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Why Competition Law Compliance Matters

Posted by

Vivek Dodd

on 27 Oct 2019

Why Competition Law Compliance Matters

We examine what anti-competitive activity entails, the consequences for businesses found to have breached competition law and recent cases where fines have been imposed.

All businesses can be affected by competition law. Businesses in the UK are required to follow clear rules on all types of anti-competitive activity, including agreeing not to compete with another business or abusing a dominant position.

Types of anti-competitive activity

There are two main types of anti-competitive activity UK businesses must avoid. The first is agreeing not to compete with another business (‘cartels’). If two or more businesses agree not to compete with each other in certain ways, it’s called a ‘cartel’. Rules about cartels cover price fixing, bid rigging, sharing markets or customers, and sharing commercially sensitive information.

The second form of anti-competitive activity is abusing a dominant position. A business has a dominant position in the market if they have a more than 40% market share or are not affected by normal competitive restraints. Abusing that position means being unfair to customers or other businesses. Examples include treating customers differently by offering different prices or terms to similar customers, as well as charging low prices that don’t cover your costs in order to drive out competitors.

Free Competition Law Training Presentation

The consequences for your business

If a company is found to have breached competition law, they can be fined up to 10% of its worldwide turnover and sued for damages.

In some cases, the consequences are not just financial. Company directors can be disqualified for being a director for up to 15 years. You can even be sent to prison for up to 5 years if found guilty of being involved in cartel activity.

Already this year, we’ve seen a number of companies face substantial fines for breaching competition law.

Let’s take a look...

Mastercard fined €570 million (£502 million) for blocking merchants from seeking better conditions

Way back in 2013, The European Commission launched an investigation into Mastercard for possible anti-competitive activity. After a long investigation, in January this year, Mastercard was fined €570 million.

Mastercard was found guilty of blocking merchants from seeking better conditions operating in other parts of the single market. Mastercard’s rules meant companies could not benefit from lower costs in other states. The investigation found that Mastercard’s cross-border acquiring rules meant retailers were paying more in bank services to receive card payments than if they had been free to seek out lower-priced options.

Ultimately, Mastercard’s rules meant retailers and consumers were forced to pay higher prices, any cross-border competition was limited, and they caused an artificial segmentation of the single market.

Google fined €1.4 billion (£1.27 billion) for illegal practices in search advertising

In March, Google was fined €1.4 billion (£1.27 billion) by the European Commission for breaching EU competition laws for ten years, from 2006 to 2016.

Google is alleged to have abused its dominant position in the advertising sector by imposing a number of restrictive clauses in contracts with third-party websites. The clauses prevented publishers from being able to place search adverts from competitors on their search results pages.

For Google, this is not their first rodeo…

This recent fine is actually the third time Google has been fined for breaching competition laws in as many years.

Only last year, Google was fined a record €4.3 billion (£3.9 billion) over restrictions placed on mobile phone manufacturers using Android to drive internet traffic to Google’s own search engine. And back in 2017, they were fined more than €2 billion for competition breaches linked to their online shopping comparison service.

Five office fit-out firms fined a total of over £7 million for being involved in cartel behaviour

Following an investigation by the Competition and Markets Authority (CMA), in March this year five companies - Fourfront, Loop, Coriolis, ThirdWay and Oakley - were fined a total of over £7 million for their involvement in cartel behaviour.

The office fit-out companies, all based in London and the Home Counties, admitted to participating in cover bidding in competitive tenders. Cover bidding is a form of bid rigging which involves companies agreeing with each other to place bids that are deliberately intended to lose the contract so as to reduce the intensity of competition. The issue isn’t just that doing so wastes people’s time. It can actually lead to customers paying an inflated price or receiving poorer quality services.

Here’s a rundown of what each firm was ordered to pay:

  • Fourfront - £4,143,304
  • Loop - £1,090,816
  • Coriolis - £7,735
  • ThirdWay - £1,780,703
  • Oakley - £58,558

The FCA fines asset management firms over £400,000 for the sharing of strategic information

In February this year, for the first time ever, the Financial Conduct Authority (FCA) enacted its powers under the competition law and fined two companies for anti-competitive activity.

The asset management companies were found in breach of competition law for the sharing of strategic information during an initial public offering. Hargreave Hale and River Mercantile Asset Management were fined £306,300 and £108,600 respectively. A third company, Newton Investment Management, was also found to be in breach of the law but received immunity under the competition leniency programme.

In the financial services sector, in particular, the lines between what is considered strategic information and what is considered market colour is not always clear. This makes it an area of considerable risk for firms - and one that the FCA are clearly on top of. This example shows that the FCA is not afraid to take enforcement action to protect competition.

Competition Law Training Presentation

So, how can your business achieve compliance with competition law?

Achieving a culture of competition law compliance doesn’t just happen on its own. It requires a real investment. But the benefits far exceed the potential costs.

To achieve this, there needs to be a commitment at the very top, with senior management and board level directors demonstrating a clear commitment to competition law compliance. Identifying the risks for your specific industry and company are key so that you can create a strategy to mitigate those risks. Finally, it comes down to ensuring all appropriate policies, procedures and training are implemented so that staff know how to detect and deal with those risks.

As with most areas of compliance, it’s a people issue. If staff know the risks, how to identify issues, and how to deal with them, then you can protect your company from unnecessary fines and penalties.

Want to learn more about Competition Law?

We regularly publish informative Competition Law blogs. Our Competition Law compliance course will help your employees understand anti-competitive practices, how to avoid them and why to speak up if they see anti-competitive behaviour.

To help you navigate the compliance landscape we have collated searchable glossaries of key terms and definitions across complex topics including GDPR, Equality, Financial Crime and SMCR. We also regularly report key learnings from recent compliance fines.

You can follow our ongoing YouGov research into compliance issues, attitudes and risk perceptions in the UK workplace through our Compliance Insights blogs.

And if you're looking for a compliance training solution, why not visit our Compliance Essentials Course Library.

Last but not least, we have 60+ free compliance training aids, including assessments, best practice guides, checklists, desk-aids, eBooks, games, handouts, posters, training presentations and even e-learning modules!

If you've any questions or concerns about compliance or e-learning, please get in touch.

We are happy to help!

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