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“Brexit, What’s Next?” Series | UK competition law enforcement after Brexit – divergence from the EU?

With the help of our members, this thought-leadership series focuses on explaining what businesses should expect from the new reality of Brexit – in essence, with “Brexit, What’s Next?”. Today, we present Rachel Brandenburger, Senior Advisor & Foreign legal Advisor to HOGAN LOVELLS US LLP (admitted in England & Wales) and Visiting Research Fellow, Institute of European & Comparative Law, University of Oxford, who will address: “UK competition law enforcement after Brexit – divergence from the EU?”. |


Introduction

On January 31, 2020, the UK ceased to be a member of the European Union (EU). In terms of UK competition law enforcement, the impact was not immediate but, with the transition period ended on December 31, 2020, the impact of Brexit is now real. It will affect not only UK companies but all companies around the world doing, or contemplating doing, business in or with the UK. And it will have implications for business’ overall strategies and compliance programs as well as their day to day operations. Boards of directors, corporate executives and their advisors need to be alert to these developments.

A standalone UK competition law regime reliant on cooperation protocols with other jurisdictions

The UK competition law regime has become a standalone regime, untethered from the EU, and the UK has become a “third country” like the US and other non-EU Member States. This means that the UK will now be working alongside – rather than as part of – the EU competition law regime when investigating the same or related matters.

The UK is no stranger to cooperation with competition agencies outside of the EU. For example, the UK’s competition agency (the Competition and Markets Authority – CMA) and its predecessors (the Office of Fair Trading and Competition Commission), have cooperated with the US Department of Justice (DoJ) and Federal Trade Commission in the past – in merger investigations (in those cases where the ‘one-stop-shop’ EU merger regime did not apply), in cartel investigations (where the DoJ and the UK both have criminal as well as civil enforcement powers) and in a few conduct investigations. Such instances of cooperation will continue – indeed, will probably increase in the future.

But having left the EU, the UK competition regime no longer has access to the unique and integrated regime for cooperation and information sharing in place among EU Member States. The UK therefore needs to establish its own cooperation protocols with the European Commission (EC) for those cases where the CMA and the EC now have parallel jurisdiction. The negotiation of such protocols is envisaged by the EU-UK Trade and Cooperation Agreement (TCA). The TCA was entered into on December 30, 2020 after knife-edge negotiations between the EU and UK. It sets out the terms of the future relationship between the EU and the UK across various aspects of the economy – well beyond competition law – with effect from January 1, 2021.

No proposals for competition law enforcement protocols have yet seen the light of day – and so, for the time being, the UK and the EC are having to work on the same basis as they do with other jurisdictions with which they do not have cooperation protocols. Such limited cooperation (absent investigated parties’ case-specific consent to deeper cooperation between the CMA and EC) will continue unless and until new protocols are agreed between the UK and the EU. The CMA has expressed a wish for enhanced protocols that replicate as far as possible the situation that existed when the UK was an EU Member State. Watch this space.

UK competition law untethered from EU competition law

Untethered from the EU, the CMA has said it intends to “take on a more active role in global cases from January 2021”, and it is already doing so in some current cases. Companies around the world need to keep this in mind when formulating their international competition law strategies for the multi-jurisdictional merger, conduct or cartel investigations to which they are subject.

The CMA’s global role-taking is not confined to individual investigations. It is also already evident in policy formulation: in a joint statement issued on April 20, 2021, the CMA, Australian Competition Commission and German Federal Cartel Office called for more “rigorous and effective” merger enforcement by competition agencies and noted the importance of competition agencies being “willing to challenge the presumption often promoted by merging parties and their advisers that mergers are generally efficiency- enhancing and should only be restrained where there is certainty that serious detriment will result”. This joint statement may be a precursor of further joint initiatives that would have global impact.

Divergence between UK and EU competition law?

Although EU competition law as at December 31, 2020 became part of UK competition law, through a retained mechanism, that does not mean that the UK will remain aligned to EU competition law over time. Indeed, divergence is likely, at least in some respects, and this is anticipated by both the TCA (Chapter 2) and UK competition law (section 60

  • replacing section 60 of the UK Competition Act 1998). Section 60 had required UK courts and regulatory authorities to interpret UK competition law in a manner consistent with the judgments and principles of the Court of Justice of the European Union and to have regard to the decisions and statements of the

With effect from January 1, 2021 section 60(A) broadly permits departure from EU law in “specified circumstances” including the development of post-Brexit EU case law, differences between EU and UK markets, developments in economic activities, and the particular circumstances under consideration. The UK has not yet issued guidance about what this will mean in practice. But differing policy drivers may have an influence – e.g. in relation to distribution and other vertical agreements where the Single Market objective has been a driver of EU competition law but will no longer be applicable in relation to the UK.

Global companies doing business in or with the UK should keep the potential for divergence between UK and EU competition law in mind and consider whether their business practices that were compliant across the EU pre- Brexit will need reviewing in light of changes in UK or EU competition law over time.

