Update: competition

Directors' responsibilities

Earlier this year, the OFT published a revised guidance document on its powers to seek disqualification orders against directors of companies involved in anti-competitive conduct. This resulted in a number of requests for further guidance to help directors understand their responsibilities under competition law. On 19 October 2010, the OFT opened a consultation on such draft guidance.

The OFT has the power to apply to the court for competition disqualification orders (CDOs) to be made against UK company directors. Where the court then finds that the conduct of a director of a company involved in anti-competitive arrangements (including abuse of dominance) makes him or her unfit to be involved in the management of a company, it will ban that person from acting as a company director in the UK for up to 15 years.

The new draft guidance is intended to help directors navigate the competition law framework and understand their responsibilities under competition law. The specific provisions can be found on the OFT's website, with the consultation closing on 21 January 2011.

Legal privilege

On 14 September 2010, the ECJ dismissed an appeal by Akzo Nobel and Akcros made against a decision of the general court not to allow emails exchanged between a client and an in-house lawyer to be covered by legal professional privilege. The ECJ followed the 1982 judgment in AM&S Europe v Commission and reaffirmed that legal professional privilege may not be invoked by undertakings in relation to communications with in-house counsel when it comes to competition investigations by the European Commission.

In the ECJ's view, economic dependence and close contractual and commercial ties with their employer mean that in-house lawyers do not have comparable independence to that of external advisers. This is irrespective of any obligation of the in-house lawyer to comply with professional rules or standards of independence. The ECJ noted the lack of consensus between member states on whether privilege extends to in-house advisers.

In-house lawyers are often closely involved with ensuring competition compliance, and the judgment makes it more difficult for undertakings to rely on them in respect of competition issues. There is a particular difficulty as many member states, including the UK, take a different approach and do extend legal professional privilege to communications involving in-house lawyers.

However, in the UK, if the OFT receives communications of in-house lawyers or non-EU lawyers from a national competition authority in another member state and those communications are not privileged under the laws of that other member state, the OFT may use such communications in its investigation in the UK. Similarly, if OFT officials are assisting the EU in an investigation, it is the narrower EU privilege rules that will apply.

The ECJ did not address the issue of non-EU lawyers. The position therefore remains that communications with non-EU qualified lawyers will not benefit from privilege in EU competition investigations. This has important implications, for example, for US undertakings or undertakings in the EU facing simultaneous investigations in the US and the EU and caution should be exercised in this regard where advice is being sought more generally from US lawyers.

Even though this outcome is not unexpected, as it follows AG Kokott's opinion given to the ECJ in April, it may be disappointing to many that the ECJ did not take this opportunity to bring about a change the law on privilege. As a result, caution must be exercised in written communications within an undertaking when discussing matters that could be relevant to an EU competition investigation.

Merging closer

On 14 October 2010, the Department for Business, Innovation and Skills (BIS) announ-ced its proposals to merge the OFT and the CC to create a single competition regulator.

The move comes as part of the coalition government's plans to simplify the work of public bodies, with the creation of a single competition authority intended to streamline procedures and create a stronger enforcement authority.

The new body would be responsible for all merger reviews, market investigations, and cartel and antitrust cases, as well as a number of functions with respect to regulated utilities. It is proposed that Trading Standards will take responsibility for enforcement of almost all consumer law. A public consultation on the options for creating the new competition and markets authority is planned for 2011.

The government has confirmed that the sectoral regulators that have concurrent competition enforcement powers '“ Ofgem, Ofwat, CAA, ORR and Ofcom '“ will be kept, although the roles of Ofgem and Ofwat are currently under review. As part of the reshuffle, there are also plans to merge the postal watchdog, Postcomm, with the media regulator, Ofcom.

In a statement issued by the OFT, chief executive John Fingleton confirmed that the OFT has advocated the merger for some time. He said: '[W]ith the right design, a single competition and markets authority can deliver better, faster results for consumers and the economy, and greater consistency for businesses,' and added that the OFT would be actively contributing to the debate in the planned consultation.

