Competition law – the basics

The Competition Act 1998 (“the Act”) came into force on 1 March 2000 to stop anti-competitive behaviour or practices within the UK marketplace.

The Act affects businesses of varying sizes. Therefore, it is important for businesses to have a general awareness it when they are negotiating or entering into agreements. Breaching the Act can result in heavy penalties for the business that is abusing their position, but also for the directors of the business.

Whilst the Act regulates UK trade, if a business trades on an international basis, they also need to consider any competition or antitrust law in the country in which they are trading. In particular companies trading with countries in the European Union will be subject to the EU competition rules contained in Articles 101 and 102 of the Treaty for the Functioning of the European Union

The purpose of the Act is to promote truly open and competitive markets in which consumers can benefit from cheaper prices, greater innovation and better-quality products. The Act ensures that businesses compete fairly.

Anti-competitive behaviour may not just relate to the business that you are directly negotiating with, as there can also be instances where two or more businesses collude to engage in price fixing, market sharing which may disadvantage you.

Pursuant to Chapter I and Chapter II of the Act, two types of anti-competitive activities are prohibited:

1. Anti-competitive agreements, i.e., directly or indirectly price-fixing or carving up or sharing markets.
2. Abuse of a dominant market position. Where a business in a powerful market position engages in exclusionary or exploitative behaviour, such as refusal to supply or predatory or excessive pricing.
   The Act is principally enforced by the Competition and Markets Authority (“CMA”) the UK’s main competition regulator but also by a number of other sector specific regulators which have concurrent competition power, for example the FCA for financial services. The Courts also have the power to enforce the Chapter I and II prohibitions.

Infringing the Act could have the following serious consequences for a business:

• Fines for the business of up to 10% of their annual worldwide turnover. Individuals involved can also be fined or face prison sentences
• A director can be disqualified from acting in such capacity for up to 15 years
• Third parties which have suffered damage as a result of an anti-competitive agreement or conduct can bring an action for damages before the Courts
• Damage to reputation if customers no longer want to conduct business with them
• Investigations can take years to complete, which could take the focus of senior management away from the business and have consequences for the ongoing running of the business.