Competition law disputes – new threats and opportunities

June 2016 | SPOTLIGHT | COMPETITION & ANTITRUST

Financier Worldwide Magazine

The past few years have seen a significant growth in competition law disputes in the UK (and, indeed, elsewhere in the EU). Cases range from civil damages litigation by businesses following on from competition authorities’ findings of anti-competitive conduct (such as cartels), to standalone claims arising from commercial disputes between parties.

Whereas competition law disputes were rare 10 years ago, they are now relatively commonplace. There has a been a significant uplift in the volume of claims launched in the courts and, for each case that becomes public knowledge through the issuance of proceedings, there are many more that are settled behind closed doors.

The growth in competition litigation should be on all business leaders’ radar. Businesses that infringe competition law today face a much greater risk of complex and expensive litigation (over and above the ever-present risk of competition authority enforcement). This further underlines the importance of compliance with competition law – and of factoring competition law risk into strategic commercial decisions.

However, as a positive, these developments also present a real possibility of obtaining redress for anti-competitive conduct by others. Indeed, it is all too easy to see the possibility of litigation merely as a threat rather than as an important means to protecting the business’ rights and protecting the business’ interests. Understanding these threats and opportunities is key.

The consequences of ‘getting it wrong’ with regard to competition law have always been severe. For many years, the competition authorities (including, for example, the UK’s Competition and Markets Authority, and its predecessor the Office of Fair Trading) have been at the forefront of enforcing the competition rules.

The competition authorities have extensive investigatory powers and, where they conclude that there has been an infringement of the law, they have the ability to impose significant sanctions. Businesses face the risk of fines of up to 10 percent of worldwide group turnover (indeed, the largest competition fine in the EU to date is over €1bn), in addition to the costs associated with dealing with an investigation. Competition authorities are also increasingly seeking to hold individuals to account for their conduct, with the threat of criminal prosecution for certain types of conduct and the possibility of seeking director disqualification orders lasting up to 15 years.

Over the past few years, however, an additional threat – or, for some, opportunity for redress – has evolved, namely the possibility of damages claims in relation to competition law infringements.

It is now almost invariably the case that, where a competition authority decides that a business has infringed the competition law rules, the business in question will swiftly face claims from third parties who say that they have suffered loss as a result of the anti-competitive conduct.

The most common scenario in which competition damages claims occur is in relation to cartels. Indications that a competition authority is investigating suspected collusion in an industry should – and increasingly will – cause customers to consider whether they have overpaid for the products or services in question. Indeed, given that cartels are often driven by a desire amongst the cartellists to protect themselves from open price competition, the possibility that customers have overpaid is a very real one.

Where a competition authority makes a finding that there has been collusion between suppliers, customers can use that in court as evidence of the unlawful behaviour. The claimant still needs to prove the loss that it suffered as a result of the cartel, but it is often in the driving seat in pushing forward its claim. In practice, cases rarely go to trial but are instead usually settled on terms that can include significant financial compensation payable to the claimants.

These so-called ‘follow on’ damages claims in cases where there is a competition authority finding of infringement are here to stay. Indeed, such claims are likely to become even more prevalent in the future, as potential claimants become increasingly aware of the possibility of recovering losses caused by others’ anti-competitive conduct. For various procedural reasons, the English courts are a favoured location for such claims.

It is, however, becoming increasingly common for businesses to challenge suppliers’ or competitors’ conduct even where the competition authorities have not already been involved. Many such cases are not in the public domain, because they settle before court proceedings are launched. However, two recent cases give a flavour of the sorts of challenges that are being brought.

Earlier this year, a property development company called High Peak issued proceedings in the Competition Appeal Tribunal against Tesco. They argued that a restrictive covenant in favour of Tesco was anti-competitive because it restricted them from developing a nearby piece of land into a rival supermarket. The case was settled shortly after proceedings were issued. The terms of the settlement are confidential, but it has been reported that they included Tesco agreeing to release the claimants from the restrictive covenant.

Also this year, the High Court ruled on a claim by Streetmap against Google. Streemap claimed that Google promoted its Google Maps product over rival services through a “cynical manipulation of search results”. Streetmap’s complaint was that the way in which Google presented its search results unduly favoured its own Google Maps service over those of other providers such as Streetmap. In essence, Streetmap’s objection was that Google Maps results would appear in a visually prominent map near the top of the search results, with Streetmap results appearing merely as a text-only link lower down the page. Streetmap’s clear concern was that people searching for an address or a location (such as a hotel or a restaurant) would be much more likely to use Google Maps than they would be to click through to Streetmap’s own offering. To some extent, Streetmap was piggybacking on concerns that have been raised by the European Commission (which is conducting ongoing investigations into Google’s conduct) that Google may hold a dominant market position for online search and online search advertising and, accordingly, that competition law imposes a special responsibility on it not to act in a way that could be regarded as abusive of its market position. The High Court ultimately found in favour of Google, although Streetmap has sought leave to appeal the judgment to the Court of Appeal.

Over the past few years, businesses’ awareness of the possibility of using competition law to protect their commercial position has grown and, arguably, legal advisers’ ability to run such cases successfully has developed in tandem. Competition law arguments can be unavoidably complex and, accordingly, expensive to run. But the spectrum of such cases is vast – ranging from using competition law in the context of commercial negotiations through to full-blown litigation – and costs can be controlled accordingly. Indeed, in some cases, merely raising the possibility of a competition law argument can be sufficient to secure a ‘quick win’ if, for example, the other party is keen to avoid competition scrutiny of its conduct.

It is also worth noting that recent changes in the law (in particular under the Consumer Rights Act 2015) are intended to make it easier for claimants to bring claims and have paved the way for class-actions that previously were not permitted in the UK. That new legislation introduced a new ‘fast-track’ procedure for claims before the Competition Appeal Tribunal, which was successfully used by the claimants in the Tesco vs. High Peak case. The full impact of this new legislation remains to be seen, but it can only facilitate competition law proceedings.

With all this in mind, the growth in competition litigation should be on all business leaders’ radars. The drivers for ensuring that businesses comply with competition law are no longer driven solely by the risk of competition authority investigation. The risk of commercial challenge, including in the courts, has become very real.

To protect themselves, all businesses should ensure their staff have an appropriate awareness of competition law and that staff know who to turn to for advice. Spotting potential issues early enables a business strategically to manage any associated risks. Spotting them too late could risk disputes that expose the business to significant commercial and reputational risk.

Simon Barnes is a competition law partner at Shoosmiths. He can be contacted on +44 (0)3700 868 912 or by email: simon.barnes@shoosmiths.co.uk.

Simon Barnes

Shoosmiths