The enforcers

No-one could accuse the UK competition regulators of lacking scope and vigour. The main regulator, the Competition and Markets Authority (CMA) has rightly gained a reputation for robust enforcement. The nomination of former Conservative MP Andrew Tyrie as the CMA’s new chair is expected to reinforce its standing as a no-nonsense agency. But as it faces up to Brexit, it will have to shoulder a far heavier burden.

ENFORCERS-5-part-stars-not-sheriff-GRNo longer will it be able to pass over pan-European or multijurisdictional reviews to the European Commission. It must get used to playing a significant role in cross-border and international competition investigations at the same time as persisting with its dynamic domestic agenda.

However, Clare Wardle, general counsel and company secretary at Coca-Cola European Partners, believes this won’t necessarily impact company compliance policies. Recognising that the process of engaging with regulators may change, she does not see a reason for businesses to shift their current approach to competition law and regulation: ‘Our policies are predicated on the idea that we comply with good practice and comply with European law. Brexit does not mean a relaxation of standards and so when we operate across territories, including outside of the EU – Iceland for example – there is no different policy regime.’ Wardle recognises that there will be some procedural changes, but policy will remain the same: ‘The working assumption is that the internal landscape won’t alter. People believe in the competition regime and that is not going to change. What is going to be more complex is getting competition clearance when operating cross border.’

Red of tooth

This kind of complexity will inevitably result in the CMA needing a bigger budget and greater resources to persist with its enforcement agenda and address the additional workload that would have traditionally been taken on by the European Commission.

Douglas Lahnborg, an Orrick competition partner in London and Brussels, believes the CMA will need more investment, because Brexit is going to create more administration and a doubling up with the Commission on merger control and cartels. ‘It will cost the taxpayer and businesses more, for no added benefit,’ he says. ‘I’m concerned that the government will not allocate sufficient funding for the UK to remain a tier 1 competition law enforcer, with all the economic benefits that come with it. Even if they throw money at it, it’s not obvious that the CMA will be able to find a sufficient number of case handlers, in particular in the junior ranks, to handle the increase in workload.’

Wardle-and-Wise_024Brexit does not mean a relaxation of standards. When we operate across territories, including outside of the EU, there is no different policy regime.
Clare Wardle, Coca-Cola European Partners

The CMA’s forceful agenda has certainly made waves. In April, its cartel investigation into estate agents in Burnham-on-Sea resulted in fines of more than £370,000 levied on five agents. David Baker and Julian Frost, the former directors of Abbott & Frost, were also disqualified from being company directors for three-and-a-half and three years respectively. They were identified as being part of a cartel that agreed to fix minimum commission rates at 1.5%. The CMA is continuing to look at the potential disqualification of other directors involved. Michael Grenfell, executive director for enforcement at the CMA, said in a statement: ‘Agreeing prices with competitors is one of the most serious ways a company can break competition law, as it harms individuals, businesses and the economy.’

While the European Commission’s €2.42bn fine of Google for abusing its dominance as a search engine obviously created more headlines and a greater furore than the Burnham-on-Sea episode, the investigation into the estate agent cartel demonstrates the breadth of the CMA’s reach when taking on anti-competitive behaviour.

The CMA’s appointment of Tyrie is expected to give it even greater authority and firepower in a crucial period. ‘It is an indication of the approach taken by the government to take a tough line on competition issues,’ remarks Anthony Woolich, head of competition and regulation at HFW. He sees Tyrie’s nomination as a reflection of the stance taken by the European Commission under commissioner Margrethe Vestager, which has tackled a series of headline cases in recent years.

Warrington,-GilesUK regulators have been used to enforcing EU rules for years. I would expect to see convergence over the short-to-medium term.
Giles Warrington,
Pinsent Masons

Before stepping down as MP for Chichester in 2017, Tyrie had spent seven years as chairman of the Treasury Select Committee, where he built a reputation as a strong-willed inquisitor and, as acting chair of the Parliamentary Commission on Banking Standards, he played a pivotal role in reforming the banking sector following the financial crisis and the Libor rigging scandal.

