Relaxing whilst doing Competition Law is not an Oxymoron

Reform of UK competition law- Part 1: public enforcement

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[Over the course of two posts, Christopher Brown (Matrix Chambers) blogs on the substantial reform agenda in the UK. The first post looks at the reform of the public enforcement regime; the second will consider the recent proposals to reform private enforcement].

As readers will probably know, back in March 2011 the UK Government, through the Department for Business, Innovation and Skills (“BIS”), launched a consultation on potential reform to the UK competition law landscape (see my earlier post here).  It contained a number of bold suggestions for redesigning the domestic regime.  After a 3-month consultation period and, seemingly, much head-scratching, BIS announced its concrete proposals for reform on 15 March 2012.  Those proposals are now contained in the Enterprise and Regulatory Reform Bill, which is currently making its way through Parliament.  Then, as if the Department didn’t have enough on its plate already, it launched a consultation on reform to private actions in the UK. In these posts, I touch on the main aspects of both proposals and offer some limited comments.

Reform of the public enforcement regime

Given space constraints, this section touches on just three of the reform proposals, relating to institutional architecture, enforcement model and the cartel offence.

(a) Agency re-design

The headline proposal, trailed in the initial consultation document, is that the OFT and CC should be merged to create a Competition and Markets Authority (CMA), expected to be fully operational by early-mid 2014, thus bringing the two main competition agencies under one roof.  The effects of the merger will be felt principally in the fields of merger control and market investigations, for which the CC is currently the Phase II agency.  But it may also have spillover effects for antitrust work, in that the CC’s ‘panel’ system may be adopted for at least some of the CMA’s competition enforcement work.

The rationale for the merger is not primarily based on saving cost (although there is a bald reference in the Government’s response to the consultation to “the scope for long term cost savings”), but rather on the benefits of streamlined decision-making, the greater flexibility it will afford in allocating resources across the regime and on the benefits of a “single, powerful advocate to speak for competition across the economy, in Europe and globally”. BIS recognises, however, that a merger carries with it risks, particularly a heightened risk of confirmation bias in merger and market inquiries, and so intends to retain a distinct two-phase process for those cases.

Whilst the proposed merger of these two long-established agencies was broadly welcomed by consultees, it has come in for criticism from some.  In short, the critics question the need for a merger on the basis that “if it ain’t broke, don’t fix it”: both agencies are well regarded internationally; the two-agency structure works well for merger and market cases; and there are real risks to performance in trying to weld two agencies, with very different cultures, together in a seamless fashion.

Ultimately, whether the merger is a success will hinge in no small measure on good transition planning, strong and effective leadership of the new agency and its institutional design.  The last of these is touched on below; as for the question of leadership, there is much to be said for the appointment of a fresh leadership team, free of ties to the OFT or CC.  And we now know that the Chairman of the CMA will indeed be free of such ties: he is Lord Currie of Marylebone, formerly Chairman of Ofcom, the communications regulator.  Among his attributes is his experience of leading a new, merged agency (Ofcom itself was the result of a merger of Oftel, the telecoms regulator, and 4 other agencies). We can also confidently predict that the Chief Executive will not be John Fingleton, who recently stepped down as CEO of the OFT, mid-way through a second term of office.

(b) Antitrust enforcement

It is widely acknowledged that the system of competition enforcement has not worked as well as it might.  Practitioners and other commentators have highlighted the very low number of decisions in recent years, the time taken by the OFT to reach a decision and, in at least a few cases, the quality of decision-making.  As one of the options for reform, the consultation launched in March 2011 had raised the spectre of a move to a prosecutorial model for antitrust enforcement, under which some or all suspected infringers of Arts 101/102 TFEU and the domestic equivalents would be prosecuted before the Competition Appeal Tribunal (“CAT”) rather than be subject to a purely administrative regime.  Opinion among practitioners was divided as to the merits of switching to such a model of enforcement, and it was one which was firmly (and, from a competition agency’s perspective, understandably) resisted by the OFT in its response to the consultation.

Some say that cases such as the recent Tobacco appeals before the CAT, in which the OFT (unsuccessfully) attempted to change its case as to the anti-competitive nature of the bilateral restraints supposedly agreed on by manufacturers and retails, are a good advert for a prosecutorial model.  First, there was the length of the proceedings: the OFT’s investigation lasted for some 7 years, and it was some 18 months later before its case collapsed before the CAT.  Secondly, and more importantly, the Tobacco case highlights one of the fundamental weaknesses of the administrative model, namely the difficulty of getting to the bottom of the facts.  In some cases, the failure to do so might be attributed to the OFT, but in others it is because there is simply no substitute for proper examination of witnesses in front of a court.

