Over three and a half years from the date of the UK's Brexit referendum, the UK left the EU on 31 January 2020. In so doing, the UK entered into a 'transition period' under the auspices of the European Union (Withdrawal Agreement) Act 2020 (the Withdrawal Act).2 Under this transitional arrangement the EU competition law rules applicable in the UK will remain unchanged during the transition period. As such, the European Commission will still retain all of the competencies that it exercised whilst the UK was still an EU Member State. At the time of writing, the transition period is set to expire on the 31 December 2020.
Before the expiry of the transition period (the expiry date), negotiations will take place with the EU on the terms of the UK's future relationship with the bloc. During these negotiations, the EU and the UK will seek to conclude a free trade agreement (FTA), the provisions of which are also expected to cover the application and enforcement of competition law post-expiry date. With respect to the parties' priorities in those trade negotiations, both the UK and the EU published their negotiation mandates in February 2020. The EU has been clear that it expects the future partnership to prohibit anticompetitive agreements and abuse of dominant positions, contain a merger control regime, and implement rules on State aid as part of the 'level playing field' guarantees that the EU is seeking.3 The UK has acknowledged that any FTA should commit the parties to maintain effective competition laws but has been clear that in its view, this does not require legal or regulatory alignment with the EU.4
In the meantime, the CMA has published guidance on its functions under the Withdrawal Agreement5 during the transition period (the CMA guidance). The CMA guidance also touches on the treatment of investigations into anticompetitive behavior initiated during the transition period that have not been concluded by the expiry date. In these instances, the CMA will not have the competence to open fresh investigations into suspected anticompetitive behaviour where the European Commission had opened an infringement investigation during the transition period – this competence will be retained by the European Commission even after the expiry date. With respect to any CMA investigations still open on the expiry date, the CMA would retain the power to conclude its investigation but would cease to examine any EU elements of the behaviour at issue from that date. Likewise, mergers with an EU dimension remain within Commission competence during the transition period. This is also the case for merger investigations initiated by the Commission during the transition period, even if no final decision is taken by the expiry date. On state aid, similarly, the Commission retains its state aid competencies during the transition period, and state aid granted by the UK during the transition period remains subject to state aid rules.
Whatever the agreed terms framing the UK's future relationship with the EU, they will need to be approved by the UK Parliament and the EU. If agreed terms cannot be reached by the expiry date, the UK has indicated its intentions to cease to operate within EU rules regardless. If this circumstance did arise, the EU prohibition on anticompetitive agreements (including cartels) under Article 101 of the Treaty on the Functioning of the European Union (TFEU), and the EU prohibition on abuse of dominance under Article 102 TFEU, would no longer be applicable in the UK. Therefore, anticompetitive behaviour in the UK would be subject to examination by the CMA (and sectoral regulators with these powers) under the Chapter I and Chapter II prohibitions in the Competition Act 1998 (CA98), which closely mirror EU provisions. However, were anticompetitive behaviour of this nature deemed to affect both trade within the UK and trade between the remaining 27 EU Member States, then it is possible that the same behaviour would be subject to concurrent investigations by the CMA and the European Commission (as well as by authorities in other jurisdictions). In terms of merger control, if the transition period were to expire without an agreement, the CMA would no longer be prevented from investigating, under the Enterprise Act 2002 (EA02), a merger that has a Community dimension. Therefore mergers previously under the exclusive jurisdiction of the European Commission would also become reviewable in the UK. This means that certain mergers could be subject to simultaneous review by both the Commission and the CMA (as well as by authorities in other jurisdictions).
