On 9 May 2012, the Queen’s speech announced the introduction of an Enterprise and Regulatory Reform Bill. This will enact the reforms published on 15 March 2012 in the response to the March 2011 consultation by Department for Business, Innovation & Skills (“BIS”) regarding reform of the UK competition regime (“the Competition Consultation Response or CCR”).
The biggest change to the UK competition enforcement regime outlined in the CCR is the merger of the Office of Fair Trading and the Competition Commission into one organisation called the Competition and Markets Authority (“CMA”). The CMA will be a non-ministerial government department accountable to Parliament. The CMA will have a Board which will be responsible for overall performance, as well as strategy and guidance. The primary role of the CMA will be the promotion of “effective competition in markets across the UK economy for the benefit of consumers”. A large part of the OFT’s former consumer protection role will be moved to other bodies such as Trading Standards and the Citizens Advice bureau. The government aims for the CMA to become operational by April 2014.
Alongside structural reform of the competition regime, and as a result of comments received in response to the March 2011 consultation, the OFT is consulting on reforms to its procedures guidance and is due to publish revised fining guidelines in the next few months. BIS is also consulting on reform to the methods for bringing private actions for breach of competition law (click here). Together these consultations form a comprehensive review of the UK competition enforcement regime. An outline of the key changes to the competition regime is set out below.
Summary of other key changes announced in the CCR
- The competition enforcement regime will be maintained but will be enhanced to improve the speed and quality of the investigations. Those people investigating the infringement will be different from the CMA panel members who will take the infringement decisions.
- The cartel offence will have the dishonesty element removed to make it easier to prosecute.
- For market investigations, there will be new time limits for phase 1 (12 months) and phase 2 (18 months) investigations. There will also be enhanced information gathering powers. The secretary of state will have the power to request the CMA consider public interest issues alongside competition issues. The CMA board will take decisions at phase 1. CMA panel members will take decisions at phase 2.
- The mergers regime will remain voluntary with the same jurisdictional thresholds, but with a new statutory 40 working day timetable at phase 1 and enhanced powers to prevent companies integrating before completion of the OFT’s merger investigation. Merger fees will also increase in size to range between £40,000 and £160,000. The CMA board will take decisions at phase 1. CMA panel members will take decisions at phase 2.
Why reform the Competition Regime?
Despite the fact that the Office of Fair Trading (“OFT”) and the Competition Commission (“CC”) maintain a world-class reputation for competition law enforcement, concerns have been raised as to the efficiency, quality and robustness of the current competition enforcement regime. The key aims of the consultation were therefore to “improve the quality of decision-making and strengthen the regime; support the competition authorities in taking forward the right cases; and improve the speed and predictability of decisions for business”. 
d. The mergers regime
a. Voluntary Regime /Jurisdictional thresholds
The government has decided to retain the voluntary regime and the current jurisdictional thresholds for both turnover and share of supply.
One of the criticisms of the voluntary regime had been that anti-competitive mergers either escaped detection altogether, or alternatively, because the regime does not provide for a suspensory effect to prevent integration by the two companies, once companies merged, any investigation and consequent imposition of remedies became much more complex. However the majority of respondents did not support the creation of a mandatory notification system and therefore the status quo was retained.
Despite support for an exemption for small mergers (below £5m), the government remains concerned that too many anticompetitive mergers may escape review and has consequently not included this exemption in its reform package.
The two-phased approach to merger control in the UK legislation will remain but now both phases of the investigation will be conducted by the CMA. Concern was expressed during the consultation that the same people within the CMA would be used in both the phase 1 and phase 2 investigations and therefore the process may become susceptible to confirmation bias. To counter this concern, while the CMA will retain the power to staff its investigations as it wishes, phase 1 decisions will be taken by the CMA Board and decisions at phase 2 will be taken by panellists drawn from a pool of individuals who will be appointed to panels under the process currently applied by the CC. Panellists will be appointed for a maximum of 8 years.
b. Statutory time limits and information gathering powers.