The Government recognised the strong arguments in favour of a prosecutorial model, in particular its greater efficiency and undoubted procedural fairness.  Ultimately, however, albeit not without hesitation, it opted for a much less radical approach based on promises of improvements to the current system by the OFT itself.  Such improvements will aim to improve:

  • the speed of the enforcement process and quality of project management, with the publication of case-specific timetables and the expansion of the “Procedural Adjudicator” role (the OFT’s recently created version of the hearing officer)
  • the robustness of decision-making, by increasing access to decision-makers at a more interactive oral hearing chaired by the Procedural Adjudicator, increasing transparency in terms of checks and balances provided by those outside of the case team, providing parties with a copy of the draft penalty calculation (where relevant) and holding more ‘state of play’ meetings with parties
  • the perceived legitimacy of the decision-making process, “by introducing collective judgement in decision-making with separation between responsibility for the investigation of the case and for the final decision” (response to consultation, para 6.21).  The legislation setting up the CMA will allow the CMA’s rules to make provision for the use of panellists in antitrust cases, in much the same way as the CC uses them for phase 2 merger and market investigations.

Just a few weeks after the Government’s March 2012 proposals – surely no coincidence – the OFT issued its own consultation on reform to its investigation procedures.  The main proposal is to separate decision-making from investigation.  To this end, a “Case Decision Group”, comprising three senior officials, will be appointed once a case proceeds to SO (or, in limited cases, pre-SO, such as where a decision is required on interim measures or settlement).  Those officials will be the decision-makers: they will consider the SO, the evidence and the parties’ written representations, and they will attend the oral hearing.  Of course, there are various unresolved questions: how separate will the CDG actually be (and, importantly, how separate will it be perceived to be)?  Will these senior officials have the time to get on top of the evidence and issues in the case to be able properly to scrutinise the SO and representations?  Time will tell how these new procedures (if ultimately adopted) pan out, and whether the CMA considers them suitable for implementation within the new agency.  The experience gained over the next 18 months or so will doubtless be critical in that respect.

(c) The cartel offence

One of the most controversial proposals in the original consultation document concerned reform of the cartel offence.  The Government wished to get rid of the dishonesty element and replace it with something else – something, the more cynically-minded would suggest, easier to prove.  The Government’s view was that prosecuting the existing offence was unworkable.  It wanted to ensure that the offence acted as a genuine deterrent: the very low number of prosecutions since the offence came into being in 2003, and the even lower number of convictions (just one, where the defendants pleaded guilty following a plea bargain in the US), did not look good.

Many commentators objected to the removal of the dishonesty element, however, contending that dishonesty is the morally reprehensible element to the conduct, justifying both its categorisation as criminal and the prosecution of individuals rather than merely undertakings involved.  Such objections have, though, fallen on deaf ears: the Government remains committed to doing away with dishonesty.  Among the various replacement options floated in the consultation, it has opted for a defence based on ‘publicity’: no offence will have been committed where the parties have agreed to publish details of their agreement before it is implemented.

The Government’s decision is of concern to a large number of practitioners.  Many argue that, if enacted, the revised cartel offence would criminalise the participation of individuals in agreements to engage in a wide range of otherwise lawful commercial conduct, including agreements that do not even infringe Article 101 TFEU or its domestic equivalent.  The proposed defence of publication (in the London Gazette or similar publication) would also be inadequate to distinguish between lawful commercial agreements and the intended focus of the legislation on ‘hardcore’ anti-competitive arrangements.  It would, say many, create a perverse situation in which mere failure to publish could become the basis for establishing criminal liability.  In addition, there would be a mismatch between the publication defence, which would presumably be a matter for the undertaking participating in the relevant transaction or agreement, and the potential criminal liability of an individual agreeing to the arrangement.  There would inevitably be conflicts and tensions between the individuals involved in the agreements (who would wish the details to be published) and their employers (who would not wish to publish the details).  Moreover, many legitimate commercial arrangements are justifiably confidential between the parties and might not proceed if they had to be published.

It will be interesting to see whether, given the widespread concerns expressed by stakeholders, the proposals survive the passage of the ERR Bill through Parliament unscathed.

Written by Alfonso Lamadrid

26 July 2012 at 2:25 pm

Posted in Guest bloggers

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