Anti-Competitive Agreements (ACAs)

Question 1

What does the Chapter 1 Prohibition concern?

In other words, what is an Anti-Competitive Agreement (ACA)?

Answer 1

• An agreement, decision of associations, or concerted practice between Undertakings; that
• Has the object or effect of appreciably preventing, restricting, or distorting competition.

Agreements, Decisions, and Practices are collectively termed ACAs.

P. 67; §2(1) – CA 1998.

There is no consequential distinction between agreements, decisions, and concerted practices; while they allude to different things, the wording is ultimately intended to capture all types of unexcepted arrangements between Undertakings. See P. 82.

Question 2

What are the Textbook Examples of ACAs?

Answer 2

• Collusive tendering.
• Fixing trading conditions.
• Joint Purchasing or Selling.
• Sharing markets or sources of supply.
• Price fixing, whether directly or indirectly, vertically or horizontally.
• Applying dissimilar terms to equivalent transactions to disrupt competition.
• Limiting or controlling production, markets, technical development, or investment.
• Making contract execution contingent on supplementary obligations that, by their nature or commercial use, have no connection to the contract’s subject.

P. 99; §2(2) – CA 1998.

The Prohibition applies in particular to such arrangements, but is not limited thereto.

Question 3

Are there exceptions to the Chapter 1 Prohibition?

Answer 3

Yes. An arrangement will be exempt if it:
* Increases production, distribution, technical, or economic efficiency; while
* Affording consumers a fair share of the resulting benefit; and
* Does not impose restrictions unnecessary for the attainment of these objectives; or
* Substantially eliminate competition in the relevant market.

EU law is especially important to §9’s interpretation.

P. 70; §9(1) – CA 1998.

The idea is to permit agreements that enhance consumer welfare, although in practice, §9 is difficult to satisfy, and the CMA has only exceptionally decided that an ACA is accordingly.

Question 4

What sort of Evidence must be Adduced to satisfy §9?

Answer 4

Empirical evidence of a direct, causal relationship between the Agreement and its expected efficiencies. Therefore, the following must be shown:
1. The nature of the claimed efficiencies.
2. The causal link between the Agreement and the efficiencies.
3. The likelihood and magnitude of each claimed efficiency.
4. How and when each claimed efficiency would be achieved.

P. 166-168; Art. 101(3) Guidelines, Para. 51-54; Sainsbury’s v MasterCard [2020] UKSC 24, at [116]–[118].

Question 5

Regarding §9, what does it mean to Increase Production, Distribution, Technical, or Economic Efficiency?

Answer 5

To objectively and appreciably cause an improvement in the relevant field that compensates for losses from weaker competition.

P. 166; Joined Cases 56 and 58/64 Consten and Grundig EU:C:1966:19, P. 348.

Question 6

Regarding §9, what does it mean to Afford Consumers a Fair Share of the Resulting Benefit?

Answer 6

All direct and indirect users must either gain from, be unaffected by, or compensated for losses caused by the Agreement.

P. 170; Art. 101(3) Guidelines, Para. 85; Sainsbury’s v MasterCard [2020] UKSC 24, at [173]–[174].

Question 7

Regarding §9, what does it mean to only impose Necessary Restrictions?

Answer 7

To only impose restrictions that necessarily create or increase efficiencies relative to the counterfactual.

Imaginably, the standard is strict.

P. 172; Case T-86/95 Compagnie Générale Maritime v Commission EU:T:2002:50, at [392]–[395].

Question 8

What is an Undertaking?

Answer 8

Any natural or legal person engaged in economic activity, regardless of its legal status or the way it is financed.

P. 73; Case C-41/90 Höfner and Elser EU:C:1991:161, at [21].

Companies, firms, businesses, partnerships, individuals operating as sole traders, agricultural cooperatives, trade associations, non-profit organisations, and public entities can all be undertakings — the relevant consideration is whether they are engaged in economic activity or represent commercial interests.

Question 9

What is an Economic Activity?

Answer 9

Any activity of an industrial or commercial nature consisting of offering goods and services on the market.

P. 73; Case 118/85 Commission v Italy EU:C:1987:283, at [7].

Question 10

May an Entity be considered an Undertaking for certain activities but not for others?

Answer 10

Yes. Functionally, the relevant activity must be distinct from the entity’s non-regulated activities.°

P. 74;UKRS Training v NSAR [2017] CAT 14 at [67].

For example, public bodies are not considered Undertakings unless they engage in economic activities, and even then, are only deemed Undertakings vis-à-vis those activities. See CP/1139-01, OFT Decision of 25 October 2002, at [12].

