Compliance with competition law

Compliance with competition law

Contents

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 and Article 101 of the Treaty on the Functioning of the EU (TFEU) 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 or Article 101, 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 EU, 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 and Article 101 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 or the EU 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 and Article 102 to agency and distribution agreements

Chapter II of the Competition Act and Article 102 of the TFEU are far less likely to apply to individual commercial agreements than Chapter I and Article 101. However, they 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. If Article 102 applies, there's no way to avoid breaching it.

When considering the application of Article 102, the following questions will be relevant:

  • Does the agreement involve a company with a dominant position in the relevant markets?
  • Is that dominant position within the EU or a substantial part of it?
  • Does the conduct of the dominant company amount to abuse of a dominant position?

If the answer to all of these questions is yes:

  • Article 102 bans the abuse insofar as it may affect trade between member states; or
  • Chapter II bans the abuse if the company has a dominant position in a market in the UK, and its conduct affects trade in the UK.