The government has decided to introduce a statutory 40 working day time limit for phase 1 mergers. This will be capable of extension when the CMA stops the clock because it is waiting for information from the merging parties. The statutory merger notice procedure will be abolished.
The CMA’s four month statutory deadline for investigating completed mergers remains. The statutory time limit of 24 weeks in phase 2 remains the same.
For undertakings in lieu (“UIL”) the CCR introduces a time limit after the phase 1 decision is taken. In phase 1, the parties will have 5 working days from announcement of the decision to offer undertakings in lieu. The CMA will have 5 working days to consider and decide to pursue them. There will be a further 40 working day limit for UILs to be negotiated, consulted on (which will take at least 15 of the 40 days), accepted and the acceptance publicised on the internet. The 40 working day limit is extendable by the CMA by up to an additional 40 working days in certain circumstances to be specified in guidance by the CMA.
In phase 2, there will be a 12 week statutory time limit from the publication of the final report for the CMA to make an order or accept undertakings (extendable by 6 weeks).
Microbusinesses and start-ups will not be subject to the CMA’s new information gathering powers for mergers before 1 April 2014.
The CMA will be given the power to require parties to appoint and remunerate an independent third party to monitor and if necessary arbitrate on the implementation of remedies and to require parties to publish certain non-price information.
The current change of circumstances threshold for review of remedies will remain the same.
c. Interim measures
The CMA will have the discretion to suspend all steps by merging parties to integrate their businesses as well as any other pre-emptive action they may take. This power will be available to the CMA for both completed and anticipated mergers. The Government will also clarify in legislation the type and range of measures available to the CMA under its new suspensory powers both at phase 1 and at phase 2. Any measures taken by the parties to integrate in breach of the suspensory power will carry a financial penalty ranging up to a maximum of 5% of aggregate group worldwide turnover of both enterprises concerned. The CMA will also retain the OFT’s and CC’s current power to obtain a court order to ensure compliance with its interim measures. The CMA will therefore have both powers available to it to halt integration. The CMA will publish guidance indicating the circumstances when it will seek an order, when penalties will be imposed and how they will be calculated.
d. Merger fees
Merger fees will be increased to 60% of the cost to the government of controlling mergers from 6 October 2012. From this date the fees will be as follows:
Enterprise being acquired
£20m or less
Over £20m but less than £70m
Over £70m but less than £120m
e. The markets regime
The CMA will now have the power to carry out “horizontal” investigations across a number of different markets. The CCR suggests this will enable the CMA to have a more targeted approach to its investigations. In addition, the Secretary of State will have the power to request that the CMA investigates public interest issues alongside competition issues when conducting a market investigation. Current criminal penalties will be replaced with civil penalties for failure to comply with information requests.
The Government has decided not to extend the super complaint process to SME’s as there was insufficient support for this proposal.
Microbusinesses and start-ups will not be subject to the CMA’s new information gathering powers for market investigations before 1 April 2014.
ii. Time limits
The responses to the consultation identified the markets regime as too complex and the procedure too lengthy. It also noted that there was disjointed working and duplication between the market study conducted by the OFT at phase 1 and the market investigation conducted by the CC at phase 2.
Under the new regime, the CMA will launch a market study (phase 1) which must now be concluded within 12 months of launch. The CMA will be given additional information gathering powers to enable it to efficiently gather information and conclude its study in this time frame. The CMA Board will be responsible for phase 1 market decisions.
The CMA must consult on whether to make a market investigation reference (“MIR”) (phase 2) within 6 months of launching a market study. Conversely the CMA will no longer have a duty to consult whenever it decides not to make an MIR unless any person has expressly asked for a reference to be made. MIRs will have a statutory time limit of 18 months (reduced from the previous limit of 24 months). The CMA will have powers to extend its investigation by a further 6 months beyond the initial 18 months in certain complex circumstances. Phase 2 decisions will be taken by independent panellists who will be appointed for 8 years.
iii. Timetable for remedies
If remedies are required as a result of the MIR, then the CMA will have a 6 month statutory time limit within which to implement these remedies (extendable by 4 months). There will be a single stage process for the review of remedies. The CMA will have the power appoint an independent third party to monitor and/or arbitrate on the implementation of remedies. The CMA will also have the power to require parties to publish certain non-price information.