Question 11

What are the Consequences of Undertakings being distinct from the notion of Legal Personality?

Answer 11

A single Undertaking can comprise multiple legal persons, meaning:
* Intra-Group Agreements (IGAs) may escape the Chapter 1 Prohibition’s scope, since there would be no arrangement between Undertakings; and
* Parents may be held liable for their Subsidiaries’ actions.

P. 80.

Question 12

Under the Chapter 1 Prohibition, when will a Parent be held liable for the actions of its Subsidiary?

Answer 12

When the Parent exercises, or may exercise, decisive influence over the Subsidiary, such that the two form a single economic unit.

P. 81; Case C-97/08 P Akzo Nobel v Commission EU:C:2009:536.

Influence need not be exercised directly. See Durkan v OFT [2011] CAT 6.

Question 13

What is an Agreement between Undertakings?

Answer 13

A concurrence of wills between at least two parties representing a faithful expression of their intentions, regardless of form.

P. 82; JJB Sports v OFT [2004] CAT 17, at [637]–[644].

In practice, this definition is construed quite widely, extending to one-off meetings, gentleman’s agreements, terminated agreements, incomplete agreements, agreements made under duress, agreements between representatives without corporate authority, and passively participative agreements where the Undertaking does not actively distance itself.

Question 14

What is a Decision of an Association of Undertakings?

Answer 14

Any form of collective action effected by the Undertakings that prevents, restricts, or distorts competition.

P. 85; CA98/1/2003, OFT Decision of 3 February 2003, at [37].

This includes the Association’s rules, constitution, recommendations, day-to-day conduct, managerial decisions, Board resolutions, etc., regardless of whether they are binding or fully implemented.

Question 15

What is a Concerted Practice between Undertakings?

Answer 15

A form of collusion, falling short of an agreement, that knowingly involves practical cooperation to circumvent competition.

P. 88-89; JJB Sports v OFT [2004] CAT 17, at [638].

The classic example is reciprocal contact between Undertakings with the intention or effect to remove or reduce uncertainty regarding future conduct in the market. See [640]. They may even occur indirectly. See Argos v OFT [2004] CAT 24, at [659].

Question 16

What is the difference between an Agreement and a Concerted Practice between Undertakings?

Answer 16

Concerted practices are relatively opaque and formless, although difference is imprecise.

P. 88-89.

Question 17

What must be demonstrated to establish a Concerted Practice?

Answer 17

A causal relationship between:
* The Undertakings’ contact; and
* The certainty of their conduct in the market;
* Not necessarily the adoption of a specific course of aciton.

P. 89; Apex Asphalt v OFT [2005] CAT 4, at [206].

Question 18

Regarding Concerted Practices, what is the significance of an Undertaking unilaterally receiving information from a Competitor?

Answer 18

The law presumes the Undertaking will factor the information into its conduct on the market, unless it can prove otherwise.

P. 89; JJB Sports v OFT [2004] CAT 17, at [642] and [1043].

Question 19

When will an ACA’s Object be deemed as Preventing, Restricting, or Distorting Competition?

Answer 19

When its nature reveals a sufficient degree of harm to competition, so as to obviate the need to examine its effect.

P. 91; Sainsbury’s v MasterCard [2016] CAT 11, at [100].

Therefore, establishing object eliminates the need to establish effect.

Question 20

What Factors will the Court consider when determining an ACA’s Object?

Answer 20

Its:
* Content;
* Objective aims; and
* Implementation (if applicable);

The Undertakings’ subjective intentions are relevant, but not strict prerequisites.°

P. 92; Sainsbury’s v MasterCard [2016] CAT 11, at [100].

° Cityhook v OFT [2007] CAT 18, at [270].

Question 21

What is a By-Object Analysis?

Answer 21

An examination of an ACA’s potential effects by reference to its nature and context, rather than on its actual effects or subjective intentions.

P. 92; Generics v CMA [2018] CAT 4, at [168].

In practice, the law tries not to use By-Object Analysis to avoid establishing anti-competitive effects, but in certain cases, like price fixing or collusive tendering, the facts are clear enough to allow it.

Question 22

When will an ACA’s Effect be deemed as Preventing, Restricting, or Distorting Competition?

Answer 22

When an extensive analysis of the facts, including a realistic counterfactual comparison,° concludes it would be reasonably likely.°°

The same is used to determine whether its effect is appreciable.

