Competition law: The entrepreneur’s guide

Businesses operating within the UK as well as more widely within the EU are subject to strict rules restricting anti-competitive behaviour. The penalties for infringement are severe, with fines up to as much as 10% of a business’ worldwide annual turnover. You can be personally fined and even sent to prison for up to five years if you are found guilty of being involved in cartel activity. Negative publicity resulting from (often high-profile) sanctions can also have an extremely damaging effect on your business’ reputation.

So, what do you need to know? Here, we set out the key elements of competition law - what you should be mindful of and what it means for your business in practice.

Cartels and other anti-competitive agreements

Cartels are the most serious types of anti-competitive agreements, where two or more competitor businesses agree not to compete with each other. They can include:

  • agreements to fix prices, for example agreements to set a minimum price for a product, or agreements not to increase prices
  • agreements on restrictions on sales or production, so that an artificial cap on the quantity of a certain product going into the market drives prices up
  • market sharing, where competing entities agree in advance to divide up particular customers or sales territories
  • engagement in bid rigging, where competitors agree on the outcome of a tender amongst themselves to the exclusion of other competitors

Other agreements which could be considered to be anti-competitive include those that involve joint selling or purchasing with competitors, have a long exclusivity period (more than five years), or involve the selective exchange between competing businesses of sensitive information relating to customers or pricing.

 Abuse of a dominant position

Does your business have a market share of more than 40%? If so, does it have sufficient market power to be able to behave independently of the normal constraints imposed by competitors, suppliers or consumers? If the answer is yes, conduct that exploits consumers or has an exclusionary effect on competitors could be considered to be abuse of a dominant position. Anti-competitive conduct in this case could be, for example, setting prices too low to cover the cost of the service or product sold, or offering different terms or prices to different customers without an objective commercial reason.

 How can you ensure your business is compliant?

The Competition & Markets Authority (CMA) considers a commitment to compliance throughout a business to be of core importance. It recommends a four-step process for tackling risk, comprising identifying, assessing, mitigating and regularly reviewing competition-related risk as part of that commitment.

But surely this isn’t relevant to my small business?

Competition-related risks might initially seem more relevant for larger, global businesses occupying substantial market shares. But compliance with competition law is an issue for all businesses, regardless of size. What is often more relevant is the market you are in, and this involves the nature and geography of that market. For example, consider a proposed merger between two small local gardening centres. If the market in question is for gardening centres in terms of a set geographical area, that merger could result in an unfairly dominant market player, which may serve to inhibit customer choice. So it is not just multinational businesses who need to consider compliance with competition law, but every business should take stock of its position.

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Responsibilities of directors

Company directors found to be in breach of competition law can be excluded from managing a company for up to 15 years. The CMA suggests that all directors should be proactive in asking the following questions:

  • What are our competition law risks at the moment?
  • Which risks are high, medium or low?
  • What measures are we taking to mitigate those risks?
  • When are we next reviewing the risks to confirm they haven’t changed?
  • When are we next reviewing the effectiveness of our risk mitigation activities?

What should you do if you suspect an infringement of competition law?

If you suspect an infringement of competition law, you should take legal advice promptly.  It may be prudent to contact the CMA, as reporting an infringement involving your own business may lead to the CMA taking a more lenient approach with regard to penalties.

What if my business is affected by another’s infringement?

You may be able to bring a claim if your business has suffered loss as a result of a relevant infringement of competition law or seek an injunction to stop such activity. In addition, restrictions in agreements that breach competition law may be unenforceable.

Competition  law issues may not immediately be on your radar when exploring a new business opportunity, such as a joint venture with another business, customer or competitor. However, it’s always good to be prepared. Thrings’ highly experienced Company Commercial Team can look carefully at your individual situation and any proposed venture in order to identify areas of potential risk or concern from a competition law perspective. We can also advise on the potential impact of Brexit in this area of the law. It is worth noting that, if your business is trading globally, you will need to ensure you also comply with the relevant overseas anti-competitive laws.

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