Competition Law Notes - Investigations and Enforcement

Read our FREE Competition Law Notes on the topic of Investigations and Enforcement. Perfect for law exam revision and general reference.

The meaning and importance of enforcement

Who enforces competition law?

Public enforcement
Investigation powers

Privilege/Self-incrimination

Civil enforcement

Criminal sanctions (UK)

Private enforcement
What is private enforcement?
When and where can a company sue or be sued?
Who will bring claims?
Relationship with public enforcement
Case study

The meaning and importance of enforcement

Ensuring compliance with competition law

Ability to detect and investigate

Sanctions for non-compliance

The risks for companies

Who enforces competition law?

The European Commission

applies EU competition rules
acts if conduct/agreement may affect trade between Member States

The Office of Fair Trading

applies UK Competition Act 1998 (similar provisions to EU rules but purely UK impact) as well as EU competition rules

National Courts

the Competition Appeal Tribunal
the High Court
the Commercial Court

Legislation and texts

EC
EC Treaty
Regulation 1/2003
Notice on co-operation within network of competition authorities
Notice on co-operation between the Commission and the courts of the EU Member States

UK
Competition Act 1998 (“CA98”)
Enterprise Act 2002 (“EA02”)
Powers of investigation OFT 404
Enforcement OFT 407
Powers for investigating criminal cartels OFT 515

Requests for information (EC)

“Simple request” (Article 18(2) Reg. 1/2003)

power to obtain all necessary information
must be in writing
must state the legal basis and purpose of the request
no compulsion to reply
Must state Article 23 penalties for intentionally or negligently supplying incorrect information (fine 1% worldwide turnover)

Decision to require information (Article 18(3) Reg. 1/2003)

formalities as above and must indicate Article 23 applies to non-supply of information and Article 24 periodic penalty payments
National Panasonic Case 136/79 [1980] ECR 2033

Requests for information (UK)

OFT may make enquiries without using formal powers

Notice requiring information (s26 CA98)

can require any person to produce documents or information which it considers relevant to the investigation

includes information recorded in any form

written notice must
state the subject matter and purpose of the investigation
Specify or describe the documents or information sought
Set out offences for non-compliance

Dawn raids (EC)

Undertaking has a positive duty to assist during raid - see SGL Carbon

Dawn raids (EC)(II)

NCA to provide assistance – Article 20(5) and 20(6)

Inspection of other premises e.g. homes, cars

if reasonable suspicion exists that books or records are being kept there
requires prior judicial authorisation – Article 21 and see SAS/Maersk Air

NCA can carry out an inspection for another NCA – Article 22

Rules on exchange of information between Commission and NCAs - Articles 11, 12 and 28

Dawn raids (EC) – what can officials look at/take?

Article 20 Reg. 1/2003
Examine books and other business records, including documents in electronic form, which are relevant to the subject matter of the investigation

Entitled to take copies, not originals

Power to seal any business premises and books or records for the period and to the extent necessary for the inspection

Officials are not entitled to go on a general ‘fishing expedition’, but officials can examine books and business records in order to confirm that they do not relate to the subject matter of the investigation

Dawn raids (EC) – what can officials ask?

The officials can ask about the location of a document
On-the-spot oral explanations of documents and of facts (EC raids only) related to the subject matter and scope of the investigation

EC Power to take statements (Article 19 Reg. 1/2003)

with consent, no penalties for incorrect or misleading information
NCAs must be informed and can attend

Offences relating to investigations (EC)

Periodic penalty payments up to 5% total turnover (Article 24)

including for failure to submit to inspection ordered by decision

Offences relating to investigations (EC) (II)

ON
first decision imposing fine for breach of seal
two day inspection by Commission
separate decision
found seal negligently or intentionally broken
fine imposed of €38 million

Failure to co-operate may be aggravating factor in substantive fine
Professional Videotapes
Sony employee found to have shredded documents
Sony employee refused to answer questions
Fine on Sony increased by 30%

Dawn raids (UK)

OFT (Competition Act)
Reasonable grounds for suspecting that the company has infringed the prohibitions set out in the Competition Act or Article 81/82 EC Treaty

Without warrant (Section 27) or with warrant (Section 28)

‘Gentlemanly’ dawn raid – 2 days notice – occupier need not be suspected of an infringement

OFT (Enterprise Act)
Reasonable grounds for suspecting that a criminal cartel offence has been committed

Warrant required

Dawn raids (UK) – what can officials look at/take?