P. 93.

In practice, the counterfactual’s fidelity may be a significant point of contest.

° Agents’ Mutual v Gascoigne Halman [2017] CAT 15, at [151].
°° Socrates Training v Law Society [2017] CAT 10 at, [179] and [181].

Question 23

When will an ACA’s Effect automatically be regarded as Unappreciable?

Answer 23

Generally, if either:
* Each Undertaking’s market share is below 15%; or
* The Undertakings’ aggregate market share is below 10%.

However, if it restricts competition, both thresholds are reduced to 5%.

This does not apply to Object or By-Object cases.

P. 98; Notice on Agreements of Minor Importance.

Notable, ACAs do not appreciably restrict competition if the Undertakings’ market shares do not exceed the general thresholds during two successive calendar years by more than two percentage points.

Question 24

What is Resale Price Maintenance?

Answer 24

An arrangement, whether direct or indirect, between a Supplier and its Distributors not to sell a product below a certain price.

Obviously, this is an ACA.

P. 106; Case CP/0809-01, OFT Decision of 31 March 2003, at [63]–[66].

An example of an indirect arrangement is the Hub-and-Spokes model, where individual Distributers have bilateral exchanges with a Supplier and exchange information between each other through it. See Tesco v OFT [2012] CAT 31.

Usually, only the Supplier will be held liable, namely because Distributers are usually seen as unwilling participants, but in certain cases, they too will be charged. See Case 50565-3, CMA Decision of 22 January 2020, at [2.11].

Question 25

Regarding Price Fixing, what is the Test for whether a Supplier and its Distributers are engaged in a Hub-and-Spokes arrangement?

Answer 25

1. If one Distributer (A) discloses to the Supplier (B) its future pricing intentions;
2. Under circumstances where A may be taken to intend that B will use that information to influence market conditions by passing it on to other Distributers (C); and
3. B does, in fact, pass it on to C;
4. Under circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B; and
5. C does, in fact, use it to determine its own future pricing intentions, then A, B, and C are all liable.

P. 116; Argos v OFT [2006] EWCA Civ 1318, at [141].

Demonstrating intent is critical because there are legitimate reasons for vertically exchangin price data, e.g. terms of sale, actual or likely retail prices, etc.

Question 26

Are mere Price Recommendations tantamount to Resale Price Maintenance?

Answer 26

No, unless they operate as a restriction in practice, e.g. a threat of punishment, and thereby hinder competition.

P. 106; OFT, ‘Vertical Agreements: Understanding Competition Law’ (2004) at [7.7].

Similar logic applies to advertising restrictions. See CA98/04/2003, OFT Decision of 31 March 2003, at [70].

Question 27

What are the Economic Arguments for and against Resale Price Maintenance?

Answer 27

For:
* It may mitigate free-riding, by competitors, which promotes non-price competition.
* It may mitigate double marginalisation, wherein both the supplier and distributor have market power and are incentivized to price above marginal cost.

Against:
* It may signal high prices to rivals and encourage them to similarly raise rates.
* It may limit intra-brand competition and prevent new sales channels from emerging.

P. 107.

All that said, it is treated as a hardcore infringement of competition law.

Question 28

What does it mean to Fix Trade Conditions?

Answer 28

To dictate the terms and conditions on which goods or services are to be supplied, in addition to prices.

P. 118,

Question 29

When is it acceptable to Fix Trade Conditions?

Answer 29

When the restrictions:
1. Do not exceed what is necessary; and
2. Proportionately pursue legitimate aims.

P. 119; Case C-439/09 Pierre Fabre Dermo-Cosmétique EU:C:2011:649, at [41]–[43].

Question 30

What does the Sharing of Markets or Sources of Supply denote?

Hereafter termed ‘Market Sharing’.

Answer 30

Such things as the division of markets or sources of supply according to territory, the size or type of customer, etc.

P. 121.

Market sharing is usually treated as part of a wider constellation of anti-competitive practices, since they often necessarily entail market sharing.

Question 31

What is Collusive Tendering?

Also known as ‘Bid Rigging’.

Answer 31

Coordination between Undertakings to influence the outcome of a tender.

P. 124; CA98/02/2009, OFT Decision of 21 September 2009, at [III.75].

Non-implementation, ineffectiveness, and legitimate purpose are no defences. See P. 128-130.

Question 32

What are the Three Types of Collusive Tendering?

None of which are necessarily mutually exclusive.