With respect to state aid, the UK has said little at the time of writing about how state aid rules would operate in the event that no FTA is concluded. However, a set of draft State Aid (EU Exit) Regulations 2019 (the State Aid Regulations) were laid before the UK Parliament in January 2019, and a draft CMA guidance document on state aid procedures was published for consultation in March 2019.6 Although both the draft Regulations and the related guidance were published in a different, no-deal Brexit context, they may be at least illustrative of the kind of approach the UK might pursue in the event that no FTA is concluded. The draft State Aid Regulations envisaged the creation of a UK state aid regime, that has been described as a 'UK-wide subsidy control framework, the enforcement and supervision of which would be conducted by the CMA'.7 Public authorities would need to notify intended state aid to the CMA for approval. Any public authority would be entitled to notify. State aid that had already been approved by the Commission would remain valid but any notified UK state aid not yet approved by the Commission would instead need to be submitted to the CMA for review and approval. The procedures are broadly modelled on the current EU framework, with the CMA adopting the role of the Commission, with some discrete differences. For example, the ability to conduct 'dawn raids' for state aid reasons is envisaged, along with a maximum time limit of 18 months for formal investigations, neither of which are features of the EU procedure.
Whatever form the UK's relationship with the EU will take after the expiry date, the CMA has been proactive in preparing for its role during the transition period. In particular, the CMA has been contacting parties who are contemplating, or who have initiated, EU merger notifications to ask for information about their mergers in anticipation of effects on UK markets. The review process typically starts with a letter requesting information about the deal, and the CMA may call the deal in for full review (or may decide that a review is not warranted). The CMA has also been busy bolstering its resources and expertise to ensure it has the staff to deal with its potential new mandate, not least in state aid, as an area of competition law where it has not previously been very active.
ii UK competition law regime
The CA98 prohibits agreements or concerted practices that prevent, restrict or distort competition (Chapter I prohibition) and abuse of a dominant position (Chapter II prohibition), in each case within the UK. The EA02 contains the criminal cartel offence, and the legal basis for UK merger review and market investigations. The CMA has primary responsibility for public enforcement of competition law in the UK – both the Chapter I and Chapter II prohibitions and, as it currently stands, Articles 101 and 102 TFEU – although these provisions may also be enforced by private parties before the courts. Clearly, the CMA will no longer be able to enforce Articles 101 and 102 TFEU once EU laws cease to apply in the UK, but that will not affect the substantive provisions of the equivalent rules in the UK. In addition, a number of sectoral regulators have concurrent powers to enforce the Chapter I and Chapter II prohibitions and (currently) Articles 101 and 102 TFEU in the regulated markets that they supervise.8
In terms of the prospective reform of the UK Competition law regime, Brexit poses something of a sea change in the role of the CMA, as outlined above. Beyond Brexit, however, the CMA Chair Lord Andrew Tyrie, also wrote a letter containing his proposals for reforms to UK competition law in February 2019. The letter was sent in response to a request from the Department for Business, Energy and Industrial Strategy (BEIS) asking for Lord Tyrie's views and it contains a broad spectrum of suggestions. The focus of those suggestions are measures to deal with two main issues: the growth of the digital economy and the need to restore consumer confidence in the market. In terms of consumer confidence, Lord Tyrie suggests that the renewed focus on consumer interests could be derived from an overriding statutory duty on the CMA and the courts to act in protection of consumer interests. Lord Tyrie makes a range of proposals to bolster CMA enforcement powers, including increased scope to use interim measures. Lord Tyrie also suggests an increase to the incentives for whistle-blowers and the extension of director disqualification powers to consumer law breaches as well as competition law breaches. One of the most radical of Lord Tyrie's ideas is that the Competition Appeal Tribunal (CAT) should be limited to a judicial review-based standard of review of competition law cases, rather than a full merits hearing, in an effort to expedite the competition appeals process. The letter also contains a suggestion that once the CMA takes full competence for merger review in the UK after the transition period expiry date that the UK might move from a voluntary, non-suspensory system to a mandatory, suspensory regime for transactions of a certain size. The letter is ultimately a 'wish list' rather than a concrete set of legislative reform proposals, and Lord Tyrie acknowledges throughout that more assessment is necessary, but it does contain several suggestions of substance that BEIS is likely to engage with within the context of its ongoing competition reform mandate.