The CMA will have the power to compel the supply of information and documents at the remedies stage as well as during the MIR stage (phase 2). The CMA will also have the power to impose remedies by order.
The parties will also have to appoint and remunerate an independent third party to monitor and/or arbitrate on the implementation of remedies. The government will also explain what measures the CC can take to prevent and reverse pre-emptive action during an MIR.
f. The antitrust regime
Despite a preference for a move to a prosecutorial regime, the government will keep and improve the current administrative regime of antitrust enforcement. The key deliverables along with timescales for delivery will be set out in the CMA’s Performance Management Framework. Statutory provisions will require the Secretary of State to review the regime and to report to Parliament on its working no later than 5 years from their entry into force. Ultimately the CMA’s performance will be judged against whether it can achieve “a greater and swifter throughput of decisions whilst reducing the frequency and success of appeals against those decisions as compared to the historical record.”
i. Interplay with sector regulators
The sector regulators will retain their concurrent competition powers, however before using their sector powers to promote competition they will be required to consider whether the use of their antitrust powers is more appropriate.
The Competition Act 1998 will be amended to require greater information-sharing between the CMA and the sector regulators, obliging each to consult each other about case management decisions. The CMA will also have the power to take CA98 cases from the sector regulators where it is better placed to investigate the case. The statutory provisions on antitrust set out below will also apply to the sector regulators with concurrent powers.
The CMA will also determine regulatory references and appeals and Energy Code Modification appeals. This is a continuation of the work currently undertaken by the Competition Commission.
ii. Powers of investigation
The CCR provides for the following changes:
- A Case Opening Notice will be issued by the CMA or a sector regulator at the commencement of an antitrust investigation. Absolute privilege from defamation will attach to the Notice regarding the existence of an antitrust investigation.
- The CMA will have the power to apply to the CAT (as well as the High Court) for a warrant to enter premises by force during a dawn raid.
- The CMA will also have a new power to require a person to answer questions during antitrust investigations subject to certain safeguards. It will also have the power to impose civil financial penalties (rather than criminal ones) on parties who do not comply with certain formal requirements during investigations.
iii. Investigation procedure
In response to the CCR, the OFT is consulting on proposals for the improvement to its administrative procedures when conducting CA98 cases. The CCR envisages that reforms introduced by the OFT will carry across to the CMA, however the CCR considered that the OFT’s proposals alone would not achieve the improvements required and that further steps would be required to ensure a lasting improvement to the antitrust regime. The key points of the OFT’s consultation along with the additional measures required by government are set out below:
- Speed of antitrust investigations
The OFT will publish a Case Opening Notice on its website for every case where it opens a formal investigation, setting out the basic details of the case and a case-specific timetable at the beginning of each investigation. The OFT will keep the timetable updated on its website and will publish reasons for any changes made. The aim of this measure is to increase public accountability in relation to the OFT’s case load and to deliver case timelines.
The OFT has proposed to extend the trial of the Procedural Adjudicator (“PA”) role for another year and to expand the PA’s role to include, for example, having responsibility for chairing the oral hearings in order to speed up resolution of procedural disputes between the parties whilst ensuring the respect for their procedural rights. The CCR requires the OFT to clarify the investigative powers of the Procedural Adjudicator. There will also be a greater use of “state of play” meetings to ensure the parties are regularly apprised of the progress of the investigation and of any emerging thinking of the case team. These meetings should provide an opportunity for the parties to express their opinions throughout the course of the investigation. Although all that is proposed is to increase the number of such meetings from one to at least two throughout the duration of the investigation (which can take several years), one early on in the case and one nearer the end. Arguably this will not, in effect provide the parties with a constant update on the development of the case.
