Competition

Competition

Introduction

In the EU-UK Trade and Cooperation Agreement (“TCA”), the EU and the UK recognise the importance of free and undistorted competition in their trade and investment relations and acknowledge that anticompetitive business practices may distort the proper functioning of markets and undermine the benefits of trade liberalisation. In this context, the Parties to the agreement commit to maintain a competition law which effectively addresses anticompetitive agreements, abuses of a dominant position, and anticompetitive mergers.

Merger control

Under EU law, merger control operates on the basis of a “one-stop shop” principle, meaning that mergers that satisfy the EU filing thresholds must be exclusively notified to the European Commission and, in principle, do not require clearance by national competition authorities of EU Member States.

Impact

If a merger has been notified to the Commission (but not yet decided) prior to exit day, the Commission retains exclusive jurisdiction until a final decision is reached. 

For transactions notified as of exit day, the “one-stop shop” principle provided by the European Commission no longer applies to the UK. There will therefore no longer be anycooperation between the European Commission and the UK competition authority, meaning that new mergers affecting both EU and UK markets will need to comply with both EU and UK merger rules and will be assessed by both authorities. 

When contemplating new merger transactions, businesses have therefore to consider the possible application of the UK merger control rules in addition to any potential notification under the EU merger control rules. Companies must check whether the EU and/or the UK filing thresholds are met, and ensure that UK turnover is no longer included in the turnover calculations for meeting the EU filing thresholds.

This will lead to a greater burden for businesses (due to multiple filings) and also raise the possibility – probably relatively rare in practice – of one authority clearing and the other blocking a merger, or of diverging remedies. The EU-UK TCA however includes a commitment that the European Commission and the UK authorities will endeavour to cooperate and coordinate concerning the same or related transactions where appropriate and can exchange information to the extent permitted by the laws of each party.

Competition rules/antitrust

EU law avoids duplicative investigations by both the European Commission and the national competition authorities of EU Member States into anti-competitive agreements and abuses of dominance. Moreover, national courts are required to interpret their national competition rules in a manner consistent with EU competition law and case law.

Impact

If the Commission has formally initiated an investigation or issued an infringement decision prior to exit day, the Commission remains the competent authority.

As of exit day, when it comes to new investigations, there is a greater chance of multiple/parallel investigations by EU and UK authorities into the same issue where trade is affected in both the EU and the UK. This will lead to an increased regulatory scrutiny and a greater burden for businesses. Again, the EU-UK TCA however includes a commitment that the European Commission and the UK authorities will endeavour where appropriate to cooperate and coordinate with respect to their enforcement activities concerning the same conducts.

Over time there could nevertheless be scope for divergence in the application of competition rules in the UK and the EU, which are currently equivalent. Indeed, even though the UK authorities must in principle interpret UK competition law in line with EU competition case law pre-dating Brexit, they will have discretion to depart from this in certain circumstances and will not be bound in any manner by EU case law adopted after exit day. As UK authorities will no longer have to apply UK rules consistently with EU law, there could be inconsistent outcomes or divergent approaches in the long run (even though in practice EU law will probably remain influential, given the similarity between the substantive provisions).

Follow-on damages claims

Under EU law, claimants wishing to pursue follow-on private damages claims before the national courts of EU Member States can rely on European Commission infringement decisions as a binding finding of an infringement. Among EU Member States, the UK used to be considered an attractive jurisdiction for follow-on damages actions, given that it has historically been “claimant-friendly” and because of the discovery rights.

Impact

If prior to exit day, the Commission has issued an infringement decision or at least formally initiated an investigation, the Commission decision (once taken) can still form the basis of follow-on damages cases in the UK after exit day. 

However, as of exit day, if a new investigation is initiated and decided by the European Commission, claimants wishing to pursue follow-on private damages claims will no longer be able to rely on that decision as a binding finding of an infringement before UK courts.

Companies may therefore need to carefully consider which jurisdiction is the most attractive for follow-on actions for private damages for infringements of EU competition law based on decisions issued by the European Commission after exit day. The Netherlands has until now been a second-best jurisdiction. It may now also be worth considering Belgian courts.

What action can you take now?

Above all, you must continue to comply with the competition rules that will still apply in the EU and the UK.

The full effects of Brexit in the field of competition law enforcement will take some time to emerge, but certain situations require specific and immediate attention:

You have entered into prenotification discussions with the Commission prior to exit day and wonder whether it ‘counts’ as a notification triggering exclusive jurisdiction of the Commission after Brexit.

The Commission has issued a merger decision prior to exit day and you are in doubt as to which authority will have jurisdiction should the decision be annulled post-Brexit.

The Commission has issued a merger or an infringement decision prior to exit day and you wonder which authority will monitor the UK aspects of the commitments provided in this context post-Brexit.

You are considering pursuing a follow-on damages claim based on a Commission infringement decision and are in doubt as to where to bring the claim.

You have concerns about an antitrust investigation by the European Commission and/or the UK competition authority and you want to know how to comply with such investigations.

You have concluded agreements in accordance with EU block exemption regulations and are in doubt as to whether these exemptions remain valid in the UK.

CMS experts can advise on the potential implications of Brexit for your business.

State aid

Under current EU law, it is illegal for EU countries to provide public support to certain companies if this distorts fair competition. Such support is called State aid, and the European Commission ensures that State aid complies with EU rules.

Impact

The TCA contains a chapter on ‘subsidy control’. Although the terminology used is different, the definition of 'subsidy' is very close to the definition of State aid. The TCA thus covers thus a wide range of public interventions (grants, loans, guarantees, etc.), and defines certain compatibility rules for their granting. Certain types of subsidies are nevertheless prohibited or subject to very strict conditions under the TCA. 

On this basis, the UK must now set up a State subsidy control regime to preserve competition, the objective being to maintain continuity for businesses and to ensure ongoing control of anti-competitive subsidies.

Indeed, under the TCA, the UK must ensure that such new regime complies with World Trade Organization rules as well as with the provisions of the TCA. This is why the TCA also requires the creation of an independent system of subsidy control overseen by an independent regulator, which might be the Competition and Markets Authority.

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