A tough transition

However, Brexit may blunt the current edge of the CMA. UK regulators have plenty of experience in enforcing EU rules, but they will be forced to shoulder a heavier load once the UK exits the union. A multitude of investigations that have cross-border and multi-jurisdictional considerations are routinely passed up to the European Commission to consider. Following Brexit, the CMA and other sectoral regulators will have to assume a greater volume of competition reviews, often working alongside or in parallel with the European Commission and other antitrust regulators.

Giles Warrington, a competition law partner at Pinsent Masons, believes competition policy will remain relatively stable: ‘UK competition law is currently based on the EU rules. In addition, the UK regulators have been used to enforcing EU rules for a number of years now. I would expect to see close convergence over the short-to-medium term. There are likely to be workload challenges with the CMA taking on cases that would previously have been dealt with by the European Commission, but in terms of substance I wouldn’t expect a very significant change, certainly not in the short term.’

The CMA’s performance, since it was established by a merger between the Office of Fair Trading (OFT) and the Competition Commission in 2014, has drawn considerable praise. It grew its enforcement activities in 2016 and 2017. In 2017, it formally concluded seven cases either through fines or commitments. This is significantly ahead of the annual number of infringement decisions between 2010 and 2015.

Schmidt,-John-(bright-colours-IHL)The UK has been very active within the European competition network and a thought leader in how to approach cases. The question is, how effective can the CMA be outside?
John Schmidt, Arnold & Porter

John Schmidt, a competition partner at Arnold & Porter, is confident that the CMA will rise to the challenge, despite the number of unknowns regarding the UK’s future relationship with the EU. ‘The UK has been very active within the European competition network and a thought leader in how to approach cases. It has looked across the Atlantic to see which aspects are coming out of the US and are relevant for Europe. I would expect it to continue to do that. The question is, how effective can the CMA be as a thought leader when it is outside the network?’

Despite a small budget increase at the end of 2017, the CMA faces a tough few years as it adjusts to its new responsibilities. It is regarded as having high-quality senior people, but it has suffered a string of departures, most notably a victim of aggressive hiring by the Financial Conduct Authority (FCA).

Lahnborg is especially concerned that bulky investigations, similar to the European Commission’s investigation into Google’s alleged abuse of its dominant position, will suck up too much resource for the regulator to maintain its day-to-day responsibilities: ‘The CMA taking on a Google-type investigation is difficult to see even today. I don’t blame them – it would consume a large proportion of available resource and it’s clearly better handled by an international regulator. On top of that, if Brexit goes ahead it is going to be fully occupied with an increase in large, complex, merger control and cartel cases, that will require a lot more resource to investigate.’

There are also unanswered questions about the issue of state aid regulation once the UK leaves the EU. With the EU no longer having jurisdiction over the UK, state aid supervision will be administered by the CMA. ‘Which national authority can enforce state aid rules against its own government?’ asks Lahnborg. ‘State aid is often hugely political; decisions can determine if a sector remains viable or has to be shut down. Or take tax – do we really expect the CMA to carry out objective investigations, without undue pressure from politicians, into the compatibility of UK tax legislation with national state aid rules?’

Antitrust regulators, including the Competition and Markets Authority,  are intensely focused on data.

Caroline Hobson, co-head of CMS’ London competition team, says that the CMA taking on responsibility for state aid review is pivotal to negotiating a successful trade agreement with the EU, but she recognises that the authority does not employ any recognised state aid specialists. She believes this politically-charged issue may be at least in part resolved by the ‘tenacious’ Tyrie, given that he is expected to resist political pressure or influence from Westminster.

However Bruce Breckenridge, head of competition and regulatory law at BT Group, is not convinced that businesses will need to radically change current approaches to competition compliance: ‘Competition law enforcement is increasing as a policy issue in any event, and I don’t see Brexit particularly changing that existing trajectory. The importance and prominence of a strong competition law compliance regime internally will remain core to BT, both within the UK and in BT’s operations around the world.’

Digital fortress

Leaving aside the much-discussed Brexit considerations, there continues to be a Europe-wide emphasis on investigating the digital economy and the use of data. While many companies will be in the midst of ensuring that they comply with the General Data Protection Regulation (GDPR), they should also recognise that antitrust regulators, including the CMA, are intensely focused on data and technology. The CMA is in the process of building a new technology team, bringing in data scientists, computer experts and additional economists. It is part of its efforts to better deal with big data, artificial intelligence (AI) and algorithms. Algorithms have become something of a cause célèbre within the competition arena as regulators address the issue of using technology to monitor competitors’ prices. In November 2016 the CMA issued a public warning to online retailers that they should not engage in price-fixing behaviour.