Under Competition Act 1998

Under written authorisation (business premises) (S27)
Officials can take copies of any document produced which the officials consider relate to the subject matter of the investigation

Under warrant (business premises) (S28)
Officials can, in addition, take original documents if necessary to preserve the documents, prevent interference with them or if copying is not practicable at the premises. Officials also have criminal “seize and sift” powers

Officials can take any other steps necessary for preserving the documents or preventing interference with them
can include sealing premises

Power to enter and search domestic premises under warrant (S28A)
where reasonable grounds for suspecting that there are documents or information relating to the investigation on those domestic premises. Officials do not have criminal “seize and sift” powers

Dawn raids (UK)– what can officials look at/take? (II)

Criminal cartel raid under Enterprise Act 2002

Warrant required to search premises
no distinction is made between business and non-business premises

Officials can take documents away under Enterprise Act and/or criminal ‘seize and sift’ powers

if it is not reasonably practical to determine on the spot whether documents are relevant

particularly relevant to information held on computer

Dawn raids (UK) – what can officials ask?

UK (CA98)

The officials can ask about the location of a document

On-the-spot oral explanations of documents related to the subject matter and scope of the investigation

UK Criminal cartel dawn raid Compulsory interviews

(Section 193(1) EA02)

Individual cannot refuse to produce documents or to answer questions

Officials cannot use the answers as evidence in civil proceedings against the company that employs the individual

Officials cannot use the answers in criminal proceedings against the individual unless the individual:

- knowingly or recklessly made a false or misleading statement

- is prosecuted for an unrelated offence and makes a statement that is inconsistent with it

Dawn raids (UK) – what can officials ask? (II)

UK Criminal cartel dawn raid

Voluntary interviews under caution

Suspect given standard criminal caution before being questioned

Told that the interview is voluntary; free to leave at any time

Entitled to independent legal advice from a criminal lawyer

Answers given can be used in civil investigations into companies involved in Competition Act infringements

Answers given can be used against the person interviewed in a subsequent prosecution

Offences relating to enforcement (UK)

Civil investigation (CA98)
Criminal offences for failure to comply include fines and imprisonment

Offences
Obstructing officials
Providing false and misleading information
Destroying/falsifying documents
Failure to produce or explain documents or to indicate their whereabouts

See Summary table at Section 7 of OFT404 for full details

Offences relating to enforcement (UK)(II)

Criminal investigation (s201 EA02)
Criminal offences for failure to comply include fines and imprisonment

Problems: self-incrimination

No absolute right to silence Mannesmann-Röhrenwerke AG

Undertaking cannot be forced to admit an infringement but

obliged to answer factual questions and provide documents even if this may be used to establish an infringement against them - see SGL Carbon and Recital 23 Reg 1/2003

Limited privilege against self-incrimination – can refuse to answer questions requiring the admission of the alleged infringement but cannot refuse to hand over documents - see

Orkem and Solvay

Applies to information requests and to inspections where Commission using compulsory powers – see Dalmine

Right to silence in criminal cases – Funke and Saunders ECtHR

Problems: Legal Professional Privilege

Protects confidential communications with lawyers

LPP exists in EC law but is limited
AM and S Europe Ltd

Communications for purposes of legal advice on subject matter of proceedings / potential proceedings

Excludes in-house lawyers unless repeating advice of independent lawyer
Hilti

Preparatory document prepared exclusively for seeking legal advice from lawyer in exercise of rights of defence
Akzo

Excludes lawyers not admitted to practice in EEA

Akzo
CFI should determine disputes over privilege
pending appeal to ECJ

Summary of key differences between
UK and EC legal professional privilege

Penalties for infringement (EC)

Penalty for substantive breach

Decision finding an infringement and requiring it to end
Behavioural and/or structural remedies
Proportional and necessary
Fines – see Commission Guidelines on setting of fines (2006)
Leniency applications
Interim measures
Monitoring – see Microsoft

Other methods of resolution

Commitments (Article 9 Reg 1/2003)
Settlement procedure but not for hard core cartels
Regulation 622/2008
Notice on conduct of settlement procedure

Penalties for infringement (UK)

Competition Act 1998

Infringement decision against undertaking

Decision finding breach
Such directions to end it as OFT considers appropriate
Behavioural or structural
Fines – see OFT 407 & 423
Interim measures

