given 'relevant information' before entering into the arrangement
- in the case of bid-rigging, the person requesting the bid is given the 'relevant information' before the bid is made
- in any case, before the arrangements are implemented, 'relevant information' is published in a manner specified in an order made by the Secretary of State.
For these purposes, 'relevant information' is defined by the ERRA as the names of the undertakings to which the arrangements relate, a description of the nature of the arrangements and the products or services to which they relate, and such other information as may be specified by the Secretary of State.
The new defences provide that an individual charged with the cartel offence will have a defence if:
- at the time of making the arrangements, the individual did not intend to conceal the nature of those arrangements from customers
- at the time of making the arrangements, the individual did not intend to conceal the nature of those arrangements from the CMA
- before making the arrangements the individual took reasonable steps to ensure the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining legal advice.
It is, at this stage, not clear how the exclusions and the defences will work in practice. For example, will it be a defence if an individual takes reasonable steps to obtain legal advice but never actually obtains that advice? Or what if the individual does obtain legal advice and then acts against that advice? The CMA is required by the ERRA to prepare and publish prosecutorial guidance. It can only be hoped that guidance will provide much needed clarity in this area.