Guidance

How to comply with competition law

Published 18 November 2015

All businesses must comply with competition law and there can be serious consequences for businesses and individuals, including directors, for non-compliance.

Competition encourages businesses to improve and innovate, for the benefit of their customers.

Competition law makes sure businesses are competing with one another and are protected from others acting unfairly.

This guidance provides a basic overview of the law and outlines the steps you can take to comply. It also provides details on what to do if you think your business or a competitor is breaking competition law.

Cartels

These are the most serious types of anti-competitive agreements, where two or more businesses agree, whether in writing or otherwise, not to compete with each other.

Cartels include agreements to:

• fix prices
• engage in bid rigging (for example, cover pricing)
• share customers or markets

Dividing up and sharing markets

Market-sharing is when businesses agree not to go after each other’s customers, or deciding which territories each business will ‘take’. This can lead to less choice and prices may be higher. Victims will often be other businesses, who end up overpaying or getting a lower quality service as a result.

Bid-rigging and discussing tenders

Bid-rigging is where bidders create the illusion of competition while secretly agreeing which one of them will win a tender. This deceives buyers into thinking they’ve got a good price, when it could have been much lower if the businesses had been genuinely competing. In public contracts for goods and services, this can mean a waste of tax-payers’ money.

Price-fixing

Price-fixing is where 2 or more businesses agree what prices they’re going to charge for a product or service, to avoid having to compete with each other. This can mean higher prices and customers - who will often be other businesses as well as consumers - end up overpaying for what they get.

Abuse of a dominant position

A business that enjoys substantial market power over a period of time might be in a dominant position.

The assessment of a dominant position is not based solely on the size of the business and/or its market position. Whilst market share is important (a business is unlikely to be dominant if its market share is less than 40 per cent) it does not determine on its own whether a business is dominant.

A business is only likely to hold a dominant position if it is able to behave independently of the normal constraints imposed by competitors, suppliers and consumers.

Having established that a business is dominant, anti-competitive conduct which exploits consumers or tends to have an exclusionary effect on competitors is likely to constitute an abuse.

Examples of the type of conduct that may fall into this category for a dominant business include:

• charging prices so low that they do not cover the costs of the product or service sold
• offering different prices or terms to similar customers without objective justification
• refusing to supply an existing or long standing customer without objective justification

For all the conduct listed above it is important to consider the likely effect of the conduct on customers and on the process of competition when determining whether it would amount to an abuse.

Other potentially anti-competitive agreements

Other agreements that could be anti-competitive include agreements, whether in writing or otherwise, that:

• involve joint selling or purchasing with competitors
• involve a retailer agreeing with its supplier not to sell below a particular retail price
• have a long exclusivity period (over five years)

Making sure your business is compliant

There are different ways to ensure that your business complies with the law, but key to them all is instilling a compliance culture in your organisation.

This means that managers at all levels of a business, from the top down, need to demonstrate a commitment to complying with the law.

We recommend that businesses use a four step process to tackle the specific risks they face.

Step 1: Risk identification

Look carefully at your business and identify areas where you might risk breaking competition law. For example:

• Do your employees have contact with your competitors at industry events or otherwise?
• In your market, do employees move frequently between competing businesses and do you have people who have recently joined from competing businesses?
• Do your employees seem to have information about your competitors’ prices or business plans?
• Are your customers also your competitors?
• Do you ever work in partnership with your competitors?
• Are you entering into exclusive contracts for long periods (five years or more)?
• Do your agreements contain joint selling and purchasing provisions with your competitors?
• Do your agreements contain requirements to share commercially sensitive confidential information, or to collaborate, with your competitors?
• Are you a business with a large share of any of the markets in which you operate?

Step 2: Risk assessment

Once you have identified all the areas where there is a risk your business might break competition law, you can then work out how serious these risks are.

You can classify them any way you like. Often it is simplest to rate them as low, medium or high.

Businesses should consider assessing which employees are in high risk areas.

These may include employees who are likely to have contact with competitors and employees in sales and marketing roles; whilst employees in some back-office functions may be classified as low risk.

Step 3: Risk mitigation

Set up policies, procedures and training to reduce the likelihood of the risks you have identified occurring.

For example, if you have identified employees meeting competitors at conferences as being high risk, you could run training to make sure your teams know what they are, and are not, allowed to communicate to competitors about. This training could also be supported by an employee code of conduct.

What you do will depend on the risks identified and the likelihood of the risk occurring. By way of example, some businesses have found the following measures to be helpful:

• training employees in competition law
• implementing an employee code of conduct policy
• making sure employees tell you if they are joining a trade association or attending events where they might be meeting with competitors
• implementing a system where all contact with competitors is logged
• establishing a system so that employees can get advice before action (for example, legal advice on a contract)
• establishing a system for employees to report, on a confidential basis, any competition law concerns that they might have.

Step 4: Review

Review steps 1 to 3 and your commitment to compliance regularly, to ensure that your business has an effective compliance culture.

Some businesses review their compliance efforts on an annual basis, others review less frequently.

There may be occasions when you should consider a review outside the regular cycle, such as when taking over another business or if you are subject to a competition law investigation.

What happens if the law is broken

Businesses that are found to have breached competition law can be fined up to 10 per cent of their annual worldwide turnover and ordered to change their behaviour.

Individuals who engage in cartel activity can be prosecuted and sentenced to up to five years in prison and/or a fine.

Company directors can be disqualified from managing a company for up to 15 years.

What directors need to do

Directors need to be fully committed to compliance with competition law and should take steps to ensure their business does not break the law.

The CMA suggests that all directors can, for example, ask the following questions regarding competition law compliance:

• What are our competition law risks at present?
• Which are the high, medium and low risks?
• What measures are we taking to mitigate these risks?
• When are we next reviewing the risks to check they have not changed?
• When are we next reviewing the effectiveness of our risk mitigation activities?

What to do if you think competition law has been broken

If you suspect another business is infringing competition law:

• call the CMA Cartels Hotline on 020 3738 6888
• email [email protected]

Businesses and individuals that come forward to report their own involvement in a cartel may have their financial penalty reduced or avoid a penalty altogether (under our leniency programme).

To qualify for leniency, applicants must admit their involvement, co-operate fully with the CMA’s investigation and stop their involvement immediately. Provided they co-operate, the applicant’s directors may also avoid disqualification and its employees and officers may be granted immunity from prosecution.

The applicant must refrain from further participation in the cartel activity from the time of disclosure to the CMA of the cartel activity unless the CMA directs otherwise, which it will do only rarely.

For information about leniency and to apply call: 020 3738 6833

The CMA is prepared to offer financial rewards for information about cartel activity (informant rewards).

Additionally, individuals who come forward with information about their involvement in cartel may also be granted immunity from criminal prosecution (called a ‘no-action’ letter).

Businesses as well as individuals can bring a claim before a court if they have suffered loss as a result of a relevant infringement of competition law and/or seek an injunction to stop such activity (private litigation).

Additionally, restrictions in agreements that breach competition law may be unenforceable.