Competition law in a
commercial context
Dr. Paul Hughes
4th October 2013
Personal backgound
• English solicitor and academic, with over
20 years experience of EU and UK
competition law
• I became involved in competition law
through commercial law
• What I am not – a Sri Lankan attorney!
What is competition law?
• Competition law is a mandatory and pervasive regulatory
environment relevant to Sri Lankan exporters,
irrespective of contractual choice of law
• It is a regulatory interference in markets in order to
ensure that the latter function effectively, thereby
generating pro-consumer efficiencies
• Interference occurs where anti-competitive agreements,
monopoly power or mergers threaten to diminish rivalry
in a harmful way
• Non-compliance creates tortious liability and, in some
regimes, criminal liability
• What it is not – the common law restraint of trade
doctrine
Which states/supranational bodies
have competition law?
• Over 110 countries have effective competition law
regimes, many of which are modelled on EU competition
law, e.g.
– UK Competition Act 1998 and Enterprise Act 2002;
– Indian Competition Act of 2002; and
– the Competition Act of 2004 of Singapore
all of which regulate anti-competitive agreements, any
abuse of a dominant position and mergers.
• They are commonly effects-based prohibitory regimes
Which states/supranational bodies
have competition law?
• The Peoples Republic of China has a competition law
regime which is intended to:
– advance consumer interests; and
– promote economic efficiency
and which allows the government to protect its economic
interests, for instance through subjecting foreign
acquisitions of Chinese corporations to regulatory
scrutiny.
• The authorities are currently using the prohibition of
resale price maintenance to drive down the baby milk
prices charged by foreign companies
Which states/supranational bodies
have competition law?
• There are also comprehensive competition laws and
competition authorities in place in:
– Indonesia,
– Thailand
– Vietnam; and
– Malaysia
• Brunei Darussalam, Cambodia, Lao PDR and Myanmar
intend to introduce competition law.
Which states/supranational bodies
have competition law?
• ASEAN Member States have committed (within an ASEAN
Economic Community Blueprint) to introduce national competition
policy and law by 2015
• Why?
– To ensure a level playing field and a culture of fair business
competition; and
– So as to enhance regional economic performance and attract
inward investment
• Sri Lankan Sunday Times 29 September 2013:
– “…many Asian countries…have propelled their economic growth
with FDI. Why has Sri Lanka failed to attract FDI?”
– Need to adopt policies conducive to Foreign Direct Investment
Competition law principles and its sectorspecific application
• Competition law at its most complex can require
sophisticated economic analysis, however, it can be
reduced to some basic principles which are evident in
nearly all the regimes in operation globally
• Its importance has also been recognised in sectors such
as banking, telecoms and energy, where it is either
embedded in or, in the case of the United Kingdom
banking sector, due to be embedded within the sectorspecific regulatory system and where it should play an
important role in ensuring rivalry drives down prices
What is the commercial context in which
competition law can become relevant?
• Lawful commercial strategies:
– Attempting to acquire new technology or
expanding into new product markets
– Seeking to expand into new geographic
markets
– Wanting to form collaborative joint ventures or
to merge with other enterprises in order to
create economies of scale or scope
What is the commercial context in which
competition law can become relevant?
• Unlawful commercial strategies:
– Entering into ‘vertical agreements’ that have as their
object or effect the reduction of competition e.g. in the
EU
the conferral of absolute territorial protection or
imposition of resale price maintenance; or
the conclusion of agreements that have the effect
of foreclosing markets, for instance where one of
the parties has market power and the scope of the
contractual restraints is excessive
What is the commercial context in which
competition law can become relevant?
• Unlawful commercial strategies:
– Engaging in cartels which are designed to increase
prices, reduce output, allocate markets/customers or
rig bids; or
– Using monopoly power to foreclose markets, e.g.
employing predatory pricing designed to oust rivals or
deter entry or exploiting that power (perhaps in the
form of excessive prices)
What is the commercial context in which
competition law can become relevant?
• Unlawful acquisition strategies:
– acquiring decisive influence over another undertaking
– in a manner that will create: a ‘significant impediment
to effective competition’ in the EU (or a substantial
lessening of competition in the US - other tests may
be applicable in states where US or EU merger
control rules do not apply)
Article 101(1) TFEU and Section 1
Sherman Act 1890
• Agreements and concerted
practices between and
decisions by associations of
• Undertakings
• Which may affect trade
between member states
• Having as their object or effect
• The prevention restriction or
distortion of competition in EU
• Any agreement combination or
concerted action
• Which unreasonably restrains
trade; and
• Has an effect on inter-state
commerce or foreign
commerce
Article 102 TFEU and Section 2 Sherman Act 1890
• Any abuse by one or
more undertakings of a
dominant position within
the common market or in
a substantial part of it
shall be prohibited as
incompatible with the
common market insofar
as it may affect trade
between member
states…
• Every person who shall
monopolize, or attempt to
monopolize, or combine
or conspire with any other
person or persons, to
monopolize any part of
the trade or commerce
among the several
States, or with foreign
nations, shall be deemed
guilty of a felony . . .