Answer 32

• Bid Suppression: Undertakings agree to either abstain from bidding or to withdraw bids.
• Bid Rotation: Pre-selected Undertakings submit the lowest bid on a systematic or rotating basis.
• Cover Bidding: An Undertaking submits a bid intended to lose (usually because it is too high) pursuant to an arrangment with another Undertaking who wants to win.

P. 124.

The law distinguishes between less and more serious forms of collusive tendering, namely based on how severely competition is disrupted. See Kier Group v OFT [2011] CAT 3 at [3].

Question 33

What is Joint Purchasing or Selling?

Answer 33

Purchasing or selling under certain arrangements, e.g. from the same Supplier or not to a certain Distributer, with the effect of either:
* Fixing prices.
* Market sharing.
* Limiting output; or
* Rent sharing with upstream Undertakings.

P. 135-136. P&H/Makro Joint Purchasing Agreement, OFT Short-Form Opinion of 27 April 2010, at [6.1].

A combined market share of less than 15% is also likely to prevent liability.

Question 34

What factors influence whether Information Exchange between Competitors is likely Anti-Competitive?

Answer 34

Such things as:
* The size of the market, with the fewer competitors, the likelier.
* The frequency of informaiton exchange, with the more frequent, the liklier.
* The sensitivity, thoroughness, or confidentiality of the informaiton exchanged, with the more so, the likelier.
* Whether it reduces or removes the degree of uncertainty as to the market and its development.

P. 140; Lexon v CMA [2021] CAT 5, at [187(3)].

Even unilateral exchanges may be caught. See Case CE/8950-08, at [297] and [317].

Exchanging future price intentions is obviously anti-competitive, since it is presumed that Undertakings will use the data to adjust their conduct, but non-price data may present a more challenging case.

Question 35

What is a Pay-For-Dealy Agreement (PFDA)?

Answer 35

An agreement wherein a Brand-Name Manufacturer pays a Generic Manufacturer to delay the launch of its generic version of a given product.

This is most commonly observed in the pharmaceutical industry.

P. 150; See Case CE-9531/11,* CMA Decision of 12 February 2016*.

This tactic is sensible becuase it may, for a fee, save the former however much it would have lost if the generic version was sold.

Question 36

To what extent are Pay-For-Delay Agreements prohibited?

Answer 36

They are not By-Object restricted, however:
* If the Generic Manufacturer has taken sufficient preparatory steps to promptly enter the market; and
* The Brand-Name Manufacturer cannot show that it did not intend to suppress competition;

Then a PFDA will be restricted.

P. 152; Case C-307/18 Generics (UK) EU:C:2020:52.

Question 37

What is a Most-Favored-Nation (MFN) clause?

Answer 37

A clause prohibiting a party from making available its product at better prices or on better terms to Third Parties than it does with its counterparty.

P. 153-156.

Although usually restricted by effect, MFNs are acceptable if they only apply to the party’s own website or outlet (Narrow MFNs), rather than generally (Wide MFNs). See Private Motor Insurance Market Investigation, CMA Final Report of 24 September 2014.

Question 38

When may a Merger be subject to the Chapter 1 Prohibition despite its Excepted Status?

Answer 38

1. If the Merger would otherwise infringe on the Chapter 1 Prohibition; and
2. It is not a Protected Agreement, i.e. subject to UK merger control.

P. 159; Sch. I, Para. 4(1), (5) and (7) – CA 1998.

Question 39

What is the Defence of Objective Necessity?

Answer 39

The argument that an anti-competitive provision in an Agreement is acceptable so long as:
* It is objectively necessary to execute the Agreement; and
* The Agreement does not itself infringe the Chapter 1 Prohibition.

In practice, the bar is set extremely high. See [273].

P. 162; Sainsbury’s v MasterCard [2018] EWCA Civ 1536, at [58].

This is distinct from the §9 Exception.

Question 40

What is the Consequence of Infringing the Chapter 1 Prohibition?

Answer 40

The Agreement will be void, unless the offending provision(s) can be severed. Accordingly:
1. If it can be removed without needing to add or modify the remaining terms; which
2. Continue to be supported by adequate consideration; and
3. Its removal does not unacceptably (for the Parties) change the Agreement’s character,

Then, the Agreement will be spared.

P. 180; §2(4) – CA 1998.

Financial penalties are also routinely imposed, and the CMA may order that the infringing conduct be modified or brought to an end. See §32-§33.
Furthermore, all participants are jointly and severally liable to the victims of their conduct. See Sch. 8A, Pt. 4, §.15.

The Doctrine of Restraint of Trade is notable, but too arcane to warrant elaboration.