Chillin'Competition

Is the Office of Fair Trading racing for the prize of the most business-friendly competition authority in Europe?

I know this reads a bit controversial, but many have had the impression that, in recent years, the OFT was on a soft enforcement course, preferring to focus on high-level policy work, than on running – and terminating – cases.

A few days ago, the OFT issued a document entitled “OFT’s guidance as to the appropriate amount of a penalty“.

In this document, the OFT announces – with many caveats though – that firms that have compliance programme can benefit from mitigating circumstances.

Concretely, the OFT may offer a 10% haircut on the anticipated fine.

Here’s the text of the Guidelines:

§2.15 “Mitigating factors include: […] adequate steps having been taken with a view to ensuring compliance with Articles 101 and 102 and the Chapter I and Chapter II prohibitions”

And footnote 26: “The starting position with regard to competition law compliance activities will be neutral but the OFT will consider carefully whether evidence presented of an undertaking’s compliance activities in a particular case merits a discount from the penalty of up to 10 per cent. Thus, the mere existence of compliance activities will not be treated as a mitigating factor. However, in an individual case, evidence of adequate steps having been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the organisation (from the top down) – together with appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities – will likely be treated as a mitigating factor. The business will need to demonstrate that the steps taken were appropriate to the size of the business concerned and its overall level of competition risk. It will also need to present evidence on the steps it took to review its compliance activities, and change them as appropriate, in light of the events that led to the investigation at hand“

I have expressed elsewhere my intuitive concerns about the sophistic argument that agencies should reward compliance programmes with discounts on fines, so as to induce firms to set up such programmes. Here’s what springs to mind:

First, it is somewhat odd to provide financial incentives to promote compliance with the law, or to be more accurate to reward the initiative of trying to comply with the law (in reality, the caught firm did not comply). If we push this logic to its end, agencies should then reward infringing companies if they can prove that they have hired lawyers to obtain regular competition advice.

Second, rewards on compliance programmes could have perverse effects, with firms adopting compliance programmes as a damage limitation mechanism, which limits the cost of punishment if they ever get caught. In other words, the reward on the existence of a compliance programme acts like an insurance policy, which in turns reduces firms risk aversion to antitrust infringements.

Third, a well-designed compliance programme can adversely promote the risk of antitrust infringement, if clever managers understand better how to exploit the loopholes and deficiencies of the antitrust enforcement system. Why reward this?

Finally, compliance programmes have benefits at any rate, and there’s no need for an additional fining stimulus to encourage their adoption. Compliance programmes promote awareness to what constitutes an antitrust infringement within firms, and to how much it costs to commit one. They  thus decrease the probability of antitrust infringement in the first place, and with it the risk of antitrust penalties.  Moreover, with better trained in-house lawyers and business executives, the legal costs of outsourcing of competitive assessments to external lawyers may decrease.

My bottom-line: rather than tinkering with the fining system to foster compliance, let’s just turn to individual sanctions (director disqualification and prison sentences).

[As Nico mentioned on his last post, he’ll soon be travelling to Hong Kong to participate at a conference on 21st century competition authorities. The timing is not accidental: at the beginning of the summer Hong Kong adopted its first comprehensive competition law. We have invited a friend of this blog, Sandra Marco Colino, currently an Assistant Professor at The Chinese University of Honk Kong to share her views on this new law. Sandra has a PhD on competition law issues from the EUI, and prior to moving to Hong Kong was a lecturer at the University of Glasgow. We leave you with her post on caffeine and competition law in Hong Kong].

It was close to midnight on June 14, 2012 when Hong Kong’s Legislative Council finally adopted the region’s first ever cross-sector Competition Ordinance (hereinafter ‘the Ordinance’). Rather geekishly, I remember exactly where I was the following morning when I first heard the long-awaited news: sipping my first espresso “ristretto” of the day at a café in the heart of the city’s financial district (strong coffee is a delightfully resilient habit I picked up in Florence). The news came almost two years after the Bill was originally tabled, and the debate
surrounding the legislative proposal has not been for the faint-hearted. Although preliminary studies indicated that the local community would welcome the introduction of the law, businesses and stakeholders repeatedly voiced their concerns about the threat it could pose to Hong Kong’s open economy. For many years, initiatives to regulate competition seemed to be frustrated before they even developed into concrete proposals as a consequence of a predominant mistrust towards any form of market intervention.

