Brexit: the implications for competition law
14 February 2017
The effect of Brexit on UK competition law will depend on how the precise nature of the arrangement between the UK and EU in negotiations. Whatever the outcome, additional costs, regulatory burdens and uncertainty are likely to result from the need for companies to comply with both EU competition law and a separate (and in due course, potentially divergent) UK competition law regime. Businesses operating in the UK and the EU will need to be aware of the risk of parallel cartel investigations (and fines), parallel merger control notifications in some circumstances, and the importance of antitrust compliance in general.
- Competition law in the UK
UK competition law is largely aligned with EU competition law and following Brexit is unlikely to change fundamentally - at least in the immediate term. This is emphasised in the UK Government’s White Paper setting out the UK’s post-Brexit model. The White Paper commits to retaining existing EU law. However, two issues could each give rise to uncertainty and contribute to EU and UK competition law gradually diverging:
Interpretation of competition law
UK competition legislation is currently based on and interpreted in line with EU legislation, including decisions of the European Commission and Court of Justice of the European Union (known as the “ECJ”). Given that the Courts in the UK would no longer be required to interpret national law consistently with EU law and the jurisdiction of the ECJ will fall away, just how they will interpret questions of UK competition law is unclear. Companies could face considerable practical consequences with compliance if the courts chose to interpret similar provisions differently from the rest of Europe.
Amendment or replacement of competition law
When the UK leaves the EU, Parliament may also choose to amend the aspects of the UK competition law regime, over time, so that it is no longer consistent with EU competition law eg amending sections of the Competition Act 1998. This is not likely to happen immediately following Brexit, but is a possibility in the long-term. The Brexit plan White Paper states that, in the context of competition, the UK Government wishes to foster “…a high quality, stable and predictable regulatory environment, whilst also taking the opportunity to reduce the cost of unnecessary regulation”, which signals that changes to the UK competition regime may implemented in the future.
- Competition law post-Brexit
The potential consequences for UK competition law, following Brexit, will be shaped by how the negotiations between the EU and the UK progress and the resulting relationship with the EU.
The Great Repeal Bill is designed to bring all legislation that derives solely from EU law, including competition law, into domestic law. There are many aspects of the UK competition regime which have direct effect and are therefore not currently part of UK law. For instance, the European Commission’s set of block exemption Regulations, which have direct effect, currently exempt agreements that meet certain criteria and would otherwise infringe competition law. They are widely relied upon by UK businesses to provide an EU-wide safe harbour from the prohibition against anti-competitive agreements. Important examples of EU block exemptions include those for supply and distribution agreements, R&D agreements, and IP licensing agreements. Following Brexit, the UK will adopt replacement legislation for these block exemptions (and other aspects of EU competition law that are not also part of domestic law), as EU law will not directly apply post-Brexit. However, the benefits of having a UK regime which is similar to the EU regime, without having the single jurisdiction of the European Commission over it remain to be seen. Ultimately, transposing this legislation is useful for certainty in the short-term but the long-term benefits of doing so will depend on how the UK and EU negotiations progress.
Whatever the precise nature of the UK’s competition regime post-Brexit, the UK is keen to continue cooperating with other jurisdictions on competition law matters, including the EU. Cooperation agreements are usually within the European Commission’s remit and so upon Brexit, the UK will find itself outside that remit. In a letter to the European Scrutiny Committee, the Minister for Small Business, Consumers and Corporate Responsibility emphasised that the UK wanted to be “in the strongest possible position to cooperation on competition matters with our international partners in Europe, Canada and elsewhere following the withdrawal of the UK from the EU”.
- Competition investigations post-Brexit
Currently, the European Commission has jurisdiction to investigate potential competition law infringements that have an impact on trade in the EU or EEA, and if it does so, the CMA will not investigate the matter.
Following a Brexit (and assuming no other approach or regime is set up during exit negotiations), companies could face parallel investigations. The Commission would investigate the conduct of a business affecting trade within the EU, while the CMA investigates conduct affecting trade within the UK. This would lead to separate fines and additional costs for the parties, as well as uncertainty as to the outcome - the Commission and CMA could produce inconsistent decisions.
The status of cases opened by the Commission pre-Brexit is also, as of yet, not clear. Anti-trust investigations can span a period of many years and it is therefore not certain whether, following a Brexit, the EU Commission would stop investigating the UK aspects of a case it had already opened, or continue its investigation until it had finished - even if it took several years to complete. If it were to end any investigation in relation to the UK, it seems likely the UK elements would be picked up by the CMA instead, but this is again not a certainty.
- Antitrust damages actions
There is considerable uncertainty as to whether the courts of England and Wales and the Competition Appeal Tribunal would remain a preferred forum in which to bring follow on and standalone actions for damages in competition cases if the UK withdrew from the EU. Currently, follow on actions can be brought once an infringement decision taken under EU or UK competition law (or both) has become final, and standalone or hybrid actions can be brought under either law or both.