The proposals have the potential to cut not only the amount of time spent by the regulator on completing investigations, but also the time spent by companies providing information to the authorities when under scrutiny. Frustrations with the existing system include that the CC begins investigations from scratch once the OFT has already been working on the same case (although it is understood that the OFT does currently provide assistance to the CC by sharing its case files).

The current two-tier system is perhaps one of the reasons why UK competition regulation is considered particularly effective worldwide and some have voiced the view that having two regulators ensures objectivity and independence from political pressures. It appears, however, that the two-stage review process for mergers and markets will be retained under the new regime.

There are also concerns that removing the consumer protection function may undermine attempts to coordinate a response at national level to businesses engaging in behaviour affecting consumers. Furthermore, this transfer of responsibilities to Trading Standards comes at a time when local authorities are already facing budget cuts.

In light of the £100m combined annual budget of the OFT and Competition Commission, it will also be interesting to see what, if any, cost and efficiency savings can be made in reality, although cost saving is not cited as a primary motivator.

Short shrift

Earlier this year the OFT published its first short form opinion (SFO) on the application of chapter I of the Competition Act and article 101 of the Treaty on the Functioning of the European Union (TFEU) in relation to a horizontal agreement between competitors.

The SFO related to a proposed joint-purchasing agreement in the wholesale grocery market between Makro Self-Service Wholesalers and Palmer & Harvey McLane. The OFT set out in the SFO its view that, even where the parties' share of the downstream market exceeds 15 per cent, joint-purchasing agreements are unlikely to cause harm where the parties have no downstream market power. It stated that even a high degree of cost commonality resulting from the arrangement (in this case in the region of 50 per cent) should generally not be a concern if the arrangement would not lead to market power downstream.

The original notified arrangement included a payment calculation method which would have allowed the parties to reverse engineer information on the level of purchases achieved with particular suppliers. To address concerns regarding the potentially anti-competitive effects of such information exchange, the parties agreed to have payments calculated by an independent consultant, thereby ensuring that data would be aggregated across all suppliers.

Before 2004, parties were able to notify agreements to the OFT (or the European Commission) for clearance or an individual exemption. However, that possibility no longer exists and parties are now required to assess for themselves whether their agreements comply with competition law (so-called self assessment). The new SFO process therefore provides a welcome opportunity for businesses to obtain some guidance from the OFT on proposed agreements with competitors within a relatively short timeframe (two to three months).

Guidance available from the OFT sets out a number of conditions that must be satisfied to benefit from the SFO procedure. For example, the request must relate to novel or unresolved questions on the applicability of chapter I or article 101 TFEU, it must relate to a prospective horizontal agreement between competitors and the parties must provide an agreed statement of facts. The OFT will assume the statement of facts to be accurate for the purpose of the SFO; it will not conduct its own market analysis.

It is not entirely clear how 'novel' the issues will need to be to benefit from the SFO process. Some may argue that the issues considered in the Makro case were not particularly 'novel', which suggests that the OFT may be taking a relatively relaxed approach, at least initially as it looks to encourage SFO requests. The European Commission also offers the possibility of issuing guidance on novel questions of law; however, it appears to have taken a much stricter approach to what it considers to be 'novel' and to date has never issued such guidance.

The SFO process has been introduced on a trial basis and the OFT has stated that it will only be available for a handful of cases every year. At the time of writing, the OFT has still only issued this one SFO. It has encouraged businesses to approach it with requests, but it is not known how many have done so it remains to be seen how popular the process will be. It may be that the prospect of having the SFO published could deter some parties from using this process.

The introduction of the SFO procedure is a welcome move by the OFT. Similar guidance is also given in the US, with a small number of business review letters issued every year. It is hoped that the European Commission will take note of this development by the OFT and may become more willing itself to give similar guidance to businesses.