Impact of Brexit on Competition & Antitrust
Post-Brexit, the UK will no longer be part of the EU’s “one-stop-shop” merger control regime. The European Commission (“Commission”) will no longer be entitled under the EU Merger Regulation (“EUMR”) to take account of the effects of a merger on the UK in its merger reviews, and the UK Competition and Markets Authority (“CMA”) will no longer be prevented from reviewing mergers that are notified to the Commission.
The most significant consequence of this change is that companies may now face parallel reviews of mergers that would previously have been notified only to the Commission. While the UK merger regime is voluntary, the CMA has the power to “call-in” a merger for review and it can be expected to exercise this power in relation to large or complex mergers. In particular, as the Commission will no longer take account of UK effects when devising remedies, the CMA may be keen to exercise jurisdiction where it believes that a merger could have effects that require remedial action in the UK. Companies that do business in the UK will therefore need to assess the likelihood that their mergers will be of interest to the CMA and consider how best to manage this, both in context of the deal timetable and the interactions between the UK and other jurisdictions in which they file.
A related side effect of Brexit is that some mergers may no longer meet the EUMR thresholds, as UK turnover will no longer be included in the calculation. As a result, companies may find that mergers are reviewable at a national level, rather than central Commission level, with the possibility of multiple EU Member State reviews.
In terms of substance, it is unlikely that Brexit will cause either the CMA or the EU to amend the tests they use determine whether a merger will have a negative impact on competition, as both jurisdictions rely on well established, economically-based assessments.
The UK and EU competition prohibitions (Articles 101 and 102 TFEU, and Chapter I and II of the Competition Act 1998, respectively) are substantively identical. The impact of Brexit on the substantive assessment of agreements, practices and unilateral conduct will therefore be limited, at least in the short term. In the longer term, however, Brexit opens the possibility for a divergence between the UK and the EU.
A key issue will be the extent to which the CMA and UK courts will refer to and be guided by the decision-making practice and jurisprudence of the Commission and the EU courts. At present, Section 60 of the Competition Act 1998 requires the CMA and UK courts to ensure that questions relating to UK competition law are interpreted in a way which is consistent with judgments of the EU courts and to have regard to any relevant decision or statement of the Commission. This cannot remain in force post-Brexit and the UK Government is currently considering the extent and mechanism by which Section 60 will be repealed or amended.
While any such repeal or amendment would make it possible immediately to diverge from EU precedent, there are a number of factors that make a sudden or sharp move away from EU competition law principles unlikely. First, the UK has a body of precedent developed over the last 20 years that is based on EU competition law and will continue to stand post-Brexit. Any move away from that body of precedent will likely be incremental. Second, and related, under the proposed Brexit legislation current EU block exemptions will be part of UK law at the time of Brexit, subject to modifications to be made by the relevant minister within a two-year period. Third, companies who do business in the EU will continue to be subject to the EU competition rules. It would make little sense for the UK to diverge sharply while the EU remains a significant trade partner for UK companies, as to do so would impose additional compliance burdens on those companies.
In procedural terms, Brexit is expected to lead to a significant increase in the number of CMA investigations. As with merger control, the UK will no longer be part of the Commission’s remit when it investigates potential breaches of the competition rules. In addition, the CMA will no longer have to cede jurisdiction to the Commission when the latter opens proceedings, as it does now. We can expect, therefore that parallel investigations are likely.
In the immediate aftermath of Brexit, however, where an investigation has already been opened, it is likely that the Commission will continue to investigate the elements pertaining to UK pre-Brexit conduct (in order to ensure that the EU competition rules are enforced effectively by reference to the situation at the time of the alleged infringement). Given this, and the retrospective nature of competition investigations, it may take some time for parallel investigations to be seen.
For companies that may have been involved in a cartel infringement, and wish to obtain leniency, however, there will be an immediate impact, namely that the “short form” leniency application process will no longer include the UK, thus necessitating a separate application to the UK.
More generally, with respect to cartel enforcement, the CMA can be expected to actively coordinate its enforcement activities (such as dawn raids and information gathering requests) with the Commission, in the same way as it already does with other global enforcement agencies, such as the U.S. DOJ.
The UK is currently a leading forum for private litigation in the competition law sphere, including for follow-on damages actions arising out of an infringement decision by the Commission. A number of factors support the UK’s status as a leading litigation forum, including the UK’s collective actions regime for competition litigation and the fact that the UK has already implemented the provisions of the EU’s Damages Directive, covering key issues for competition litigation, such as disclosure of evidence, rules governing passing-on of overcharges, and joint and several liability of cartel participants.
Brexit is likely to lead to a number of issues that will need further consideration by policymakers with respect to follow-on damages actions. At present, Commission decisions are binding on UK courts, removing the need for a claimant to prove the infringement. It is unclear whether this will remain the case. If not, claimants may be deterred from bringing claims in the UK. Also, it is unclear to what extent the jurisdictional rules for bringing a foreign action in the UK may change post-Brexit and whether there will be an impact on the enforceability of UK judgments in EU Member States.
Deirdre Taylor is an English qualified solicitor, and is a partner in the firm’s worldwide antitrust and competition law practice group. She is based in the firm’s London office.
Ms. Taylor’s practice encompasses the full range of antitrust issues, including cartel investigations, merger control, and abuse of dominance. Ms. Taylor has provided antitrust advice to clients across a number of industries, including: telecommunications, aviation, financial services, oil and gas, engineering, retail, pharmaceutical, and manufacturing.
Some of Ms. Taylor’s recent experience in relation to cartel investigations includes defending a multi-national corporation in connection with worldwide antitrust and regulatory investigations in the financial sector and advising a client in the consumer goods sector in relation to a national, and potentially EU-wide, cartel investigation. Recent merger experience includes obtaining UK clearance in the engineering sector, UK clearance for a high-profile retail merger, and EC clearance for a merger in the electronics distribution sector.
Deirdre can be contacted on +44 (0)20 7071 4274 or by email at firstname.lastname@example.org