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Compliance with competition law

Compliance with competition law

Although it's not always easy to predict the operation of competition law in relation to commercial agreements, it's worth considering certain points when drafting or reviewing an agreement. It's important to identify whether the competition law prohibitions are likely to apply and, if so, whether they can be avoided.

Agency agreements

Chapter I of the Competition Act might not apply at all to an agency agreement if one or more of the following statements is true:

  • The agent isn't a separate undertaking from the principal and is just operating as an arm of the principal. For a breach on Chapter I, there must be an agreement between 2 separate undertakings. If the agent takes no financial risk under the agreement, the agent isn't likely to be a separate undertaking
  • The agreement is incapable of affecting trade and competition within the UK, e.g. it doesn't contain any restrictive terms; or
  • The parties' market share may be small enough for the agreement not to have an appreciable effect on competition.

Distribution agreements

An agency agreement will probably have to be treated in the same way as a distribution agreement if none of the statements above applies.

Chapter I might not apply if one or more of the following statements are true:

  • The agreement is incapable of affecting trade and competition within the UK market, e.g. it doesn't contain any restrictive terms; or
  • The parties' market shares may be small enough for it to have an appreciable effect on competition.

When drafting an agreement it's always a good idea to get the benefit of Vertical Agreements block exemption whenever possible (see Drafting a distribution agreement according to vertical agreements block exemption).

Application of Chapter II to agency and distribution agreements

Chapter II of the Competition Act is far less likely to apply to individual commercial agreements than Chapter I. However, it mustn't be ignored, especially if one of the parties has a large market share. Bear in mind that if Chapter II of the Competition Act applies, the only escape from fines is if the conduct is of minor significance.

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