27 May 2010
Markets function effectively only if businesses compete fairly and transparently. To promote such competition, a body of law has developed that regulates agreements between competing businesses, controls the exercise of market power, prevents economic concentrations and restricts subsidies or other assistance to businesses. Such laws protect not only consumers but also suppliers and competing businesses.
The generic name for such laws is “competition law”. It is often divided into several categories. The laws that limit the freedom of businesses to agree prices, contract terms, access to markets and resources and the like is known as “antitrust law”. Those that control market power and new economic concentration are called “monopolies and merger control”. Those that limit subsidies and other benefits from governments are called “state aids”.
Common Law Restraint of Trade
Unreasonable restrictions upon freedom to trade have been outlawed at common law for centuries. Thus, restrictive covenants in contracts of employment or a business sale agreements are enforced only if and to the extent that they are reasonably necessary for the protection of one or both of the parties and in the public interest.
Since the end of the Second World War the common law has been supplemented by a succession of statutes regulating monopolies and mergers and restrictive practices in the supply of goods and services. These statutes established a institutions to enforce those laws, which are now known as the Office of Fair Trading (“OFT”) and theCompetition Commission respectively, as well as the administrative tribunal that has become the Competition Appeal Tribunal.
European Competition Law
When the UK joined the European Communities in 1973 the Treaty of Rome (now called the Treaty on the Functioning of the European Union (“TFEU”)) was incorporated into English law. Art. 101 (formerly 81) of the Treaty prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which might affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. Art. 102 (formerly 82) prohibited abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited in so far as it may affect trade between member states.
Privatization of state monopolies in telecommunications, gas, electricity and other utilities required new regulatory regimes which were provided by new authorities such as OFCOM for telecommunications and broadcasting, OFGEM for gas and electricity and OFWAT for water.
Parliament repealed most of the restrictive practices legislation by the Competition Act 1998 and substituted two new prohibitions, known respectively as the “Chapter I” and “Chapter II prohibitions” based on arts. 81 and 82 of the Treaty of Rome. The Enterprise Act 2002 improved the enforcement machinery conferring new powers on the OFT and Competition Commission.
Since 1 May 2004 national competition authorities and courts have been responsible for enforcing EC as well as national antitrust law.
Failure to comply with English or EU competition law can have very serious consequences. Both the Commission and the OFT have wide investigatory and enforcement powers. Secondly, such undertakings may be precluded form enforcing contractual or other rights. Agreements that infringe art. 101 of the TFEU or the Chapter I prohibition are automatically void. Provisions in restraint of trade in service contracts or business sale agreements may be void for illegality. Abuse of a dominant position can also afford a defence to various other causes of action.