Separately, but in a similar vein, in July 2019, the government adopted its new 'strategic steer' for the CMA.9 This emphasised the CMA's role in supporting industrial strategy and improving productivity, as well as preventing harm to consumers – a theme anticipated to influence many of the 2020 discussions around competition reform. Similarly, the manifesto of the current Conservative government, published during the 2019 election campaign, declared that the CMA would be given 'enhanced powers to tackle consumer rip-offs and bad business practices', although it did not elaborate further. In any event, it is fair to assume that in the context of both Brexit and the ongoing discussion about reform of the CMA's role, substantial changes to its enforcement mandate and powers are to be expected.
iii Prioritisation and resource allocation of enforcement authorities
One of the areas of prioritisation for the CMA in recent years has been increasing the level of its enforcement activity overall. In a February 2016 report, the UK National Audit Office criticised the CMA's first couple of years for pursuing too few enforcement cases to a decision.10 It found resources were disproportionately used on market investigations, noting that UK competition authorities imposed only £65 million of competition enforcement fines between 2012 and 2014, compared with almost £1.4 billion imposed by their German counterparts. However, the CMA has increased its enforcement action. Between 2010 and 2015, the CMA (or its predecessor the Office of Fair Trading) opened an average of seven CA98 cases a year, but in 2016–2018 this rose to an average of 10.11 Factoring in the increased activity at the FCA, the direction of travel in the UK is very much towards increased enforcement. Going into 2020, the CMA had 22 open merger cases, 18 competition enforcement cases, seven consumer enforcement cases, one market investigation and one market study.12
In terms of resource allocation, the CMA was allocated a budget (before depreciation) of £65.94 million. Under departmental spending rules in the UK, a maximum of £17.75 million of that budget can be spent on administration expenditure. Personnel costs represent approximately three-quarters of the CMA's budget. The CMA was allocated £20 million in the 2019/2020 financial year specifically to prepare for Brexit.13 The UK budget announcement, expected in March 2020 at time of writing, may also announce some further funding for the Brexit transition period. The CMA has also stated its intention to increase its presence in Scotland, increasing its headcount to around 30, allowing the office to both establish a talent base and prepare for Brexit.14 The CMA has also recruited additional personnel to handle the increased workload expected post-Brexit.15 In August 2019, the CMA also relocated its headquarters to new, larger offices in Canary Wharf in London.16
iv Enforcement agenda and outlook
In terms of the CMA's enforcement agenda digital markets remains a top priority. The UK government commissioned an expert report to review and analyse competition in the digital economy.17 Published in March 2019, the recommendations in the Furman Review on unlocking digital competition, led directly to the establishment of the CMA's Data, Technology, and Analytics (DaTA) Unit in May 2019.18 The DaTA unit will add to the CMA's technological capacities for the work that it is doing in the digital space. The establishment of the DaTA Unit was also heralded in the CMA's Digital Markets Strategy, published in 2019.19
The relationship between competition and regulation is also on the CMA's agenda, following the publication of its report: 'Regulation and Competition: a review of the evidence' in January 2020.20 The report reviews existing evidence around the impact of regulation on competition, and provides recommendations for policymakers on how to revise regulations in order to protect competition across markets. In line with the CMA recommendations in the report, it seems fair to assume that we can expect to see updated guidance on assessing the impact of regulation from the CMA in the near future. An overarching theme of the recommendations in the report is for regulators to look beyond price effects at other dimensions of competition, such as service quality and innovation, so as to capture dynamic competition concerns. The apparent focus on regulation that supports, rather than stifles innovation, will be a welcome sight for the digital markets that the CMA so often expresses intentions to regulate.
Aside from the CMA, 2019 also saw an uptake in competition enforcement by concurrent agencies that looks set to continue into 2020. One of the most active of these in recent years has been the Financial Conduct Authority (FCA), which issued its first formal decision under its competition law powers in February 2019.21 The FCA was also active with respect to its other powers, including the conduct of markets studies. In 2019 the FCA closed its market studies into investment platforms22 and mortgages,23 publishing its final reports in March 2019. Other concurrent regulators were also active, as detailed in the individual sections below, and in April 2019 the CMA published its fifth annual report on the concurrency arrangements in the UK.24 The report recognises the importance of ensuring the enforcement of competition rules in the regulated markets: '[s]ecuring competition benefits in the regulated sectors is particularly critical as not only do these sectors account for an estimated 25% of GDP, but almost every household and business in the UK relies on their services; from basic utilities like heat, light and water to financial services such as banking and insurance.' Coupled with the apparent increasing willingness of the concurrent regulators to use their competition law enforcement powers, this could signal increasing enforcement activity in the regulated markets going forward.
