1. Key takeaways
- The Trade and Cooperation Agreement between the EU and the UK provides for a mutual commitment to enforce anticompetitive agreements and abuses of dominance
- EU competition law will no longer apply in the UK but UK undertakings will continue to be subject to EU competition law if they trade within the EU
- UK undertakings may be subject to parallel investigations if their alleged anticompetitive conduct affects both the EU and UK markets
- UK competition law (Chapters I and II of the Competition Act 1998) will essentially remain unchanged in the short term
- In the medium to long term, UK competition law might diverge gradually from EU competition law
- UK regulators and UK courts have a discretion to depart from EU competition law case law
- EU block exemption regulations, including the block exemption for vertical agreements, have been incorporated into UK law and will continue to apply as “retained EU law”
- The Vertical Block Exemption Regulation is due to expire on 31 May 2022 and the CMA will consider whether to renew, revoke or review the “retained” vertical block exemption regulation
- The UK legal framework for territorial restrictions might change as the CMA might adopt a more liberal approach
2. UK competition before Brexit
a) EU Competition Law
Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) prohibit anti-competitive conduct and abuses of a dominant position that affect the European Single Market.
Article 101(3) provides an exemption from competition rules for certain types of agreements that benefit consumers and the economy.
b) UK Competition Law
Chapters I and II of the Competition Act 1998 contain equivalent provisions to Articles 101 and 102 TFEU and apply to anti-competitive conduct and abuse of a dominant position, which have an effect in the UK. Chapters I and II are closely modelled upon Article 101 and 102 TFEU.
Prior to 31 January 2020, the Competition and Markets Authority (CMA) had jurisdiction to investigate and enforce infringements of both EU and UK competition law. Council Regulation 1/2003 provides that, when applying national competition law, national competition authorities of the Member States must apply Articles 101 and 102 TFEU in parallel, if it is suspected that those provisions have also been infringed.
Section 60 of the Competition Act 1998 (now revoked) provided that, in so far as possible, the CMA and UK courts must interpret UK competition law in a manner that is consistent with EU competition law. Section 60 also provided that the CMA and UK courts must have regard to the case-law from the EU Courts and to the decisional practice of the European Commission.
3. UK competition law after Brexit
a) EU-UK Trade and Cooperation Agreement
On 24 December 2020, the EU and the UK announced an agreement on their future relationship. The EU-UK Trade and Cooperation Agreement (“TCA”) includes a commitment by both parties to maintain effective competition laws to address anti-competitive agreements and abuses of a dominant position.1 The TCA also contains provisions for developing arrangements for future co-operation between the EU and the UK authorities.
The wording of the TCA is closely modelled upon Articles 101 and 102 TFEU and the equivalent UK provisions in the Competition Act 1998.
The competition law provisions in the TCA are however broadly framed. The UK therefore retains a large discretion to set its own course.
b) EU competition law will cease to apply in the UK
On 1 January 2021 (i.e. the end of the transition period provided by the Withdrawal Agreement) Articles 101 and 102 TFEU ceased to apply in the UK.
However, Articles 101 and 102 TFEU will continue to apply to anti-competitive conduct that has an effect within the EU. UK undertakings will therefore continue to be subject to EU competition law if their conduct affects the EU market (just as US and/or Asian undertakings are subject to EU competition law in similar circumstances).
Undertakings may be subject to parallel investigations (both CMA and EU Commission) if the anti-competitive behaviour affects both trade within the UK and cross-border EU trade. The European Commission will continue to have jurisdiction over antitrust investigations which were initiated before 31 December 2020. 2
The European Commission will no longer be able to conduct dawn raids of UK premises or request the CMA to carry out dawn raids on its behalf. However, the European Commission will still be able to investigate anti-competitive conduct of UK undertakings but its powers will be limited to written requests for information.
c) Chapters I and II of the Competition Act 1998 continue to apply in the UK
The UK competition law provisions (Chapters I and II of the Competition Act 1998), which are closely modelled upon Articles 101 and 102 TFEU, will continue to apply in the UK.
Prior to 1 January 2021, the CMA and UK courts were under a duty to apply UK competition law in line with EU competition law. In particular, Section 60 of the Competition Act 1998 imposed a duty on the CMA and UK courts to apply UK competition law consistently with EU case law.
The strict duty to interpret UK competition law consistently with EU competition case law ceased to apply on 1 January 2021.
Section 60 of the Competition Act 1998 was revoked by the Competition (Amendment etc.) (EU exit) Regulations 2019 and replaced by a new Section 60A.
Section 60A gives the CMA and UK Courts a discretion to depart from EU case law. Moreover, UK courts will no longer be able to refer questions of interpretation of EU competition law to the EU Court of Justice. Thus, there is now greater scope for UK competition law to diverge from EU competition law in the future. However, any divergence is likely to be gradual as Chapters I and II of the Competition Act 1998 contain legal concepts which have been refined by EU case law over many years.
