UK competition law landscape post-Brexit – the CMA’s role

The competition law regime in the United Kingdom (UK) has remained largely unchanged since it left the European Union (EU) on 31 January 2020 because Article 126 of the Withdrawal Agreement provided for a "transition period" maintaining the existing system until the end of the year. Once this comes to an end, at 11 p.m. GMT on 31 December 2020, the Competition and Markets Authority (CMA) will cease to be a participant in the network of EU competition authorities: it will no longer be a competent authority of an EU member state for the purposes of the EU Merger Regulation (EUMR), nor will it be subject to EU Regulation 1/2003 for the purposes of applying antitrust rules preventing anti-competitive business conduct.

Merger control – review of M&A deals

Following the end of the transition period at 11 p.m. GMT on 31 December 2020 as a general rule the Commission's review of mergers in the EU will no longer extend to their impact on UK markets. This will bring to an end the application of the "one-stop-shop" jurisdictional principle under the EUMR with respect to the UK. Under this principle, a merger that meets the EUMR jurisdictional thresholds (which are based on the size and geographic spread of the parties' revenues) is subject to review by the Commission, to the exclusion of any EU member state merger control rules that might otherwise apply. This mechanism, subject to certain narrow exceptions, removes the need for transaction parties to make potentially multiple notifications for merger approval to national competition authorities across the EU.

The UK's leaving the one-stop-shop system will mean that a merger that today would be considered purely as an EUMR case may if undertaken in the future be subject to parallel review by both the CMA and the Commission under their respective merger control regimes. Where such parallel reviews occur, the CMA has confirmed it will aim to continue coordinating with the Commission and with national competition authorities across the EU.

The new CMA guidance confirms the effect of the Draft Competition (Amendment etc.) (EU Exit) Regulations 2020 (Implementation SI), namely that where a Commission merger review has been initiated by the 31 December 2020 deadline, i.e., is live at the date when the transition period comes to an end, the Commission will retain exclusive jurisdiction to review that merger, including its effects in the UK, and the CMA will not be entitled to carry out its own examination (other than in the limited circumstances of an existing exception to the one-stop-shop principle – whereby, at the request of a member state that considers there to be particular competition concerns in its domestic markets, the Commission decides to refer it back for national-level review).

Initiation of merger proceedings for these purposes is deemed to have happened where the merger has been formally notified to the Commission (or in the rare scenario where the Commission has been formally asked by the transaction parties or by EU member state competition authorities to examine a transaction that would otherwise fall for review in the EU at national level). Such mergers therefore remain under the existing EUMR one-stop-shop principle and are not exposed to the possibility of an additional review in parallel by the UK CMA.

The only other, limited circumstance in which the CMA could assert jurisdiction over a merger which is an EUMR case initiated before the end of the year is if the Commission’s decision is wholly or partially annulled following an appeal and it is clear that the Commission’s re-examination of the merger will not cover its UK aspects.

Where proceedings have not yet been initiated by the Commission as at 31 December 2020 the new, post-Brexit regime will apply and the CMA will be entitled to assert jurisdiction over such mergers without regard to the possible application of the EUMR (subject to the UK jurisdictional thresholds set out in the Enterprise Act 2002 being met). The CMA has encouraged parties to a transaction which could be subject to review around the end of the transition period to engage with the CMA as early as possible, and this will likewise be advisable with the Commission so that there is clarity on all sides as to where jurisdiction lies.

A point worth bearing in mind about mergers notified under the EUMR after the end of the year, and so falling under the new rules whereby the CMA may have standalone jurisdiction to review them, is that, even though the merger may have been cleared by the Commission and completed, the CMA will be able to deploy its powers to issue an "initial enforcement order" to prevent the merging parties integrating their operations in a way that prejudices the ability of the CMA to review the merger.

Enforcement

After 31 December 2020 the Withdrawal Agreement provides that the Commission will remain responsible for the monitoring and enforcement of any UK elements of remedies in pre-Brexit EUMR merger reviews, i.e., commitments from the parties to address competition concerns and thereby secure conditional clearance of the merger. This includes those cases in which the Commission makes its EUMR decision after the end of the transition period but where the proceedings had been initiated prior to that 31 December 2020 deadline. However, the Withdrawal Agreement foresees the practical difficulties this might present and the Implementation System Integration (SI) therefore provides an option for the Commission to transfer its responsibilities to the CMA (insofar as they relate to the UK) by mutual agreement.

Antitrust – cartels and abuse of dominance

Whereas the EUMR is applied only by the Commission, EU antitrust rules prohibiting anti-competitive business conduct can be applied both by the Commission and by national competition authorities in the EU such as the CMA (and by national courts). After 31 December 2020 since the UK will have left the EU, the CMA will no longer be able to apply the EU antitrust provisions – namely Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) which prohibit anti-competitive agreements and abuse of a dominant position respectively – and will only investigate behavior which it suspects is in breach of the equivalent UK domestic antitrust prohibitions under Chapters I and II of the Competition Act 1998 (CA 1998).

Although, unlike with mergers, for antitrust enforcement there is no one-stop-shop principle strictly delineating jurisdiction as between the Commission and EU national competition authorities such as the CMA, the two regimes do have coordination principles to prevent parallel review of the same conduct. As with merger control, the relationship between these two systems will change after the transition period expires at the end of the year, and again the treatment of cases will depend on whether they commence before or after that before.

After the expiry of the transition period on 31 December 2020 the Commission will not have jurisdiction to start new EU antitrust investigations with regard to business conduct in the UK. Such matters will fall instead under the sole competence of the CMA applying the UK domestic antitrust rules.