Under the current UK regime, cartels are enforced by both civil and criminal means: corporate civil liability under the Chapter I prohibition contained in the CA98 or the criminal cartel offence for individuals under the EA02, or both. In many cartel cases, both investigations will proceed simultaneously.
i Significant cases
Residential estate agencies
In December 2019, the CMA issued an infringement decision in relation to a price-fixing cartel for residential estate agency services in Berkshire.25 Cartel members were found to have set minimum levels of commission fees for the sale of residential properties. The cartel lasted almost seven years. The CMA issued fines totalling £605,519 to three of the four estate agencies. The fourth estate agency received immunity under the CMA's leniency programme. This follows on from the 2018 decision on residential estate agency services in Burnham-on-Sea, wherein the CMA imposed fines of £307,084.26
Precast concrete drainage products
In October 2019, the CMA fined three concrete drainage companies £36 million, having found that the three companies had participated in a cartel for the supply of precast concrete drainage products between 2006 and 2013.27 The cartel members were found to have agreed to fix and coordinate prices and to share the market by allocating customers, and regularly exchanged competitively sensitive information. In addition, in April 2019 the CMA secured the disqualification of two former directors of one of the companies involved.28 The CMA commenced director disqualification against two further directors in January 2020. At the time of writing, these proceedings are ongoing.
Design, construction and fit-out services
In March 2019, the CMA sent a statement of objection to six groups active in the design, construction and fit-out services sector at the same time as they formally admitted to participating in cover bidding in competitive tenders and colluding on the prices they would bid for contracts, which affected 14 contracts between 2006 and 2017.29 In April 2019, the CMA imposed fines of £7 million on five companies, with the sixth benefitting from immunity. In July 2019, the CMA announced that it had secured competition disqualification undertakings from six former directors involved in the cartel. However, in October 2019, the High Court granted two individuals permission to continue to act as directors, subject to strict conditions and only on the particular circumstances of the case.
In 2017 the CAT upheld a decision fining Balmoral Tanks £130,000 for exchanging confidential information on prices and price intentions with competitors manufacturing galvanised steel tanks. The decision concerned a single meeting in July 2012 at which Balmoral was invited to join a long-running price-fixing cartel. Balmoral refused to take part in the cartel, but exchanged confidential information with competitors. The meeting had been covertly recorded by the CMA. The CAT confirmed that sharing information on a single occasion, even when refraining from joining others in price-fixing or market sharing, can constitute a breach of competition law. Balmoral subsequently challenged the CAT's ruling in the Court of Appeal, but the CAT's decision was upheld in its entirety in February 2019.30
ii Trends, developments and strategies
As part of its commitment to drive greater enforcement, the CMA has made a concerted effort to raise awareness of competition law. In late 2018, the CMA launched a cartel awareness campaign to educate businesses about illegal practices and to encourage whistle blowing. Alongside this campaign the CMA released ICM research that showed that awareness of the prohibition on cartel-like behaviour amongst the surveyed companies was low.31 This campaign followed on from the CMA's 'Cracking Down on Cartels' campaign, which promised anonymity and rewards of up to £100,000 for individuals reporting cartel activity.32 This campaign was followed by a 30 per cent rise in the number of tip-offs.33 In a May 2019 article in the Financial Times, it was reported that calls to the CMA's cartels hotline rose 18 per cent in 2018 to 556, up from 471 the previous year.34 This is more than 2.5 times the number reported in 2014 when the CMA began operating.
