Brexit and its impact on competition law

We consider the implications of Brexit on competition law from two perspectives: (i) looking at the UK Government’s proposed Withdrawal Agreement; and (ii) if the UK leaves the EU on 29 March 2019 without any withdrawal agreement or transitional arrangement (ie a 'no-deal' exit).

What is the Withdrawal Agreement?

The Withdrawal Agreement implements a transition period (currently proposed to last until December 2020) between 29 March 2019 and the UK’s formal exit. During this period, most EU law would continue to apply to the UK as if it were still a Member State, including competition related provisions. After the transition period, the EU and the UK may agree to align competition regimes in the long-run. This remains unclear and could end up looking like the ‘backstop’ or 'no deal' scenario (see below).

The new Competition EU Exit Regulations

Currently, the majority of UK competition law is either EU law itself or derived from and aligned with EU law. Post-Brexit, EU law in the UK will fall away and any gaps are intended to be bridged by domestic legislation.

The recently passed Competition (Amendment etc.) (EU Exit) Regulations 2019 (Competition Regulations) set out the new standalone UK competition regime, by creating new provisions of law where necessary, as well as amending existing domestic law to reflect the circumstances. The Competition Regulations, and the changes they make to existing law, will come into force on 29 March 2019 (exit day). The effect of the Competition Regulations is discussed below, in a 'no-deal' scenario.

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Investigations post-Brexit
  • EU and UK competition law prohibits two forms of behaviour:

    • Anti-competitive agreements.
    • Abuse of a dominant position.

    In the EU, these prohibitions are laid out in Article 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). In the UK, these prohibitions are mirrored in Chapters I-II of the Competition Act 1998.

    Currently, both the UK Competition and Markets Authority (the CMA) and the European Commission (the Commission; the EU competition enforcer) have the power to investigate potential breaches of Articles 101-102, and the CMA also has the power to investigate breaches of Chapters I-II. However, the practical exercise of those powers is normally delineated by geography and agreement between the authorities.

    The Commission carries out the investigation and enforcement of competition law where the breach affects trade between EU Member States (including the UK). The CMA typically investigates those breaches of EU and UK competition law which affect competition primarily in the UK. The CMA is also required to ensure the decisions it takes are aligned with Commission decisions and EU case law.

    No-deal exit

    Under the Competition Regulations, Articles 101 and 102 TFEU will no longer apply in the UK, but Chapters I-II will continue to apply. This will mean that anticompetitive behaviour across EU Member States and the UK may potentially be subject to parallel investigation by the CMA and the Commission. This means companies defending themselves in investigations will need to consider the interplay between the two in their overall defence strategy - for instance, in the timing of leniency applications.

    Timing

    The CMA cannot open an investigation into conduct prior to exit day that was already being investigated by the Commission prior to exit day. Additionally, if the CMA is conducting its own investigation before the day of exit and the investigation contains an EU element, it will need to stop looking at EU elements of the investigation, which suggests that the Commission would be entitled to look at these elements instead. It is not clear if the Commission would immediately seek to take jurisdiction over these cases.

    The CMA considers that it is entitled to a new investigation into conduct already investigated by the Commission, where the Commission’s decision is annulled by the European Court of Justice (CJEU) on or after exit day. This means that companies subject to the annulled Commission decision - who might naturally think themselves free of investigation - would then be faced with the possibility of a new investigation by the CMA for that same behaviour.

    Precedents of decision marking

    Post-Brexit, the CMA will be allowed to make its decisions without needing to follow precedents set by the Commission or EU case-law. However, the CMA and UK courts will still need to align their decisions to cases coming from the CJEU that were decided pre-exit, as set out in the prospective S.60A(2) of the Competition Act 1998 (as added by the Competition Regulations).

    The prospective S.60A(7) notes that the CMA will be able to depart from this principle in a wide range of circumstances e.g. if there are differences between markets in the United Kingdom and markets in the European Union that require a divergence. We would expect divergence between CMA and Commission decisions to grow as time passes and as the CMA gets to grips with its new powers.

    Withdrawal agreement: status during the transition period

    EU law will continue to apply to the UK for the duration of the transition period and the Commission will still be able to investigate breaches of EU competition law which involve the UK. The CMA will continue to investigate under both UK and EU competition law (Articles 101 and 102 TFEU and the Chapter I and II Prohibitions).

    The CMA will need to interpret UK competition law consistently with EU law during this time. CJEU judgments made before the end of the transition period will continue to be binding in the UK.

    Where the Commission has opened - but not concluded - an investigation before the end of the transition period, it will be allowed to continue the case to conclusion and the CMA will not be able to open its own inquiry into the same behaviour, even where the behaviour affects the UK market.