With regard to antitrust cases which straddle the end of the transition period, the Implementation SI provides that the Commission will continue to be responsible for cases concerning the UK which it has formally initiated under Articles 101 or 102 TFEU before 31 December 2020. For such cases, the CMA will be entitled to request relevant information from the Commission (as it has been able to date) and will continue to provide the Commission with UK-specific expertise where required. The CMA will not, however, be permitted to open its own investigation into competition concerns which are already the subject of an ongoing Commission case at the end of the transition period.

In practice, the situation for these cases which are ongoing at the time when the transition period ends will therefore largely reflect the pre-Brexit position whereby the CMA is prevented from investigating the same conduct as the Commission until such time as the Commission has concluded its own investigation. If the CMA decides to open its own investigation after the Commission has issued its decision in relation to a case which straddles the 31 December 2020 deadline (or indeed a case concluded prior to then), the CMA will have only limited power to intervene against anti-competitive conduct because it will not be able to accept remedial commitments from the parties or issue directions which conflict with those made under the Commission’s existing decision.

In the future, businesses could therefore find themselves subject to parallel antitrust investigations by the Commission and the CMA in relation to business conduct affecting both EU and UK markets, whereas pre-Brexit the Commission alone would have investigated.

The possibility of parallel review also arises in the more limited scenario of an EU antitrust case straddling the transition period: even where the Commission has formally initiated an Article 101 or 102 TFEU case against the business conduct of particular businesses prior to 31 December 2020 the CMA will have the ability to open its own CA 1998 investigation into effects on competition in the UK arising from that conduct insofar as it takes place after 31 December 2020. However, the CMA emphasizes in its guidance that in deciding whether to open or continue with such a case, it will have regard to its published prioritization principles (so in practice it may not pursue any post-Brexit UK conduct if it considers that overall the case is being sufficiently dealt with by the Commission. Furthermore, as with merger control, in the event of such parallel investigations, the CMA will continue its current practice of coordinating with both the Commission and other member state authorities where applicable.

Enforcement

Similarly to the position described above in relation to merger control, under the terms of the Withdrawal Agreement the Commission will remain the competent authority to monitor and enforce commitments given or remedies imposed in EU antitrust cases, including those implemented after 31 December 2020 where the Commission had initiated an antitrust case prior to that date. However, if agreement is reached by the Commission and the CMA, under the Implementation SI the CMA is entitled to take on responsibility for such monitoring and enforcement insofar as the commitments or remedies relate to the UK.

Consistency

Prior to 31 December 2020 Section 60 CA 1998 requires UK courts and the CMA to interpret domestic UK antitrust rules in a manner which is consistent with Articles 101 and 102 TFEU and the decisions and principles established by the Courts of Justice of the European Union (CJEU) in relation to those Articles. However, with effect from 31 December 2020 the Competition (Amendment etc.) (EU Exit) Regulations 2019 repeals Section 60 CA 1998 in its entirety and replaces it with Section 60A.

Section 60A CA 1998 loosens the consistency requirement. It provides a general rule that UK regulators and courts must ensure that there is no inconsistency with pre-Brexit EU case law when interpreting UK law. However, they may depart from the principles laid down by the TFEU and CJEU prior to 31 December 2020 where this is considered appropriate in light of certain prescribed factors, which include the development of post-Brexit EU case law, differences between markets in the UK and in the EU, developments in economic activity, and the particular circumstances under consideration.

A principal purpose of Section 60 CA 1998 was to reduce the regulatory compliance burden for businesses by ensuring that UK and EU antitrust rules operated in broadly the same way. Going forward with Section 60A CA 1998, the CMA and the UK courts will have some flexibility regarding the extent to which they continue to follow established EU case law after the transition period or choose to depart from it. This opens up the possibility of some divergence between the two regimes over time.

As a general approach, it can be predicted that there will continue to be a significant degree of consistency between the two systems, given that the UK domestic antitrust regime is modelled on the EU rules as developed through several decades of case law, as well as because of the benefits to businesses in avoiding the burden of having to comply with two different regimes.

Nevertheless, there may be important areas where the UK considers it worthwhile to take a different approach. For example, although the seven relevant EU "block exemptions" from the antitrust prohibitions will be retained in UK domestic antitrust law as they stand at 31 December 2020 the UK secretary of state (acting in consultation with the CMA) will have the power to vary or revoke their application. One of the most significant of these, the EU Vertical Block Exemption Regulation, is currently under review by the Commission, and so it will be interesting to see how the UK government takes account of any revision of this block exemption – whether it will update the equivalent UK block exemption to reflect the new EU rules, either wholly or in part, or leave the UK rules unchanged.

Looking forward

British businesses operating in Europe will continue to be subject to both UK and EU competition law and therefore will need to keep a careful eye on the practical implications of the changes in the relationship between the two regimes outlined above.

While the CMA's draft guidance does not contain anything unexpected, the Commission is yet to publicly comment on the specifics of the UK competition framework post-transition and any disparity in views between the two authorities on how they will interact remains to be seen.

In the short term, businesses will be well advised to pay close attention to the outcome of the current trade negotiations between the UK and the EU in order to ensure they take account of any specific provisions in a trade deal with regard to the new dual competition law system, so as to ensure that they maintain compliance with both sets of rules.

Authored by Mark Jones and Juliette Parkinson.

______________________

The CMA's draft guidance provides greater detail on its role than is possible to cover in this note, and interested parties should refer to the guidance itself (available here) for the full details if required.