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    Why competition law compliance matters

    Published on 27 Oct 2019 by Vivek Dodd

    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.

    Already this year, a number of companies have been fined under competition law. We take a look at what anti-competitive activity entails, the consequences for businesses found to have breached competition law, and some recent examples of fines.

    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.

    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.

    5 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.

    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 know more about Competition Law?

    As well as 30+ free compliance training aids, we regularly publish informative Competition Law blogs. And, if you're looking for a compliance training solution, why not visit our Compliance Essentials course library.

    If you've any further questions or concerns about Competition Law, just leave us a comment below this blog. We are happy to help!

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