Regulatory Outlook: Competition – November 2016

Written on 29 Nov 2016

Current Issues

E-commerce sector inquiry: The European Competition Commissioner, Margrethe Vestager, has made clear that businesses offering online sales and/or cross-border distribution should consider the preliminary findings of the sector enquiry, which was published in September 2016, and assess whether their commercial arrangements comply with competition law. The preliminary findings suggest that the growth of internet sales has led to an increase in vertical restraints and to manufacturers using selective distribution. We anticipate further investigation into competition concerns as a result of this, and await the final report, due in the first quarter of 2017. Regulations are already being considered (explored further below) in response to the inquiry, and in relation to geo-blocking and to use of copyright.

Water industry overhaul: Proposed changes to the water industry, prompted by criticisms of Ofwat for allowing 18 privately owned companies to become monopoly suppliers, would open up the water market to retailers, energy suppliers and telecommunication companies. Such companies would be able to buy water in bulk and offer customers packages, bundling water with other utilities.

State aid tax investigations: Businesses should be mindful of the European Commission’s ongoing crackdown on preferential tax rulings and settlements, and consider whether the tax they are paying might breach the State aid rules. In particular, inter-company profit transfers and payments for IP rights should be at market value, or risk scrutiny by the European Commission. Several large corporations have already been caught out and investigations continue into the tax affairs of many other companies.

Damages Directive: Due to be implemented in the UK by the end of 2016, this Directive aims to make it easier for direct and indirect purchasers who have suffered loss because of a cartel to be able to claim for follow-on damages. These claims are generally worth exploring; litigation funders are keen to finance them and collective actions can mean that businesses can bring claims with minimal time and cost outlay.

Energy market investigations by the CMA: Ofgem has consulted on amendments to the Confidence Code, including rules around tariff comparability, marketing and the requirement for price comparison websites (PCWs) to show the tariffs being offered by the entire market. Ofgem has reported its findings to the Competition and Markets Authority (CMA), which is also investigating PCWs. The amendments are designed to remedy market failures identified in the CMA’s energy market investigation, including a lack of customer engagement and switching.

In Focus: Enforcement

Competition law enforcement is constantly adapting to keep pace with market trends and technological advances.

In the EU, competition law is enforced by the European Commission (where there are cross-border effects), national competition authorities (such as the CMA in the UK) and specialist sector regulators (such as Ofgem, Ofwat and the Office of Rail and Road). Regulated conduct includes mergers, agreements with anti-competitive effects, abuses of dominance, and the granting of State aid (the anti-competitive use of state resources). Regulators have wide investigatory powers, including the ability to conduct dawn raids, compel disclosure of documents and to question employees. The CMA can order businesses to cease offending conduct and can issue fines up to 10% of worldwide turnover, or alternatively can accept binding commitments or approve voluntary redress schemes. Private litigants can also bring actions to recover losses suffered as a result of infringing conduct.

The Brexit effect

Brexit, over time, will affect competition law enforcement in the UK. Whilst much of the substantive law is likely to remain unchanged (the key competition law prohibitions are directly mirrored by UK law), Brexit is likely to mean that the European Commission will lose the ability to take enforcement action for conduct with UK-only effects. In addition, businesses will be required to notify mergers to both the CMA and the European Commission (where the relevant thresholds are met) and the UK will no longer be part of the EU Merger Regulation’s ‘one-stop shop’ regime. The UK may introduce new laws to replace the EU’s State aid rules, which are likely to drop away on Brexit.

A key trend in competition law enforcement in the UK is the increase in private enforcement, which may increase as a result of the Damages Directive (outlined earlier in the ‘Current Issues’ section). This trend is illustrated by the first antitrust class action to be brought in the UK, filed in May 2016, on behalf of aggrieved pensioners who purchased overpriced mobility scooters. Following this, a £14bn ‘opt-out’ class action has been filed against MasterCard on behalf of UK consumers for anti-competitive card fees.

“Big data” and competition

Across the EU, competition regulators are grappling with the competition law consequences of the increasing use of ‘big data’ for commercial gain. For example, the amount and type of data held by potential acquirers and targets is becoming a relevant consideration in merger control decisions, and the European Commission is considering whether to introduce new merger control thresholds to catch a greater number of transactions involving big data. Other concerns include maximising innovation and interoperability of connected technologies (such as connected cars and household appliances) and data pooling whilst avoiding sharing of competitively sensitive information.

Finally, competition authorities are focused on the development of competition law enforcement in the ever-increasingly digitised world. An outcome of the e-commerce sector inquiry is legislative proposals around cross-border sales of physical goods and certain digital content over the internet. The proposed geo-blocking regulation prohibits geo-blocking of an online interface (an app or website platform), redirection of a customer to a local version of a website, and stipulation of different conditions of access to goods or services depending on, for example, whether cross-border delivery is needed. Further regulations are anticipated, including new regulations dealing with copyright.

Dates for the diary

Mid-December 2016 

Draft report on geo-blocking expected from the European Parliament.

December 2016   

Deadline for implementation by Member States of the Damages Directive.

January 2017  

Final report on the e-commerce sector inquiry expected.

28 March 2017   

Interim findings of the CMA market study into digital comparison tools expected.

April 2017

Final committee vote on the geo-blocking report.

April 2017

Over 1.2 million eligible businesses and other non-household customers in England will be able to choose their supplier of water and wastewater retail services (implementing reforms introduced in the Water Act 2014).

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