As I read through the text of the new Ordinance while enjoying my coffee, I couldn’t help wondering whether the twists and turns of the lingering ‘to antitrust, or not to antitrust’ discussion would have left a decaf taste on the law. As originally drafted in the summer of 2010, the Ordinance does indeed tackle anti-competitive agreements (the ‘first conduct rule’) and the abuse of a substantial degree of market power (the ‘second conduct rule’). For the time being, only anti-competitive mergers in the telecommunications industry may fall within the scope of the legislation. As regards institutional enforcement, an independent Competition Commission and Competition Tribunal will be set up to conduct investigations and decide whether there has been a breach.

Overall therefore, the general framework of the new legislation follows long-established principles of modern antitrust regimes.  But when fleshing out the nitty-gritty, already in October 2011 the government had been forced to water down the original text of the Bill to respond to critics. For instance, it vowed distinguish between ‘hardcore’ and ‘non-hardcore’ violations
under the first conduct rule, the former comprising those restrictions of competition that are considered anti-competitive by object under Article 101(1) TFEU (price fixing, market sharing, output restrictions). In addition, it agreed to reduce the maximum pecuniary penalty to 10 percent of local turnover for each year of infringement, up to a maximum of three years. Moreover, the Competition Commission’s ability to impose fines in the original infringement notice would be removed from the Bill. The government also promised to introduce a de minimis threshold for the application of the first conduct rule for all agreements among undertakings with an aggregate turnover of HKD 100 million or less in the preceding financial year. Importantly, it gave consideration to the possibility of precluding private parties from bringing claims before the Competition Tribunal altogether.

The Ordinance, as adopted in June, includes most of these mitigating alterations, with two clarifications: the de minimis threshold (set at a combined worldwide turnover of HKD 200 million) will only be applicable in the absence of ‘serious anticompetitive conduct’; and ‘follow-on’ private rights of action have finally been granted to those who have suffered loss or damage as a consequence of an antitrust violation, once a breach of the Ordinance has been established.

My initial thoughts? Clearly, some concerns do spring to mind associated to the devil that might be in the detail. Nonetheless, with the adoption of the Ordinance Hong Kong has certainly taken a colossal and much-needed step towards the building of a palisade against the dangers of unrestrained market power. The strength of that palisade will, of course, very much depend on the implementation of the rules, unlikely to materialise before the end of 2013. For the time being, it appears that the Ordinance may indeed have sufficient caffeine to awaken competition in Hong Kong.

With the fallout of the financial crisis, very few law firms have opened offices in Brussels in recent years.

To my best knowledge, the latest one would be Wilson Sonsini.

Several big US law firms without AT capabilities in Brussels thus keep referring work to EU law firms.

This decision clearly can be questioned under a simple cost/benefit analysis. Setting-up an office in Brussels seems to represent little costs, and can surely bring good money. All the more so given the thriving state of antitrust enforcement in the EU, irrespective of the crisis.

This may be what has prompted Baker Botts to launch today a Brussels practice.

Congrats and best of lucks to both Paul Lugard and Catriona Hatton for this new venture!

BTW, Baker Botts is known for being strong in the oil business, as well as for having taken over a large chunk of ex-Howrey lawyers in the US.

Even though it’s only Tuesday, a few people in the Brussels competition law world are surely having a long and tough week. A number of us have been badly damaged by the 4-day feast incredible wedding we attended last weekend at a bullfighting ring in León (no kidding).

I’m telling you this for two reasons:

The first is that an official at DG Comp challenged me to write a post here about how among those attending there was a good mix of Commission officials, Court clerks, economists and lawyers (both in-house and from a few firms), which reveals how tiny our professional world is. This is undisputably a fact of our professional life. I’ll give you one example: two of the people (an in-house lawyer and an economist) with whom I’m currently working on a daily basis were present. Thank God we didn’t engage in any professional discussions, as I wouldn’t know how to bill it  😉

The second reason why I’m telling you this is that I’m trying to justify why I don’t feel in shape to come up with anything original to write, which is why I’m linking to another blog’s (Abovethelaw.com) content also dealing with facts of our professional life:  How to Drive Associates Nuts!  and  What Drives Partners Nuts?