Section 60A of the Competition Act states that the CMA and UK courts will continue to be bound by an obligation to ensure consistency between UK competition law and pre-Brexit EU competition case law, but that the CMA and UK courts can depart from such pre-Brexit EU competition case law if it is be appropriate in light of specified circumstances. These specified circumstances are broadly defined and include:
- differences between the UK and EU markets;
- development in the form of economic activity;
- generally accepted principles of competition analysis or the generally accepted application of such principles;
- a principle laid down, or decision made, by the European Court on or after exit day; and
- the particular circumstances under consideration.
At this stage, the CMA has not provided any guidance on the approach it intends to take in relation to its discretion to depart from EU competition law under Section 60A.
Despite the possibility for the CMA and UK courts to depart from EU case law, it is likely that EU competition law will remain influential in the UK, at least in the short term. Any potential divergence of UK competition law will ultimately depend on the issues raised by future cases before the CMA and UK courts.
There are however some specific areas of UK competition law where Brexit is likely to lead to important changes, in particular in relation to certain types of distribution agreements (see below).
d) Block Exemptions
In the EU many types of agreements benefit from a safe harbour from EU competition law if they fulfil the criteria of the so called “EU block exemption regulations”. These block exemption regulations will continue to apply in the UK as “retained EU law”.3 The expiry dates of the retained block exemption regulations will be preserved. The UK Government has decided to retain seven of the EU block exemption regulations in force:
- liner shipping regulation (expiring on 30 April 2020);
- transport regulation (no expiry date);
- -vertical agreements regulation (expiring on 31 May 2022);
- motor vehicle distribution regulation (expiring on 31 May 2023);
- research and development regulation (expiring on 31 December 2022);
- specialisation agreement regulation (expiring on 31 December 2022); and
- technology transfer regulation (expiring on 30 April 2026).
Existing and new UK agreements will therefore continue to benefit from the block exemptions if they meet the relevant criteria in the retained regulations. Prior to 1 January 2021, Section 10 of the Competition Act 1998 ensured that UK agreements which benefitted from a block exemption under EU law also benefited from a parallel exemption under UK competition law.
The Secretary of State, acting in consultation with the CMA, will decide whether to renew the block exemptions when they expire or to introduce new domestic block exemption regulations.
e) Distribution agreements
The vertical block exemption regulation (“VBER”) is of immense practical importance to businesses as it provides a safe harbour for some of the most common forms of commercial arrangements between parties at different levels in the supply chain (such as distribution, purchasing and other so-called “vertical agreements”).
The VBER is due to expire on 31 May 2022 and it is not unlikely that certain aspects of the VBER will be revisited by the UK. The CMA has indicated that it will initiate a review process of the retained VBER which will include a public consultation later in 2021. The CMA is minded to follow the developments of the European Commission’s ongoing review of the VBER which aims to address new digital developments, in particular online sales and online market platforms.
The CMA has published guidance confirming that the geographic scope of the “retained” VBER will be restricted to the UK market. The CMA is therefore likely to take a more relaxed approach towards territorial restrictions in the future. However, the CMA has not explained what forms of territorial restrictions could be analysed differently as a result of the narrower geographic scope.
The VBER prohibits suppliers from granting UK distributors absolute territorial protection within the UK because it would impede cross-border trade within the EU Single Market. Absolute single protection entails that a single distributor obtains the rights to sell a product within a certain territory and that other distributors, including from other countries, are prohibited from selling actively and passively into this territory. Active sales entails actively approaching individual customers or potential customers to make sales whilst passive sales entails responding to unsolicited requests/orders from individual customers. The current VBER regards absolute single protection as a hard-core restriction of competition which automatically excludes agreements containing such clauses from the safe-harbour of the VBER. The VBER prohibits restrictions of passive sales into other Member States but allows restrictions of active sales into other Member States.
Now unconstrained by the EU single market objectives, the UK will be free to adopt a more liberal approach towards territorial restrictions. The CMA has however warned in its Brexit guidance that “in certain circumstances, passive sales affecting sales to a UK market or UK customer are capable of falling within the scope of the Chapter 1 prohibition”. The CMA has not explained under which circumstances agreements restricting passive/online sales into the UK might be anticompetitive. The CMA has nonetheless indicated that it will publish further guidance on its approach in relation to the application of the “retained” VBER.
The “retained” VBER will apply until it expires on 31 May 2022. However, the CMA and UK courts will be able to depart from EU competition law, in particular if there are differences between the UK market and the wider EU market.
In January 2020, the Court of Appeal upheld the CMA’s decision in Ping, confirming that Ping infringed the Chapter I prohibition by preventing retailers from selling its golf clubs on their websites. It was found that the online sales restrictions constituted by object infringements and that they, inter alia, prevented the UK retailers from attracting consumers located outside the UK. It remains to be seen if the post-Brexit UK competition law regime will follow its previous approach in relation to online sales restrictions or whether it will adopt a less conservative approach.
f) Private enforcement
European Commission decisions resulting from investigations initiated after 31 December 2020 will not be binding before UK courts in damages claims. Follow-on claims will therefore only be possible for Commission decisions if the proceedings were initiated before 31 December 2020.
For standalone claims, breaches of Articles 101 and 102 will need to be brought as claims for breach of foreign tort.
Moreover, UK courts will no longer be bound to treat decisions by EU Member State competition authorities as prima facie evidence for harm suffered in the context of follow-on claims for damages.