The Competition Act 2002 replaces previous ... - CPA Ireland

The Competion Act 2002 Subject: Formation 1 Legal Framework Author: Anna Louise Hinds, current examiner. The Competition Act 2002 replaces previous competition legislation enacted in Ireland but to a large extent, it does not alter the substantive competition rules originally introduced by the Competition Act 1991. The majority of changes introduced by the 2002 legislation deal with the control of mergers and procedural aspects of competition enforcement in this jurisdiction. The 2002 Act introduced these changes in anticipation of the new decentralised regime for the enforcement of EC competition law in the EU Member States, which came into force on May 1st 2004. The Competition Act 2002 has become the cornerstone of Irish competition law, replacing not only the Competition Act 1991, but also the Competition Amendment Act 1996 and the Mergers and Takeovers (Control) Act 1978. The 2002 Act offers, for the first time in the history of competition law and in Ireland, comprehensive and all-encompassing legislation, dealing with all aspects of competition regulation in the State. The aim of any jurisdiction where competition legislation is in place is to deal essentially with anti-competitive arrangements and practices. The Competition Act of 2002 is designed therefore to prevent anti-competitive arrangements and abuse of dominance, and to control mergers. To a large extent, the provisions of the 2002 Act, dealing with anti-competitive arrangements and abuse of dominance mirror the equivalent provisions of the EC Treaty. Section 4 of the Competition Act 2002 deals with the regulation of anti-competitive behaviour and contains largely similar terminology to Article 81 EC Treaty. Section 4 remains akin to the previous provisions of the Competition Acts 1991-1996 in terms of substance. It places a general prohibition on agreements between undertakings, decisions by associations of undertakings and concerted practices whose object or effect is the prevention, restriction or distortion of competition. This prohibition is subject to exception where certain procompetitive conditions are fulfilled under section 4(5). Under the 1991 Act, it was possible for undertakings to notify their agreement to the Irish Competition Authority. The Competition Authority would grant a certificate if it felt that the agreement did not fall foul of section 4. The Competition Authority could also grant a licence on the basis that even though the agreement infringed section 4, it nonetheless merited an exemption as, on the balance, its pro-competitive effects outweighed its negative effect on competition in the market. In terms of procedure, the Competition Act 2002 introduces significant changes as it abolishes the 1991 notification system. This is in conjunction with similar changes introduced in the enforcement of European competition law. The reasons for the abolition of the notification system at both Irish and European level are similar in that the authorities in both jurisdictions found themselves overburdened by an administrative process that was not fruitful in highlighting serious breaches of competition. Various elements need to be proven in order to establish an infringement of section 4. Firstly, it must be shown that an ‘undertaking’ is involved. An undertaking, under both Irish and EC competition case law is any economic entity engaged in the market for gain. If an entity can show that it is not an ‘undertaking’, it has an immediate defence available to it as only the activity of an ‘undertaking’ is caught by the Competition Act 2002. It must also be shown under section 4 that there is an ‘agreement’ or ‘concerted practice’. An agreement need not necessarily be in the form of a legally binding contract. A loose oral agreement between undertakings will be sufficient for the application of section 4. The object or effect of the agreement, decision or concerted practice must be to prevent, restrict or distort competition. Even if the undertakings therefore do not intend to prevent, restrict or distort competition under their agreement but the result or the effect of the agreement nonetheless does so, then it will still fall foul of section 4.

