Fair grounds for competition law

Kristien Geeurickx expands on the Government's proposals for a prohibition-based system of UK competition law. Kristien Geeurickx is a lawyer in the community and competition law group at Herbert Smith.

Reform of UK competition law has been on the cards for many years. After a number of false starts – reform had been expected to be included in the Queen's speech on a number of occasions – the Government is making it a priority and has declared that it will bring forward legislation to reform and strengthen competition law.

The principal UK competition statutes have remained substantially unchanged since the introduction of the Competition Act 1980 with the exception of a number of procedural amendments made under the Deregulation and Contracting Out Act 1994. The 1988 Green Paper, A Review of Restrictive Trade Practices Policy, was the first in-depth analysis of the operation of the Restrictive Trade Practices Act 1976. It concluded that legislation was too complex, applied to insignificant agreements while failing to catch significant agreements and was a burden on business.

The White Paper, Opening Markets: New Policy on Restrictive Trade Practices, announced the Government's intention to replace the Restrictive Trade Practices Act 1976 with legislation based on Article 85 of the Treaty of Rome.

Despite lack of progress, reform remained on the previous Government's legislative agenda and in August last year it published a draft Bill on which the Department of Trade and Industry invited comments.

The draft Bill was largely supported by the Labour party and it is therefore likely that it will form the basis for the new Government's proposals for reform.

The intention is to replace the Restrictive Trade Practices Act 1976 and the Resale Prices Act 1976 with an effects-based prohibition of anti-competitive agreements which follows the broad framework of Article 85 of the Treaty of Rome. As under Article 85(3), agreements which breach the prohibition will be capable of exemption where they provide countervailing benefits.

The director general of the Office of Fair Trading (OFT) will have investigatory powers to enforce the prohibition and will be in a position to impose fines on businesses which infringe the prohibition. One area where the draft Bill is likely to differ most from its predecessor is abuse of dominant position.

The previous Government was not convinced that a full Article 85-style prohibition of abuse of dominant position for the economy at large could be made to work satisfactorily. Instead it favoured a strengthening of the Fair Trading and Competition Acts by introducing stronger investigatory powers, interim measures and greater coverage of property rights.

The new Government has made it clear that it favours a wholesale reform of the control of monopolies and oligopolies to include a prohibition-based system. Other key issues where policy considerations may lead to a different approach are the extent to which vertical agreements will be excluded from the prohibition, the detailed interaction with regulated utility regimes and the need for other exclusions such as an exclusion for certain land agreements.

Earlier plans to reform the rules governing takeovers have now been abandoned. They focused on the reversal of the public interest test whereby the bidding company would have to persuade the Monopolies and Mergers Commission (MMC) that the takeover would be in the public interest. A proposal for merging the MMC and the OFT has also been dropped.

A committee of experts, led by Lord Borrie, former director general of the OFT, is advising the Government on the reform of UK competition law and has concluded that these particular changes should not be made. It was felt that creating a single competition authority would mean losing the flexibility of the present system and would concentrate too much power in one body.

The President of the Board of Trade, Margaret Beckett, is said to favour a strengthening of the two bodies and clarifying their responsibilities rather than merging them.

A further consultation exercise on the reform of legislation relating to cartels and abuse of market power is expected to take place in the next few months. The Bill is scheduled to be introduced before the House of Lords this October. This will result in a tight timetable and any changes to be made following consultation may have to be made by Government amendments as the Bill is going through Parliament.

The introduction of an Article 85-type prohibition which replaces the Restrictive Trade Practices Act 1976 must be welcomed. But it is to be hoped that those aspects of Article 85 which place a heavy burden on business will not be transferred into national law.

A prohibition-based system will introduce a degree of uncertainty for parties entering into certain types of agreements as to whether they may participate in the arrangements and to what extent they will prove to be legally enforceable.

Provisional validity and immunity from fines for notified agreements would represent a vast improvement and remedy one of the major shortcomings of the Article 85 regime.