In February 2020, the CMA launched a new 'Cheating or Competing' campaign targeting business cartels with a focus on issues like price-fixing, bid-rigging and market sharing.35 The campaign page features videos, short guides and case studies to explain what illegal cartels are to business operators. In the wake of the precast concrete drainage products and design, construction and fit-out services cases detailed above, the new campaign includes targeted advice for project directors and managers in the construction industry on avoiding collusion.36
There has also been a trend when sanctioning cartel activity for the CMA to look to disqualify directors in addition to the fine imposed on the company itself. The CMA now regularly considers whether such an action is appropriate once an infringement decision is adopted.
Lord Tyrie's letter noted that hard-core prosecutions are only a small part of the CMA's overall enforcement work, meaning that the CMA does not maintain the scale of specialist expertise normally possessed by agencies with powers of prosecution. He suggested, therefore, that primary responsibility for cartel prosecutions might sit more naturally with an agency that routinely brings criminal prosecutions, such as the Serious Fraud Office. It remains to be seen whether that suggestion will gain any traction in the context of CMA reform.
III ANTITRUST: RESTRICTIVE AGREEMENTS AND DOMINANCE
The prohibition in Chapter I of the CA98 captures a range of restrictive agreements, including cartels (see above) and those agreements (both vertical and horizontal) that do not constitute hard-core cartels but nevertheless damage competition. The most significant (non-cartel) cases from 2019 are outlined below.
i Significant cases
Although decided in 2018, it is still worth noting the CAT decision relating to retail price maintenance (RPM) in Ping Europe Limited v. Competition and Market Authority, not least because it was the first time that an online sales prohibition was examined by a UK court. The CMA fined Ping £1.45 million for banning two UK retailers from selling its golf clubs online. Ping appealed the CMA's decision, but the CAT upheld the CMA's finding that the ban was a restriction of competition 'by object' in September 2018 and imposed a revised fine of £1.25 million (having reduced the fine by £200,000).37 Ping appealed the CAT's decision to the Court of Appeal. In January 2020 the Court of Appeal dismissed the appeal, again affirming the finding that Ping's behaviour was a restriction of competition by object. Ping's challenges to the level of its fine were also dismissed.38
In August 2019, the CMA fined Casio Electronics Co Limited £3.7m in another significant RPM judgment related to online sales bans. The fine was ultimately reduced by 20 per cent because Casio admitted to breaking competition law and engaging in RPM. Casio had used software to make it easier to monitor the prices set by retailers, and had imposed sanctions on retailers who did not adhere to its pricing policy.39
On 22 January 2020, the CMA announced that Fender had been fined £4.5 million, the largest fine imposed in the UK for RPM.40 The CMA believes that between 2013 and 2018, Fender Europe operated a policy designed to restrict competitive online pricing, requiring guitars to be sold at or above a minimum price. In its statement of objections the CMA commented that '[it] takes allegations of RPM very seriously because it removes one of the benefits of the internet of making it easier to quickly find a better price by shopping around. It stops online retailers from selling at the prices they want to, and this then leads to higher prices for consumers.' This follows similar cases against Casio, Illinois Tool Works Limited,41 Ultra Finishing Limited42 and the National Lighting Company Limited.43
Other Chapter I and II CA 98 cases
Price comparison websites
The CMA also issued a statement of objections to ComparetheMarket in November 2018 alleging that the price comparison website had breached Chapter I and Article 101 TFEU.44 In particular, the CMA considered that the use of most favoured nation clauses by the price comparison site in contracts with home insurers could be stopping the home insurers from quoting lower price to the companies' rivals and via other channels, causing customers to miss out on better home insurance deals. The case is a follow-on from the CMA's market study into digital comparison tools, concluded in September 2017.45 At the time of writing, a final decision is expected in Spring 2020.