Digging more deeply.

Merger enforcement

From January 1, 2021, the EU Merger Regulation’s ‘one-stop-shop’ merger control regime has ceased to include (or be applicable to) the UK. This means that mergers may be reviewable by both the EC under the EU Merger Regulation and the CMA under the Enterprise Act 2002 if the relevant jurisdictional thresholds are satisfied.

Also, the EU Merger Regulation’s thresholds no longer include UK revenue which may mean that transactions that would previously have come within the Regulation no longer do and may now be reviewable by EU Member State competition agencies as well as the CMA.

The CMA expects to have a 50% increase in its mergers caseload. It has been allocated additional funds and staff to deal with the anticipated workload increase. As the EU and UK substantive merger tests are similar, at least on paper, divergent outcomes may seem unlikely but the reality is more complex for a number of reasons:

  • the CMA has become increasingly interventionist in the past couple of It has taken an expansionist view of its jurisdiction in some recent cases (e.g. Sabre/Farelogix; Amazon/Deliveroo). It referred 20% of the mergers it reviewed for an in-depth Phase 2 in 2019 compared with 8% (This figure excludes simplified filings under the EU Merger Regulation) by the EC;
  • the EC and CMA investigation timetables and processes for negotiating remedies differ. This will complicate efforts by the CMA and EC to coordinate their investigations should they wish to do so – or should the parties wish them to do so;
  • unlike the EU merger regime, the UK merger regime is one of the very few voluntary merger regimes in the world i.e. there is no legal requirement for the parties to pre-notify their mergers – although many merging parties do and the CMA can also call-in a merger for investigation before or after it has been completed;
  • litigation is playing an increasingly prominent role in UK merger reviews, with relatively quick timetables for appeals on both procedural and substantive issues. This contrasts with the EU merger

Merging parties – including international companies – should keep these considerations in mind when planning their multi-jurisdictional filing strategies, including when negotiating their merger agreements and agreeing how to allocate the antitrust risk between them.

Antitrust investigations

Since January 1, 2021, the EC and CMA may also investigate the same company’s conduct under the anti-competitive and abuse of dominance provisions of EU and UK competition law respectively. Two such “parallel” investigations have already been launched by the CMA. The CMA, as well as the EC, opened an investigation into Apple in March 2021 to probe alleged abuses of a dominant position in the distribution of music. The CMA and EC have also each taken an interest in Google’s advertising practices. The CMA opened an investigation in early January 2021 into Google’s plans to end support for third-party cookies in its search browsers; the EC is reported to be considering a similar investigation.

In all, the CMA anticipates an additional 5 to 7 antitrust investigations a year. The early indications are that the CMA will wish to make its mark on the global stage in relation to antitrust as well as merger investigations – maybe especially in the digital and pharmaceutical sectors. International businesses should keep this likely increased CMA investigation activity in mind when formulating and implementing their businesses practices in the UK.

Reform

On top of the changes to UK competition law resulting from the UK’s departure from the EU, other changes are in the air that companies doing business in, or with, the UK should monitor.

In February 2019, the CMA’s then Chairman, Andrew Tyrie, noted that “the UK has an analogue system of competition and consumer law in a digital age”. A number of reports proposing changes have been published since then, including “Unlocking Digital Competition” by a panel of experts led by Professor Jason Furman for the UK Treasury, a CMA report on the state of competition in the UK, and a report by John Penrose MP for the Treasury on how the UK’s competition regime “can be enhanced in the context of Covid-19 and the end of the [Brexit} transition period”.

Many of the proposals in these reports would involve legislative changes for which there is currently no Parliamentary time allocated. However, a Digital Markets Unit was formed in April 2021 to enable the CMA to conduct investigations in the digital sector more closely with the UK communications and data protections agencies (OFCOM and the Information Commissioner’s Office). The three agencies have also made joint proposals to the UK government for “a new regime to govern the most powerful tech firms – those with ‘strategic market status”. Notably for this article, these proposals are not identical to the EC’s proposed Digital Market Act proposals and could therefore result in divergence between UK and EU regulation of the digital sector. The CMA and EC are also considering what role sustainability arguments should play in their enforcement endeavours. Here too, the two agencies may not land in the same place. Watch these spaces.

Conclusion

International companies should keep a close eye on how UK – and EU – competition law and enforcement develops, not only in the near term following Brexit but also in the longer term. There is scope for business to make its voice known and seek to influence the developments now; and there will likely be a need to adjust business strategies and operations over time.

Author:

  • Rachel Brandenburger, Senior Advisor & Foreign legal Advisor to HOGAN LOVELLS US LLP (admitted in England & Wales) and Visiting Research Fellow, Institute of European & Comparative Law, University of Oxford.

Stay tuned for more on this series! We hope you enjoy these Thought-Leadership pieces written by our members.