Post-Brexit, it is unclear what the status of decisions taken by the European Commission will be and conceivably the English courts and the Competition Tribunal would be less attractive as a forum. The White Paper confirms that the Damages Directive and all other UK law based on EU law, will remain in force immediately after Brexit, but its future is more uncertain. There is, however, also the interesting question of whether, if the protection of leniency materials provided through EU case law (and potentially the Damages Directive) were to fall away following a Brexit that could in fact encourage damages actions to be brought in the English courts.
- Merger control
The European merger control regime operates as a "one-stop-shop". Where the EU turnover thresholds are met and the transaction has an impact within the EU, the parties are required to notify a proposed merger to the European Commission. They then need not notify individual National Competition Authorities (NCAs) within the EU. Below those thresholds and/or if the transaction only affects national markets, national filing requirements come into play. If the relevant national requirements are met, such as turnover and effect on the local market, merging parties must notify individually to the NCAs of EU Member States. In the UK’s case, notification to the UK Competition and Markets Authority (the CMA) is generally voluntary. In some circumstances, mergers that affect a number of EU Member States could be referred to the Commission at the request of the parties or NCA.
Merger control post-Brexit
Following Brexit, merging parties would potentially need to make a notification to both the Commission and to the CMA where a transaction meets the relevant merger control thresholds and has an impact on the EU as well as the UK. Doing so would increase transaction costs significantly, not least because of the merger fees charged in the UK. Having to make two separate notifications also creates uncertainty for the parties, given that the authorities may produce conflicting decisions which are nonetheless binding on the parties. However, notifying a transaction to the European Commission but not to the CMA creates a greater risk that the CMA will investigate the merger on its own account.
- Other issues
Under EU law, aid provided by the UK government to UK companies is regulated by the European Commission to ensure effective competition within the single market is not distorted. For instance, the Commission ordered the UK government to recover monies paid to BT, as under State aid rules, it gave BT an unfair advantage. If the UK were to leave the EU and EEA, it might (in theory) be free to grant more aid of this kind.
However, whilst potential freedom from the EU State aid rules may appear attractive, it also leaves the UK and UK businesses without a reliable mechanism to complain about State aid granted to competitors within the UK or by EU countries. In theory, a complainant from a third country, as the UK would then be, could bring information to the European Commission’s attention; there is no particular incentive for the Commission to act upon it, especially if relations are cool towards the UK following a Brexit. The UK will also lose its rights before the ECJ, so the Government will be unable to appeal decisions addressed to EU Member States or to intervene in cases that are on appeal. The UK would lose its influence over the development of any future State aid rules made by the EU.
Whether the UK Government would in fact be free to grant aid to UK businesses following Brexit would in any event depend on the terms of the trading relationships that it negotiated. The application of State aid rules, or their equivalents, will presumably be part of the UK’s negotiation of its post-exit relationship with the EU. The UK might well find that to maximise its access to EU markets it has to accept additional restrictions on government support for business. If it were to rely upon membership of the World Trade Organisation (WTO), for example, the UK would find itself subject to the WTO’s own restrictions on government support.
Currently, advice given by external and independent EEA-qualified lawyers is privileged for the purpose of an EU competition law investigation or filing. Following the Brexit model proposed by the Prime Minister means that advice to clients from external UK-qualified lawyers (who are not qualified elsewhere in the EEA) will not be protected by privilege. Clients and their counsel will need to work together to ensure that information is appropriately protected by privilege where required (communications from in-house legal counsel are not covered by EU legal privilege).
- General competition law compliance post-Brexit
A Brexit will undoubtedly involve additional costs for businesses, both in day-to-day competition compliance and when dealing with specific competition issues such as mergers and antitrust investigations.
The compliance policies of cross-border companies may need to be rewritten to ensure that both EU and UK law is covered, and that case law from both the European and English courts is included. Agreements containing restrictions may need to be reviewed for compliance with both UK and EU competition law, as the two may begin to differ. This is particularly crucial for those companies generating IP or engaged in the supply or distribution of retail goods, as these companies are currently likely to be relying upon the Commission’s block exemptions. As noted above, Brexit places the long-term future of the application of these exemptions (and other EU established legislation) in jeopardy.
When making corporate acquisitions post-Brexit, transactions affecting both the UK and EU markets will require careful analysis to check if more than one filing is requiring. Companies may find themselves subject to review by both the CMA and the European Commission.
Ultimately, the consequences of Brexit are unpredictable and will depend upon both how Britain defines its relationship with the EU post Brexit and what it chooses to do with its domestic competition law.
For further information, please refer to Brexit: the legal implications.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.