Fludrocortisone acetate and nortriptyline
In October 2019, the CMA published its decision to accept binding commitments offered by pharmaceutical company Aspen to address competition concerns identified by the CMA arising from Aspen's acquisition in October 2016 of a marketing authorisation for fludrocortisone acetate tablets in the UK.46 The CMA had suspected Aspen of illegally agreeing to pay two other pharmaceutical firms, Amilco and Tiofarma, to stay out of the UK market for this product. This would have left Aspen free to dictate its prices as the only supplier in the market. As part of the commitments package, Aspen agreed to an admission that it was party to an illegal, anticompetitive agreement and committed to make a payment of £8 million directly to the National Health Service (NHS), the first time a commitment has included an agreement to pay a third party (rather than just alter its behaviour or pay a fine, or both). This payment is to address the concerns that based on the conditions in the market, the NHS paid a higher price for supplies of fludrocortisone acetate tablets than would otherwise have been the case. The acceptance of these commitments ends the Chapter II CA98/Article 102 TFEU investigations. The other aspects of the investigation continue, however. Aspen has also agreed to pay a fine of £2,101,954. This fine will become payable if the CMA does indeed find that the law was broken in its final decision. In January 2020, Tiofarma also admitted its part in the illegal agreement and agreed to pay a fine of £186,000 if the CMA's formal decision determines the agreement was illegal.47
In March 2020, the CMA followed up its Aspen decision with fines of £3.4 million for competition law breaches with respect to the supply of nortriptyline, a drug used to relieve symptoms of depression.48 The CMA found that King Pharmaceuticals and Accord-UK (formerly Auden Mckenzie) had engaged in market sharing and collusion to fix quantities and prices for the drug. As a result King and Accord-UK were fined £75,573 and £1,882,238 respectively. Once again, the CMA extracted a commitment from the parties to pay £1 million to the NHS. The CMA also fined King, Lexon (UK) Ltd and Alissa Healthcare Research Ltd £1,470,868 for illegally sharing commercially sensitive information about prices, volumes of supply and Alissa's plans to enter the market. King and Alissa both admitted to competition law breaches in these respects, which resulted in reduced fines. Lexon denied any wrongdoing. The CMA also secured a director disqualification of a director at King. The CMA is still considering whether other director disqualifications are merited.
2019 also saw further progress made on the CMA's investigation into suspected Chapter II/Article 102 breaches with respect to the sale of liothyronine tablets. The CMA opened the investigation in 2016. In January 2019, it issued a supplementary statement of objections provisionally finding that Advanz had breached Chapter II and Article 102 TFEU with respect to its practices between January 2009 and July 2017. During this period the price paid by the NHS for liothyronine tablets rose from £15.15 to £258.19, an increase of 1,605 per cent, while production costs remained broadly stable. During that period, Advanz was the only supplier of liothyronine tablets in the UK. The High Court rejected a judicial review application on procedural grounds from Advanz in July 2019, so a final decision is now expected in the fourth quarter of 2020.
Several other Chapter I and II cases remain ongoing at the start of 2020, including investigations into guitars and musical instruments and equipment,49 the private healthcare sector,50 the UK roofing materials sector,51 the supply of groundworks products to the construction industry, 52 the financial services sector53 and in the supply of construction services.54
ii Trends, developments and strategies
2019 saw the continued prominence of RPM enforcement on the CMA agenda with a particular focus, as the case law above demonstrates, on online pricing restrictions. This is very much in line with the CMA's focus in 2018 (in cases such as Ping). As such, we can expect that the application of competition law rules to online and digital markets will continue to be a high priority area for the CMA. In terms of sectoral focus, musical instruments and equipment remains a sector of interest for the CMA with four open cases still on the CMA books at the time of writing. 2019 also saw regulators other than the CMA stepping into the fray when it came to enforcement in this area. Ofcom concluded an investigation into operators in the parcel delivery sector in November 2019, finding that both Royal Mail and the Salegroup Limited had entered into an illegal agreement not to supply each other's customers.55 Ofcom has since opened another investigation into the parcel delivery and pick up sector, again with Royal Mail as one of the parties, this time looking at potential agreements establishing minimum prices and imposing online sales restrictions.56 At the time of writing, Ofcom's investigation into the potential sharing of competitive information, including pricing information, in the electronic communication sector was also still ongoing.57 Other regulators pursuing investigations of alleged breaches of Chapters I and II of the CA98 this year have included Ofwat's investigation of an alleged abuse of a dominant position by Thames Water58 and Ofgem's continuing investigation into potential abuse of a dominant position in the energy industry.59 Ofgem also closed both a Chapter I and a Chapter II enforcement case in the summer of 2019, having found competition infringements in both instances.60
Key areas of interest for 2020 in terms of enforcement are likely to continue to be pharmaceuticals and the digital commerce sector. The CMA's renewed focus on RPM also looks set to continue, particularly in the area of online sales restrictions, including in the outstanding musical instruments cases. Regulators other than the CMA are also becoming more comfortable with their enforcement powers, a trend that is likely to see increased focus on antitrust enforcement in regulated sectors.