Other methods of resolution

Commitments
Early resolution procedure

Penalties for infringement (UK): criminal

Criminal offence (s188 EA02)

individual dishonestly participates in an agreement to fix prices, limit supply or production, share markets or rig bids

agreement does not have to be implemented

OFT, Serious Fraud Office and sectoral regulators

Sanctions

5 years’ imprisonment; and/or

unlimited fines; and/or

disqualification as a director for up to 15 years

Penalties for infringement (UK): criminal

Leniency and no action letters

Marine Hose Cartel
led to first criminal convictions
sentences reduced on appeal - R v Whittle and Ors [2008] EWCA Crim 2560 (14 November 2008)

Passenger Fuel Surcharge case
cartel Virgin Atlantic and British Airways
Virgin Atlantic leniency applicant
civil penalties imposed on British Airways
British Airways executives charged with criminal offence

Private enforcement

What is private enforcement?
When and where can a company sue or be sued?
Who will bring claims?
Relationship with public enforcement
Case study

“There have been only a very limited number of successful damages awards for breaches of EU competition law in the last 40 years. That means that the comprehensive enforcement of the competition rules is not yet complete – not enough use is made of the courts. More importantly the victims of anti-competitive activity are not being compensated for their losses. And finally, underdevelopment of private enforcement means that deterrent effect of the competition rules is not as great as it should be”

Commissioner Kroes, March 2005

What is private enforcement?

Policy Objectives
Deterrence
Compensation
Supplement public enforcement
UK
Competition Act and Enterprise Act
OFT Discussion paper (April 2007), Recommendations (November 2007) and Response to White Paper (July 2008)
Civil Justice Council recommendations to Lord Chancellor (August 2008)
EU White Paper
compensation rather than deterrence

When and Where Can You Be Sued? (I)

Primary Actions (no infringement decision)

High Court: Chancery Division
6 years after the loss was suffered
Limitation period may be extended
Rare
Crehan v Inntrepreneur Pub Company [2004] EWCA Civ 637 (overturned on appeal)
Arkin v Borchard Lines [2003] EWHC 687 (Comm)
Secretary of State for Health v Norton Healthcare [2004] EWHC 609 (Ch)

When and Where Can You Be Sued? (II)

Follow On Actions (infringement decision)

High Court: Chancery Division
Bound by findings of fact by the OFT (s58 CA)
Bound by infringement decisions of the OFT (s58ACA)
Practically bound by infringement decisions of the Commission between same parties on same subject matter (Inntrepreneur Pub Company v Crehan [2006] UKHL 38)
Competition Appeal Tribunal (CAT) (s47A CA)
Bound by infringement decisions of the OFT or Commission
2 years from the later of the loss or when infringement finding is final

When and Where Can You Be Sued? (III)

Follow On Actions

Likely to be common but many cases settle without litigation
BCL Old Co Limited; Deans Food Limited
Genzyme v Healthcare at home (interim damages)
Emerson Electric Co and others v Morgan Crucible Company plc and others
CAT – claimant friendly? CAT or the High Court?

Who is Likely to Bring Claims?

Competitors
Major Customers
Consumers?
Consumer claims in the CAT (s47B CA)

The Consumers Association v JJB Sports PLC

Representative Actions in the High Court (CPR 19.6)
Class action settlements

British Airways / Virgin Atlantic – fuel surcharges

Damages and other remedies

Must demonstrate causation

Calculation of damages

Compensatory damages

Restitutionary damages

Devenish Nutrition v Sanofi [2008] EWCA Civ 1086

Declaration

Injunction

Relationship With Public Enforcement (I)

Not possible to simultaneously pursue a complaint to the OFT and private litigation - see Synstar Computer Services v ICL [2001] UKCLR 585
Advantages of public enforcement to complainant
Costs
Investigatory powers
Better outcome where other remedies sought
Disadvantages
Time
Loss of control
No transparency

Relationship With Public Enforcement (II)

Complainant likely to use public route where damages sought
Complainant likely to go directly to the High Court where an injunction sought - see Network Multimedia Television v Jobserve [2002] UKCLR 184
Leniency programmes – tension?

Private enforcement: case study

Virgin Media v BSkyB

Stand alone claim in High Court

Abuse of dominance claim i.e. Chapter II / Article 82

Commercial negotiations on sale / purchase of television channels

Parties disagreed on market definition, dominance and abuse

Split trial ordered

Case settled November 2008