Lupton Fawcett LLP

Safeguarding the fundamental aims of the EU.

A single market, the free movement of goods and services, and effective competition in the market place are some of the fundamental aims of the EU.

A vibrant and competitive market delivers good value, lower prices, better choices of products, increased innovation and easier access to markets by new businesses boosting competition.

These aims could be frustrated by agreements allocating territories or customers in exclusive deals or fixing prices or limiting production output. Informal "collusions" by competitors can have the same result. Businesses in a strong market position - usually large ones but not always - can frustrate these pro-competition aims by inducing or even forcing suppliers and others to be less competitive. The competition authorities are on the look out for exclusive supply deals, agreement or 'understandings' limiting production or supplies to other businesses, offering loyalty rebates and inducements or different terms to favoured customers, denying or limiting access to necessary raw materials or facilities. All these make growth or access to the market by less strong competitors harder or impossible.

Acquisitions and mergers can concentrate businesses "under one roof" in the same sector or similar sectors. The effect being an actual or a potential reduction in competitive activity in the EU or the UK with the detrimental effects on competition and therefore on prices, choice, innovation, access to markets and so on.

Competition laws and regulations are a mix of law and economics existing to prevent market behaviour by businesses actually or likely to be anti-competitive in this sense. These laws are enforced by the European Commission and by each member state's national competition authority.

Not just for big business or big deals

Competition laws and regulations exist at the EU wide level and also at the national level. Safeguarding competition and regulating market behaviour by businesses at a local EU member state level as well as at the EU wide level is equally important. For example, collusion between small roofing contractors in the West Midlands led to a UK national investigation and substantial fines on the businesses involved.

Markets definition

Market definition is highly relevant to the application of these competition laws and regulations and to compliance by business with them. The relevant market is defined by reference to the product and geographic market but also in some circumstances as the technology market. Defining the "market" narrowly is more likely to lead to concerns that market power, or agreements, or a merger will reduce competition and lead to anti competitive effects to the detriment of customers and consumers. Understanding the relevant markets, product, geographic, or technology in any transaction or a merger is vital to steering a safe course through the complex competition laws and regulations.

Narrow market definitions can catch out big and small businesses. Single products, single chemical compounds, and even a single bus route have been used to define as the market.

Risk management

Compliance with the competition regulations and laws is about risk management. The risks are the costs and penalties of failing to comply with these regulations. The authorities - Office of Fair Trading and the European Commission - have wide powers to investigate and search for evidence. The penalties for not complying are now serious and impact on all businesses not just global businesses doing cross border deals. There is more information about this in the ‘competition law overview’ section.

The penalties include-

• fines of up to 10% of group turnover;
• criminal sanctions (including imprisonment of up to 5 years);
• court actions;
• reputation damage;
• disqualification for directors; and
• a waste of management time in handling an infringement investigation.

Our approach is to enable our clients to be effective in this risk management. We help our clients understand and apply the competition regulations and laws in their day to day business activities, structuring deals in a way that allows them to avoid any risk or in a way that allows the risks to be taken on in a managed way, ie. known and assessed. Consequently, we advise on a wide range of competition, regulatory and trade issues, including transactions in the supply and distribution of products and services, exclusive trading deals, franchising, abuse of market dominance, cartel investigations, restrictive practices and merger control.

Transactions where particular care should be taken involve:

• intellectual property rights such as patents, copyright or designs;
• agreements involving prices;
• sharing or dividing up markets;
• buying or selling at high or low prices;
• charging discriminatory prices or granting favourable supply terms to one customer over another; or
• requiring a customer to take some product or service as a condition of receiving another.

Compliance programmes

We provide cost effective competition regulation and law risk management compliance programmes. These include training programmes for executives and staff where the content is adapted to the needs of the target audience, development of management systems to ensure compliance, and review of relevant trade practices, terms and conditions, and agreements.

Transaction structures and strategies

Most – although not all - deals can be structured to avoid any real risk of a breach of the competition regulations and laws. Our competition lawyers, therefore, are usually involved in the early stages of any transaction to advise on possible deal strategies and structures, and then later, when the agreement for the transaction is being prepared and negotiated. We have found this approach to be cost effective compared to having to unravel and renegotiate a deal later so that the deal is ‘competition law’ compliant or to minimise the risk of a breach.

Dawn raids

The Office of Fair Trading and the European Commission have the right to search for evidence if a proper warrant is obtained. They usually arrive without prior warning. Any business faced with this type of investigation is allowed to take legal advice. We represent businesses during dawn raids, and advise on the legal and procedural rules involved. We have an established network of approved lawyers to enable us to provide legal advice and ‘on site’ assistance.

We have put in place for several businesses specific ‘dawn raid’ procedures so that businesses are aware of what is likely to happen if either of the authorities request information (that is evidence!) either with prior notice often by letter or using a dawn raid. The programme we put in place will ensure that the response of the business to the investigation effectively manages the disclosure of information to and the relationship with the investigating authorities.