IV SECTORAL COMPETITION: MARKET INVESTIGATIONS AND REGULATED INDUSTRIES
The CMA and concurrent regulators have wide powers to study and investigate markets that they consider may not be working properly, and to make recommendations and impose remedies to improve the operation of competition in those markets. Market studies and investigations are a particular feature of the UK system, with previous investigations being high profile and tending to focus on consumer-facing industries. Until the recent increase in enforcement activity, much of the competition regulators' efforts were concentrated on these investigations.
i Significant cases
Funeral Directors and crematoria services
The CMA launched a market study into the funerals market in the UK in June 2018.61 Following an interim report and consultation on the market, a Phase II market investigation was launched in March 2019. The investigation will cover the supply of services by funeral directors at the point of need and crematoria services provided by both private suppliers and local authorities.62 According to the CMA's administrative timetable, a provisional decision report is expected in April/May 2020, with a final statutory deadline of 27 September 2020.63
In October 2018, the CMA launched a market study into the statutory audit market.64 The CMA's final report was published in April 2019, recommending that the auditing functions of each of the 'Big 4' accounting firms should be operationally split from their consulting operations.65 The final report also recommended mandatory joint audits, whereby smaller, 'challenger' firms would work alongside the Big 4's auditors, and regulatory oversight of the audit committees that select audit companies. Lord Tyrie wrote to both the BEIS Secretary of State and the chair of the BEIS Select Committee to outline the CMA's findings. BEIS subsequently launched a consultation on the CMA's proposals in July 2019.66 The consultation closed in September 2019 and, at the time of writing, responses were still under review by BEIS. Whatever the outcome, however, it seems safe to assume that proposals for regulatory changes to the sector will be forthcoming in 2020.
Investment consultancy and fiduciary management services
In June 2017, the FCA published its final report on its asset management market study.67 Following on from that report, the FCA referred the supply and acquisition of investment consultancy services and fiduciary management services to institutional investors and managers to the CMA for a market investigation in September 2017. Having invited comments from, and held hearings with, interested parties the CMA has published eight working papers on the investigation to date. Its final report was published in December 2018.68 The report found that half of the main customers for these service providers, pension scheme trustees, were choosing their existing investment consultant to act as their fiduciary manager. The final report recommended a range of remedies to address this including requiring pension trustees to tender for fiduciary management services in some circumstances and requiring investment consultants to separate the marketing of their investment advice from their fiduciary management services. After a public consultation, the CMA published the Investment Consultancy and Fiduciary Management Order 2019 in June 2019.69 It requires that pension schemes seeking to use investment consultancy services to make decisions on how to invest 20 per cent or more of their scheme's assets must run a competitive tender. The same threshold applies to trustees that have appointed a single fiduciary manager for 20 per cent or more of their scheme's assets.70
Online platforms and digital marketing
As part of the CMA's digital market strategy, the CMA launched a market study into online platforms and the digital advertising market in July 2019.71 The market study is focused on the assessment of three broad potential sources of harm to consumers including: (1) the extent to which online platforms might have market power in user-facing markets and potential impacts of that; (2) consumers' ability and willingness to control how their data is used and collected by online platforms; and (3) whether competition in the digital advertising market might be distorted by any market power held by online platforms. An interim report was published in December 2019 wherein the CMA found that Google accounted for more than 90 per cent of all search advertising revenues in the UK (with revenues of around £6 billion) and that Facebook accounted for almost half of all display advertising revenues in the UK (around £2 billion).72 While the interim report acknowledges that '[b]ig is not necessarily bad', the CMA agreed with the Furman Report findings that there is 'strong argument' for the development of a new regulatory regime. This could include rules governing the behaviour of online platforms and giving people greater control over their personal data. Some of the proposals in the interim report (on which the CMA was still consulting at the time of writing) include limiting Google's ability to be the default search engine on devices and browsers, requiring Facebook to connect with rival social networking sites, measures to address the perceived lack of transparency in digital advertising, and requiring online platforms to allow users to opt out of sharing their personal data. The final report is expected by July 2020.