Sanctions
• Article 101(2) TFEU – nullity
sanction; the relevant
restrictions will be void (the
whole agreement may fall
away – ‘blue pencil test’)
• Regulation 1/2003 – fines of
10% group global turnover
N.B. even minority equity
participations may expose the
‘parent’ company to joint and
several liability for the
subsidiary’s fines
• Courage Ltd v Crehan – civil
action and damages; breach of
EU or UK competition law is a
statutory tort; Articles 101 and
102 TFEU are ‘directly
effective’
• Sections 1 & 2 Sherman Act violations unlawful and a
criminal felony
• Individuals and corporations
can face fines
• Individuals can be sentenced
to up to ten years in prison for
cartel activity
• Civil actions - treble damages
(90% of antitrust enforcement
in the US is through civil
action)
The effects-based approach
•
•
•
•
Both US antitrust and EU competition law apply an effects-based approach
EU:
– Days Medical Aids Ltd v Pihsiang Machinery [2004] EWHC 44 (Comm):
exclusive distribution agreement of Korean mobility scooters in UK potentially
unenforceable due to length of exclusivity – restraint of trade doctrine required to
give way to EU competition law
– Exclusive sale obligation by Alrosa in favour of de Beers in respect of Russian
raw cut diamonds to be imported into EU potentially void under Article 102: Case
C-441/07 P Commission v Alrosa Company Ltd
– Gencor/Lonrho: mergers of two South African mining companies with sales of
platinum and rhodium in EU in breach of EU merger rules and transaction
incapable of consummation, even though lawful in South Africa; in Case T102/96 Gencor v Commission the General court of the EU confirmed that it was
compatible with public international law to apply EU merger rules to a south
african merger, in view of the foreseeable, immediate and substantial effect of
the concentration in the EU
– Cartels: DRAMS, LCDs and Intel Air Cargo (exporting non-EU companies fined)
Virtually all EU Commission cases are generated by leniency applicants seeking
exoneration from fines.
The EU Commission's cartel fines in in 2010 totalled €2.9 billion and in 2011 €614
million
Criminalisation of competition law in the EU
• EU competition law – no criminal sanctions
• UK – 5 years imprisonment and unlimited fine; cartel
profits are proceeds of crime subject to disgorgement
• France – 4 years in jail and a fine of up to €75,000
• Other countries are criminalising
• UK, Sweden and Finland have laws that allow directors
of non-compliant companies to be banned from acting as
directors
US – recent enforcement
• US Department of Justice typically has around 50 cases open at any
one time
• No ‘pure US’ cartels – both EU and US regulators aggressively
pursue component suppliers, even where cartelist input into goods
or services sold into the EU or US is relatively small (Asia
manufactures for the world)
• In 2009-2010 in three cartel cases 13 companies were subject to
fines in excess of US$10 million each
• US$1.2 billion aggregate fines were imposed on the thirteen
companies, ranging from US$15.7 million (El Al Airlines – air cargo)
to US$400 million (LG Display)
• Executives faced average jail sentences of 23 months in 2009 (18
months on average for non-US citizens)
• More than half of DoJ cases rely on leniency and ‘whistleblowing’
• Civil action settlements: LCD case US$1.1 billion in total of which
Samsung paid US$82.67 million and LG US$75 million
The impact of leniency programmes
“Once the toothpaste is out of the tube, it's hard
to get it back in.” Bob Haldeman, White House
Chief of Staff and Watergate co-conspirator
… and it is a slippery slope
“...I think that where it sort of got deeper in the end is
that we all knew each other’s prices and customers
exactly. It was a sharing of information and I think that,
from that, we just didn’t fight each other any more...”
BemroseBooth Limited Sales Director being interviewed
by the UK Office of Fair Trading as part of its
investigation of price fixing and market sharing in the
stock check pad market - 31st March 2006.
How does this affect Sri Lanka?
• Agreements and mergers may be unenforceable in the
states in which they are due to be implemented if they
violate local competition law – total failure of
consideration?
• Companies (and their parent/holding companies) may be
liable to regulatory fines and tortious civil action, with
possible enforcement of judgments in Sri Lanka
• Executives in Sri Lanka may pick up ‘bad habits’ through
lack of familiarity with competition law and pay for it
heavily, if they export to markets in a manner that
violates local competition law
• Cartel profits may be ‘proceeds of crime’
Is Sri Lanka missing out by not having competition
law?
• Efficiency:
– Monopoly market power impairs incentives to reduce
firm costs: Liebenstein (1996)
– Competitive pressure impacts on firm efficiency and
growth rates: Blundell et al (1995); Nickell (1996)
– New entrants to a market can generate higher
productivity: Caves (1998)
Is Sri Lanka missing out by not having competition
law?
• ASEAN countries anticipate greater competitiveness and inward
investment though the introduction of competition law
• Fines are high and getting higher – of benefit to the EU/national
treasury
• Driving down excessive prices charged by cartelists and
monopolists is societally beneficial
• It is possible to adopt a system that avoids the worst excesses of US
antitrust civil litigation
• Business executives would become familiar with a regime that has
proliferated globally and could catch them out if they are unaware of
the pitfalls
• A domestic regime would generate greater awareness of
competition law and thus of the opportunities it can offer to Sri
Lankan businesses seeking to break into foreign foreclosed markets
Conclusions
Whatever regulatory path Sri Lanka
follows, given the proliferation of
competition law regimes worldwide, its
exporters still face a pressing need to
keep the toothpaste in the tube!