Merger Control
  • The European merger control regime currently operates as a "one-stop-shop". Where EU turnover thresholds are met and the transaction has an EU impact (including in the UK), the parties are required to notify the proposed merger to the Commission. Where parties do notify the Commission, they are then not required to notify individual national competition authorities within the EU.

    If the transaction does not meet EU thresholds and/or if the transaction only affects national markets, national filing requirements do come into play. If the relevant national requirements are met (such as turnover and effect on the local market), merging parties notify individually to the national authorities of EU Member States. In the UK’s case, notification to the CMA is generally voluntary.

    No-deal exit

    The “one stop shop principle” will no longer apply; parties may therefore have to submit parallel notifications to the CMA and the Commission where the transaction affects the UK and EU. Where this happens, the CMA notes that it intends to continue to coordinate with the Commission for efficiency, but this is still a significant burden for merging parties to consider if a no-deal exit occurs.

    Furthermore, English courts will no longer be able to make references to the CJEU or seek clarification from the Commission.

    Timing

    For merger cases where a Commission decision is pending on exit day, the CMA will immediately have jurisdiction to review that merger, if the UK’s national merger control thresholds are met (even if the Commission’s merger analysis will take account of the UK markets). This means the CMA’s 4-month period for review (where it can call in mergers for investigation) will begin.

    Even though notification in the UK will remain voluntary, parties involved in Commission merger proceedings during spring 2019 may want to prepare a separate notification for the CMA, in anticipation of the CMA’s new jurisdiction to review it. If they do not submit a notification and the transaction otherwise meets UK filing requirements, they run the risk of having the transaction called in by the CMA until the end of July 2019.

    However, where the Commission’s decision has been issued on or before the day of exit, the CMA has no jurisdiction to re-review the merger, unless the Commission’s decision is annulled following an appeal.

    Withdrawal agreement: status during the transition period

    The CMA’s guidance suggests that if a deal is struck, the current EU merger control regime and "one-stop shop" principle would continue to apply until the end of the transition period.

    Additionally, as with antitrust cases, if the Commission has opened - but not concluded - a merger inquiry before the end of the transition period, it will be allowed to continue the case to conclusion and the CMA would not be able to open its own inquiry into the same deal.

Follow-on damages claims
  • Currently, if the Commission or national competition authorities find that there has been a breach of competition law, this finding can be used as proof of harm sustained in a damages claim before any national court within an EU Member State - known as “follow on” claims.

    No-deal exit

    Any decisions made by the Commission before exit day can still be relied on for follow-on damages claims in UK courts, including cases that are open to appeal.

    However, claimants cannot use any Commission or EU-27 competition authority decisions made on or after exit day as the basis for the claim, even where the infringement decision relates to facts that existed before the day of exit. Claimants will still be able to rely on CMA decisions as proof in claims in front of UK courts.

Block Exemptions and State Aid
  • Block Exemptions

    The seven Block Exemption Regulations (BERs) published by the European Commission (which currently directly apply in the UK) will fall away in the event of a no-deal exit.

    The BERs will instead apply in the UK under domestic legislation and businesses that currently benefit from the BERs under EU law will continue to be exempt under the equivalent UK law. The Competition Regulations also create a new power for the Secretary of State to vary or revoke the BERs, acting in consultation with the CMA.

    State Aid

    All current state aid legislation comes directly from EU law; there is no specific UK state aid legislation. The Commission is responsible for investigating state aid infringements across the EU (including the UK).

    No-deal exit

    EU state aid rules will cease to apply on exit. The current EU state rules will be transposed into UK law under the EU (Withdrawal) Act 2018 (the Act). The Act makes no material change to the substance of EU state aid rules in transposing them and instead sets up the framework for the CMA to enforce state aid in the UK.

    The CMA will then have the power to investigate and enforce state aid rules against all businesses with operations in the UK (even if they are primarily based in the EU or a third country).

    Any state aid approved by the Commission in advance of exit day would not need to be approved again by the CMA. State aid which has been notified to the Commission which has not reached a decision on or before exit day will need to be re-notified to the CMA. The CMA will have powers to investigate cases where aid has been granted without prior approval and where no block exemption applies (whether before or after exit day).

    Withdrawal agreement: status during the transition period

    The Commission will be able to initiate and continue proceedings where aid has been granted before the end of the transition period and will have up to a period of four years after the end of the transition period to bring enforcement action. The CMA will officially take on its new role of state aid regulator at the end of the transition period. Any cases opened by the Commission before the end of the transition period will be allowed to conclude.

    CMA guidance

    The CMA is currently consulting on draft guidance for its post-Brexit powers in the event of a no-deal exit in relation to its investigatory and merger powers.

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.