Insights

UK Government Announces Reform of the UK Competition Regime, reprinted in Thomson Reuters, (March 31, 2012)

On 15 March 2012, the UK Government announced its plans for reforming the UK competition regime. The Government has stopped short of radically redesigning the competition regime. Although one government body is replacing two, and there are significant changes expected for criminal prosecutions, in large measure the new regime will maintain elements of the current system.

A new competition authority – the Competition and Markets Authority

Externally the most significant change in the new plan is that the UK’s Competition Commission (CC) and Office of Fair Trading (OFT) will merge into a single body – the Competition and Markets Authority (CMA). The CMA will be responsible for market investigations, cartel and antitrust cases, merger control, as well as a number of functions with respect to the regulated utilities. The CMA will be subject to tighter procedural timetables and improvements in due process for the parties being investigated.

The changes will be introduced gradually, as some proposals are subject to Parliamentary approval. It is anticipated that the CMA will be fully operational by April 2014. Until then, the OFT and the CC will continue to exist and perform their current functions.

Market investigations

Currently under the UK's Enterprise Act, the OFT has the power to refer markets to the CC for investigation, where the OFT has reasonable grounds for suspecting that any feature of a market is anticompetitive.  Under the new regime, the CMA will carry out these markets inquiries directly, without need for a referral. Market participants will benefit from the introduction of statutory time limits, which will reduce the duration of the process from the 67 months currently to a maximum of 24 months.

The CMA will also take over from the CC and the OFT their roles in determining references from the Competition Appeal Tribunal in price control cases in regulated industries, such as the telecoms sector, as well as in other regulatory appeal processes.

Antitrust investigations

The procedures for the investigation of antitrust violations will be improved. At the outset of each investigation, the CMA will be required to publish a case-specific timetable, to make greater use of state of play meetings, to improve engagement with the parties, and to provide the parties under investigation with a copy of the draft penalty calculation, giving them an opportunity to make representations on the appropriateness of the penalty before it is imposed.

Criminal penalties for failure by an individual to comply with CMA information requests will be replaced with civil penalties. The CMA will require a warrant from the CAT (as well as the High Court and Court of Session) to enter premises by force. The CMA will be given additional powers to require a person to answer questions similar to those available in criminal proceedings.

Under the Competition Act 1998, the OFT has been authorized to impose interim measures where there is a risk of “serious and irreparable damage” being caused by a suspected antitrust violation. Interim measures allow the OFT to enjoin conduct pending conclusion of an investigation. However, this tool has hardly been used, because it is hard to prove “serious and irreparable damage.” The bar now will be lower, to require only a "perceived need to act for the purposes of preventing significant damage to a particular person or category of person."

For criminal cartel offences, which now require that an individual must have "dishonestly" agreed with one or more other persons to engage in cartel activities, the dishonesty element will be removed. To establish criminal cartel activity the CMA will need only prove the mental elements of intent to enter into an agreement and to operate the arrangement in question. The Government’s view is that the inclusion of the dishonesty element in the cartel offence has inhibited the prosecution of cases (only two cartels have been prosecuted since 2003) and anticipates that the change to the law will improve enforceability and increase deterrence, bringing levels closer to what was intended when the criminal cartel offence was introduced.

Merger control

Contrary to expectations that the Government would introduce a mandatory merger notification regime, the Government has decided to keep a voluntary regime. Accordingly, merging parties will continue to be able to take a view as to whether to submit or not a notification to the CMA before completion. However, the CMA will have the power to investigate completed mergers and to prevent the merging parties from completing their transaction at any stage of a post-closing investigation, if it has grounds to suspect that implementing the transaction would prejudice the outcome of an investigation. Existing criminal penalties for failure to comply with an order to suspend the implementation of a merger will be replaced with civil penalties of up to 5% of the merging parties’ aggregate group worldwide turnover.

Currently problematic mergers are referred by the OFT to the CC for an in depth review. In order to keep this peer review process, going forward the CMA Board will be responsible for Phase 1 investigations and a panel of experts appointed by the CMA will be responsible for Phase 2 decisions.  The time limits for Phase 1 investigations and Phase 2 investigations respectively remain substantially unchanged.

Effective October 2012 merger control fees will be increased from a maximum of £90,000 to a maximum of £160,000.

Conclusion

The most significant of these reforms is, for the criminal cartel offence, removing the requirement that dishonesty be proven. That change will make it much easier for the CMA to pursue prosecutions against individuals it suspects are involved in price fixing, customer sharing, or market allocation arrangements. An increase in prosecutions is therefore to be anticipated.

The amalgamation of the OFT and the CMA into a single new authority has been billed as the creation of a new organization that has the potential to make better use of public resources, to enhance overall consistency and predictability for business and to be a strong voice for the benefits of competition in the UK and internationally. Given that much of the structure of investigations remains the same, in particular for mergers, only time will tell if the CMA is able to achieve these aims.

Lawyer Contacts
For more information, please contact your principal Jones Day representative or either of the lawyers listed below. 

Frances Murphy
London
+44.20.7039.5959
fmurphy@jonesday.com

Lynette Zahn
London
+44.20.7039.5959
lzahn@jonesday.com

Francesco Liberatore
London
+44.20.7039.5221
fliberatore@jonesday.com

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