The CCR has requested the OFT put in place further procedures to ensure that the timetable in each antitrust investigation is appropriate and challenging.
The Secretary of State will have the power to introduce statutory time limits for cases if the overall time taken to investigate cases does not diminish.
- Robustness of decision making
The OFT proposes to adopt new arrangements for internal analysis of the legal and economic arguments and key evidence relied on in the case by lawyers and economists who are not part of the case team. The General Counsel and Chief Economist or their representatives will attend all oral hearings and will be consulted on all proposed decisions. In view of the enhanced checks and balances outlined above, the OFT proposes to remove the obligation on the case team to consult a steering committee before the Statement of Objections or the final decision is issued.
The OFT has proposed that the oral hearing in antitrust cases be more interactive, providing the parties with greater access to decision-makers and a greater opportunity to engage in a meaningful dialogue. The oral hearing will also include more in-depth testing of the evidence and legal and economic arguments.
In the future, parties will be given an opportunity to make representations on key elements of the penalty calculation before the penalty is imposed. To this end they will be issued with a draft penalty calculation in the Statement of Objections or in a separate penalty statement with separate arrangements for written and oral representations.
- Perceived legitimacy of the decision-making process
In its consultation the OFT proposes the introduction of collective decision-making in infringement decisions whereby a “Decisions Committee” would be chosen to decide on whether there has been an infringement of competition law. Panellists will be chosen from OFT’s senior staff including the Chief Executive, other executive members of the OFT Board, the Chief Economist, the General Counsel and the head of policy. For commitments decisions and early resolution decisions the decision makers will be made up of three members called the “Case Decision Group”. The OFT argues that this new decision-making procedure will offer collective judgment, enhanced senior oversight, enhanced legal oversight as well as a separation of responsibility between the investigatory team and the final decision-makers.
Despite these proposals, the CCR has requested that the OFT identify further means of ensuring the separation of decision-making from the investigation of the case to ensure independence of mind and reduce the risk of confirmation bias. The government will draft legislation to allow the CMA to use panellists in antitrust cases as a means of achieving this separation.
Along with the consultation document, the OFT has published its revised Procedural Guidance containing further guidance on procedural matters such as access to file. The consultation closes on 19 June 2012.
In addition to the above changes that will come into effect, the CCR set out a number of other changes that will affect the CA98 process:
The government has lowered the threshold at which interim measures can be imposed.
New legislation will dictate that financial penalties must reflect:
- the seriousness of the infringement;
- the need to deter companies from committing infringements. This will be done through uplifts in the penalty for general deterrence and also for specific deterrence relating to the particular infringement committed;
- legislation will provide that the CAT must have regard to the newly updated guidance on the appropriate amount of penalty.
- There will still be a full merits appeal against any decision made by the CMA, however appellants and third parties intervening in appeals will be liable for the CMA’s costs to the extent that their appeal or any arguments in their appeal are unsuccessful. The CAT will have the discretion to waive these costs in the interests of access to justice.
vi. The Criminal Cartel Offence
- The dishonesty element of the cartel offence will be removed in order to make this offence easier to prosecute thereby increasing its deterrent effect. There will be a short transitional period prior to introduction of the new offence.
- The offence will continue to require proof beyond reasonable doubt of “intention” to enter into an agreement and as to the operation of the arrangements in question. This approach is consistent with other economic crimes such as insider dealing which requires proof the defendant knew they had inside knowledge but does not necessitate proof of dishonesty.