A number of competition authorities have identified the dangers posed by algorithms and AI, with European Commissioner Vestager highlighting ‘the risk that automated systems could lead to more effective cartels’.

In April, business secretary Greg Clark issued the Modernising Consumer Markets Green Paper, which outlined ‘proposals to ensure new technology and data are used to benefit consumers, not to disadvantage them’. The scandal that has surrounded Cambridge Analytica’s alleged harvesting of data from Facebook profiles to help target US voters and influence other elections and polls comes at a time when regulators and the public are increasingly alive to the dangers posed by technology.

Woolich captures the change in public sentiment over the last few years: ‘If you take Google, consumers benefit from the search facilities and don’t pay directly for this, but the deal is that internet companies gather data on these individuals and sell this to advertisers. This was generally accepted in the old days, but the publicity in the last few weeks around Facebook suggests that it might have gone too far.’

He suggests that in-house teams should think carefully about competition compliance regarding the use of data at the same time as getting to grips with GDPR: ‘The GDPR is part of the same attempt by authorities to redress the imbalance of power and give the individual more control over their data. You need to make sure you comply with GDPR because if you put those safeguards and proper procedures in place that is a very good start in making sure you are not abusing your position.’

While there are sectors that have become of particular interest to regulators, including the digital economy, that is not to say that those that operate in other areas can rest easy. The willingness of authorities to deal with anti-competitive behaviour across the spectrum, means there is no hiding place, as Schmidt observes: ‘The one thing with hardcore competition breaches is that there are no safe harbours in terms of industry or geography. The fact that a certain industry hasn’t been investigated means nothing, it all depends on the facts.’

If Tyrie’s nomination as chair of the CMA suggests anything, it is that no businesses with UK operations can be relaxed about competition compliance.

Seizing opportunities – the increase in follow-on damages claims

Competition infringement judgments in the European courts have given rise to a series of follow-on damages claims over the last decade. The path to achieving successful damages in many cases has been rocky. In 2015, Hausfeld, the law firm that specialises in antitrust follow-on damages claims, was criticised for its representation of thousands of Chinese claimants in the British Airways air cargo case. High Court judge Mrs Justice Rose questioned the firm’s ‘abuse of process’ in handling the case including a ‘false statement of truth’ about the number of claimants. In October 2017, the High Court further restricted the scope of claimants’ claims in four air cargo cartel damages actions.

In July 2017, the Competition Appeal Tribunal refused permission for opt-out collective action proceedings against MasterCard, striking out one of the largest damages claims ever launched in the UK courts. The case relates to a European Commission decision in 2007 that MasterCard’s EEA multilateral interchange fees infringed EU competition law.

Despite the issues that these cases have encountered, Mark Molyneux, the head of the national commercial disputes team at Addleshaw Goddard, says that competition litigation is a prime focus for the department. Addleshaws is operating as co-counsel with Backhouse Jones, a firm specialising in the transport sector, in a claim relating to a price-fixing cartel among European truck manufacturers. It has over 3,000 claimants signed up to the group with the action funded by Therium Capital Management, which is covering the costs and insurance.

Molyneux says that an increasing number of in-house legal teams are recognising the opportunity to generate profit through these cases ‘which can be reinvested back into the business. Deutsche Bahn is an often-cited example of a company that saw this as an opportunity and a profit centre and specifically looked for and targeted cases where they had suffered loss as a result of cartels. In London, the availability of third-party funding and after-the-event insurance provides the ability for corporates to prosecute civil damages claims that result from cartels in a way that is virtually risk-free for the business.’

Neil Purslow, a founder and chief investment officer at Therium, says that follow-on damages actions will continue to be an area of significant interest for the funder; it is also part of a funding group in the ongoing interchange fee litigation against Visa and MasterCard. However, despite the fact that these cases ‘piggy back’ existing court decisions, he doesn’t see them as a slam dunk: ‘The legal and expert issues are still potentially complex. Running these cases successfully requires significant financial resources and expertise from the funder as well as the legal team. The challenges should not be underestimated.’