May 05, 2022

Significant reforms announced for UK competition law - JD Supra

Spring 2022 has brought the publication (in near-final form) of significant and long-awaited proposals to reform UK competition law. This update sets out the key changes.

On 20 April 2022, the UK government published its consultation response, "Reforming competition and consumer policy", which proposes a range of changes to UK competition law (the consultation response can be found here).

Changes to the UK merger control regime

The government proposes significant changes to jurisdictional thresholds:

An uplift in the "turnover test" threshold for UK merger control jurisdiction, from the current >£70 million of turnover in the UK, to >£100 million.
A new jurisdictional threshold, aimed at "killer acquisitions" (purchases intended to stifle emerging or potential competition). This will apply where one party has both: (a) a share of supply in the UK (or part of it) of 33% or more, and (b) UK turnover of £350 million or more.¹ The government says this proposal is intended to ensure the new threshold captures acquisitions by larger businesses, but it could mean some larger businesses will have to notify every acquisition to the Competition and Markets Authority (CMA).

Businesses may be relieved to learn that the government plans to exempt transactions from UK merger control review if each party's UK turnover is below £10 million. Currently, transactions in UK markets worth less than £5 million or (subject to additional conditions) £15 million may benefit from a de minimis exemption from Phase 2 merger review, at the CMA's discretion. The new exemption would be much more clear-cut.

Various amendments are also proposed to the Phase 2 (extended) merger review process, intended to streamline the review process.

Other proposed reforms to UK competition law

The reforms proposed on 20 April go beyond merger control. Other key elements include:

Increased penalties: Failure to comply with a formal CMA information request, or providing misleading information, will attract fines of up to 1% of annual worldwide turnover (plus an additional daily penalty of up to 5% of daily worldwide turnover whilst non-compliance continues). Such penalties are currently capped at £30,000 and daily penalties at £15,000. The government also proposes to introduce a civil penalty regime for businesses which breach commitments or undertakings, directions, orders or interim measures etc. across all its functions. This is in line with existing merger powers, which allow fines of up to 5% of annual turnover (with daily penalties of up to 5% of daily turnover whilst non-compliance continues).
Extending the CMA's reach in enforcing UK competition law: The UK prohibition of anti-competitive agreements will capture agreements, concerted practices and decisions implemented outside the UK but which have, or are likely to have, direct, substantial and foreseeable effects within the UK.
Raising the threshold for appealing against CMA interim measures: Rather than a full "merits" appeal, such appeals will be limited to the judicial review standard, making it much harder to overturn CMA interim measures decisions – though such decisions are very rare. However, the status quo (i.e. the higher, merits standard) will continue for appeals against CMA infringement decisions.
New evidence gathering powers: The government will broaden powers to interview individuals in Competition Act investigations, introduce stricter duties to preserve evidence and give the CMA powers to "seize-and-sift" evidence when it inspects domestic premises under a warrant.
Reducing the turnover threshold for immunity from penalties: Currently, businesses have immunity from financial penalties for abuse of a dominant position if their turnover is £50 million or less. The government proposes to reduce this to £20 million, so companies abusing a dominant position in smaller, emerging sectors may no longer benefit from immunity from fines. This revised de minimis threshold would align with the threshold for anti-competitive agreements.
Private enforcement: The government intends to expand the jurisdiction of the Competition Appeal Tribunal (CAT) to allow the CAT to grant declaratory relief (i.e. confirm the application of competition law to a given case) and to award exemplary damages (to deter infringing conduct).

New UK rules for vertical agreements

In addition to the wide-ranging reform proposals, the CMA recently published draft guidance on its proposed treatment of vertical agreements, to accompany the Vertical Agreements Block Exemption Order (VABEO) (VABEO Guidance).

The new UK VABEO and VABEO Guidance will take effect on 1 June 2022. The European Commission will soon publish final forms of its revised Vertical Block Exemption Regulation (VABER) and related guidelines (please see our previous update here).

The CMA and EU will remain aligned in most respects, but there will be some differences between the UK and EU systems. Some of the key new differences, and changes to the status quo, are set out in the table below.

Vertical agreements: EU/UK approaches and key reforms

Wide retail parity obligations	"Wide" retail parity obligations² (those covering every sales channel) are "hardcore" restrictions, whether they are direct or indirect, or apply to online and/or offline sales.	Wide retail parity obligations are not a "hardcore" restriction, but are an excluded restriction (i.e. not exempted under VABER).
Dual distribution³	Agreements involving "dual distribution" can benefit from exemption under VABEO if the parties' market shares are below 30%.	The EC initially proposed that agreements involving dual distribution will only be exempt under VABER if they meet a different, lower (10% vs 30%) market share threshold, but the EC now appears to be reconsidering this proposal, following opposition during consultation.
Hybrid platforms/OISPs	Platforms that both host marketplace sellers and sell goods/services directly on their platform (known as "hybrid platforms") can benefit from exemption under VABEO.	Hybrid platforms – termed "online intermediation service providers") (OISPs) will not benefit from exemption under VABER.
Dual/differential pricing online vs offline	Suppliers will be able to charge different prices to buyers for products intended to be sold online vs those to be sold offline, provided the object is to reflect the different investments and costs for each channel.	As for the UK, this will now be allowed (it is currently a hardcore restriction).
Different quality requirements for online sales	Suppliers may restrict the use of specific online sales channels (e.g. online marketplaces) or set quality requirements for selling online – and quality requirements for online sales can differ from those for offline sales.	As for the UK, this will now be allowed (it is currently a hardcore restriction).
Multiple "exclusivity" for distributors	Multiple distributors can share the same "exclusive" territory or customer group.	As for the UK, this will now be allowed (it is currently a hardcore restriction).
Protection for selective distribution systems	Selective distribution systems can be protected against sales from outside the territory to authorised distributors within the territory.	As for the UK, this will now be allowed (it is currently a hardcore restriction).

A sufficient UK nexus will also be required; further details will follow when the government publishes the response to the consultation on "A New Pro-Competition Regime for Digital Markets".
Retail parity obligations, or "most favoured nation" (MFN) clauses, require one party not to give any third party a better (i.e. lower) price than that given to the other contract party (e.g. an online platform). "Wide" retail parity clauses apply on every sales channel, so no better price may be given anywhere. "Narrow" MFN clauses prevent any better price being given on the supplier's own website.
"Dual distribution" occurs where suppliers and resellers compete to supply customers (but not in manufacturing the relevant product).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

source: https://www.jdsupra.com/legalnews/significant-reforms-announced-for-uk-7651985/

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