- The cartel offence will not be satisfied if the parties have agreed to publish details of the arrangements in a suitable format in a medium specified in the legislation, before the agreements are implemented so that customers and others are aware of them
Consultation on private damages actions for breach of competition law
The government considers that private actions could play a greater role in conjunction with public enforcement in helping to increase deterrence. This, it considers would benefit the economy, consumers and business. BIS is currently consulting on ways to make it easier for consumers and small businesses who have suffered loss as a result of anti-competitive behaviour to bring private actions including:
- Whether to extend the jurisdiction of the Competition Appeal Tribunal (“CAT”) so that, in addition to hearing follow-on actions, it can hear stand-alone damages actions which are brought directly to it by the claimants or which are referred to it from the High Court. Stand-alone actions can currently only be brought before the High Court. The consultation is also consulting on granting the CAT the power to grant injunctions.
- Whether to introduce a fast track (6 month) procedure for SMEs to apply to the CAT to hear simpler cases. The focus would be on non-monetary resolutions such as injunctions and would allow, in the first instance, interim relief. Any costs award would be capped at £25,000 and there would be limited or no court fees.
- Whether to extend to businesses the current consumer right to bring collective actions. The right would extend to both follow-on and stand-alone actions which would only be heard in the CAT. Such actions could also be made easier by introducing an opt-out regime rather than the current opt-in regime.
- Whether to amend the burden of proof in private actions to introduce a rebuttable presumption of loss in cartel cases (there would be a presumption that the cartel had affected prices by, for example, 20% - a figure determined by the current economic literature on how much prices are raised by cartels); and
- whether to directly address the passing –on defence in legislation, and if so, how should this be done.
- How best to encourage Alternative Dispute Resolution (“ADR”) methods to make the courts an option of last resort and whether to mandate ADR .
- Whether the CMA should have the power to order a company that has infringed competition law to implement a redress scheme to those who have suffered loss independently of any fine given or whether the extent to which a company has implemented a voluntary redress scheme should be taken into consideration when setting the level of the fine.
- Whether some leniency documents should be protected from disclosure in private actions and if so which ones.
- Whether whistleblowers should be protected from joint and several liability and if so whether other leniency recipients should benefit from such protection as well.
The consultation document on private damages actions can be found here and closes on 24 July 2012.
While the CCR raised expectations of a radical overhaul of the competition regime, the main crux of the mergers, markets and CA98 enforcement regimes has remained intact with reforms touching mostly on procedural elements of those regimes, including the imposition of statutory timelines, separation of power between those investigating the cases and the decision-makers; greater information gathering powers for the new CMA. More substantive changes announced in the CCR relate to the removal of the dishonesty element of the cartel offence, which may be cause for grave concern among directors. The really radical changes however can be found in the consultation on damages actions under competition law which, if adopted, may significantly increase the possibilities for private competition law actions and may pave the way for an altogether more contentious competition enforcement regime in the UK.
For more information, please contact Elisabetta Rotondo.
 In its consultation, the Government sought views on whether the regime should be changed to a mandatory regime with suspensory effect for all but the smallest mergers in order to capture most anti-competitive mergers and to prevent integration.  See Schedule 7 Competition Act 1998  The government considers that a move to a prosecutorial system would cause unwanted disruption in a period of economic instability where competition is needed to foster economic growth.  Department for Business Innovation and Skills. Growth, Competition and the Competition Regime, March 2012, para 6.29.  At present at least one state of play meeting is offered between opening of the investigation and when the Statement of Objections (“SO”) is issued. This will be increased to at least two state of play meetings prior to the issue of the SO. See para 2.36 OFT consultation.  New guidance on the appropriate amount of penalty is due to be issued by the OFT in the coming months.  To date there have only been two prosecutions since 2003  Follow-on actions are actions brought on the basis of an existing finding of infringement against a company by a national competition authority. By relying on the finding of infringement by the regulator, the claimant does not need to prove liability. The claimant will still have to prove causation and loss.  An Opt-in regime is where only those claimants who actively opt to join the collective action bring an action even though a whole class of people might be affected. An Opt-out regime is where an action is brought on behalf of a class of people who have suffered damage and only those individuals who actively opt-out will be excluded from the collective group of claimants.  A redress scheme would be a scheme to compensate all those who have suffered pecuniary loss as a result of the anti-competitive behaviour.