As mentioned, an agreement between undertakings will merit an exemption from the application of section 4, if it meets certain efficiency conditions provided for in section 4(5) of the Act. However, because the notification system has been abolished, undertakings themselves will have to assess this matter instead of relying on a decision of the Competition Authority. The efficiency conditions are that the agreement, decision or concerted practice, having regard to all relevant market conditions, contributes to improving the production or distribution of goods or provision of services or to promoting technical and economic progress, while allowing consumers a fair share of the resulting benefits. In addition, the agreement, decision or concerted practice must not impose on the undertakings concerned terms which are not indispensable to the attainment of its objectives and must not afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question. Abuses of dominance are dealt with by section 5 of the Competition Act 2002, which mirrors the Article 82 EC Treaty provision. As with section 4, the wording of section 5 reflects that of the Competition Act 1991. There is a distinction to be drawn between section 4 and section 5 in terms of their respective application. Under section 4 at least two undertakings must be involved but section 5 covers the unilateral conduct of undertakings acting alone. Section 5 of the Competition Act 2005 provides that any abuse by one or more undertakings of a dominant position in the State or in any part of the State is prohibited. As with section 4, various elements need to be proven to establish an infringement of section 5. Firstly, it must be shown that the undertaking concerned is in a position of dominance. Dominance does not exist in a vacuum. An undertaking is dominant in a particular market in comparison with other undertakings operating in that market. It is necessary therefore to define the relevant market before determining whether an undertaking is dominant in that market or not. The relevant market can be assessed from three different perspectives – the relevant product market, the relevant geographical market and the relevant temporal or seasonal market. Once the relevant market has been determined, it is then necessary to decide if the undertaking concerned is in a dominant position. Dominance is essentially assessed on the basis of market share. The larger the market share, the more likely the undertaking is to be in a dominant position. Finally, a position of dominance is not in and of itself condemned by section 5. In order to be in breach of section 5, the dominant undertaking must be in abuse of its position. Section 5 itself provides a non-exhaustive list of anti-competitive abuses of a dominant position. Basically, price fixing, market sharing, limiting output, discriminatory treatment and tying arrangements amount to abusive conduct. A list of similar activity is offered under section 4 as an example of the type of activity that will amount anti-competitive behaviour under that provision. While section 5 is aimed at the unilateral conduct of one undertaking, it specifies that an abuse by one or more undertakings of a dominant position is prohibited. This phrase has been used at European level to develop the concept of collective or joint dominance, whereby two or more undertakings acting together may hold a dominant position. The Court of First Instance (CFI) has recently clarified this concept in the Airtours case. The CFI held that not only must certain market structures or conditions exist in a situation of collective dominance, but also the undertakings concerned must be interested in parallel or common behaviour as opposed to competitive behaviour. The undertakings must put in place a monitoring system to ensure that the undertakings involved do not deviate from the agreed co-ordination. The market must therefore be transparent so that the undertakings can ensure they all behave in the same fashion. There must be a possibility to sanction non-compliant parties.

The Competition Authority, set up originally by the Competition Act, 1991 is conferred with an increased function in the administration and enforcement of both Irish competition law and also European competition law under Regulation 1/2003. The Competition Act 2002 therefore had to increase the enforcement powers of the Competition Authority. Cross-border cooperation with foreign competition bodies is allowed under the Competition Act 2002. The Competition Authority may therefore provide information and other assistance to foreign competition bodies to facilitate their investigations. There are conditions in place for the disclosure of information, particularly confidential information, which must be complied with at all times. Ireland is a member of the European Union and this means that all European Union law has legal force in this jurisdiction. As a result, there are two systems of competition law in operation in Ireland – Irish competition law and EC competition law. Both Irish and EC competition law can be applied simultaneously (this is not the case however in the area of merger control, where either EC or Irish rules will apply but not both). EC competition law has supremacy over Irish law in the case of conflict. The Competition Act, 2002 states that it is to be construed by analogy with Articles 81 and 82 EC Treaty. One major difference between Irish and EC competition law is that in Ireland it is a criminal offence to breach section 4 of the Competition Act 2002 or Article 81 EC Treaty by virtue of section 6 of the Competition Act 2002. There is a distinction between hardcore breaches, such as price fixing and less serious breaches of competition law for the purposes of criminal sanctions. Section 7 of the Competition Act 2002 renders it a criminal offence to breach section 5 of the Competition Act 2002 or Article 82 of EC Treaty. Section 8 sets out the penalties and proceedings for offences under section 6 and section 7. Part 3 of the Competition Act 2002 puts in place a new system for the control of mergers whereby the Competition Authority and not the Minister for Enterprise, Trade and Employment (as was previously the case) will take decisions in relation to mergers. This new system looks at the actual competitive effect of mergers on the market when determining if the merger will be allowed to go ahead or not. The new test, which is based on that used in the US, is whether the merger or acquisition will result in a substantial lessening of competition. Section 4 and 5 of the Competition Act 2002 will not apply to mergers unless the turnover threshold required to examine mergers under Part 3 of the Act is not met. In general, the 2002 Act is to be welcomed as it introduces a consolidated piece of legislation dealing with all aspects of anti-competitive behaviour and practices. As with previous competition legislation in Ireland, it prevents restrictive anti-competitive agreements, decisions and concerted practices and the abuse of a dominant position. More substantial changes are introduced in the area of merger control, where a new test is applied to mergers and a new procedure is introduced. Overall, the procedural aspects of competition law have been improved by this legislation.