Scottish legal services
Following the publication of the Roberton Review, an independent review of the regulation of legal services in Scotland,73 the CMA announced in June 2019 that it would be undertaking research into certain aspects of the Scottish legal services market to support the Scottish government's response to the Roberton Review.74 The work will examine whether there is evidence of a similar lack of competition in legal services in Scotland as was found in the CMA's 2016 market study into the legal services market in England and Wales.75
Super-complaint on the loyalty penalty
Although not technically a market investigation or market study, 2019 also saw the conclusion of the CMA's review of loyalty penalties imposed by service providers in 'essential markets' (savings accounts, mortgages, household insurance, mobile and broadband). The super-complaint was received from Citizens Advice raising concerns that long-term customers were paying more for essential services (and so incurring a 'loyalty penalty'). Super complaints are a mechanism under the EA02 that allows consumer bodies to make complaints to the CMA. Once it receives a super-complaint, the CMA has 90 days to make a public statement explaining how it proposes to deal with it.
In the loyalty penalty super-complaint the CMA published its public response in December 2018.76 It found that the loyalty penalty paid by consumers could be in the region of £4 billion annually. The CMA also identified that the most vulnerable in society, such as those on low incomes, people who struggle to use online services, or people with poor mental health who may avoid or fear change, could be amongst the most affected. The CMA also established a loyalty penalty working group in March 2019 to oversee the implementation of the reforms identified as necessary in their response. In response BEIS also published a letter commending the CMA recommendations.77 In a six-month progress update published in June 2019, the CMA explained that the super complaint had led directly to the CMA investigations into antivirus software (launched in December 2018) and in online console video games (launched in April 2019).78 Ofcom also launched a consultation on the treatment of easier switching for broadband and mobile customers, which, at the time of writing, is ongoing. The super complaint also prompted cooperation between the CMA and the FCA on its work on cash savings, home and motor insurance, and mortgages.
The CMA published an update in January 2020 setting out the progress that had been made in taking forward potential reforms in the sector.79 To that end, the update notes that Ofcom has introduced new rules on end of contract notifications and annual best tariff notifications for customers. It has also secured voluntary commitments from all of the major mobile provides (with the exception of Three) and from the UK's largest broadband providers to better protect out-of-contract customers. A further update from Ofcom is expected in the Spring of 2020. The update also details the FCA's efforts, including the ongoing consultation on potential remedies in the insurance, cash savings and mortgages arena. In terms of next steps, the update emphasises, however, that there is further work to be done and calls on regulators to focus on putting in place sufficiently strong remedies to address the problems that have been identified in their various investigations. The CMA is expected to publish a further update in July 2020.
ii Trends, developments and strategies
The draft 2020–2021 annual plan mentions that given the CMA's current caseload, which is at a 'record level' and the prospect of the CMA's expanded duties once the Brexit transition period expires, the CMA may well have 'limited opportunities to launch many new discretionary projects over the coming year'.80 While market investigations therefore remain an important part of the CMA's suite of powers, the extent to which the CMA has the time and resources to carry out investigations may well hinge on the outcome of the UK's negotiations with the EU.
The interim report findings in the online platforms and digital advertising survey indicate that the CMA's focus on the digital market will remain strong through 2020, with new regulatory regimes already being consulted on at the time of writing.
V STATE AID
While at the time of writing, the CMA has no state aid review mandate, as outlined above, this is expected to change considerably after the expiry of the Brexit transition period. In terms of significant state aid cases this year, at the European level the UK was impacted considerably by the quashing of the European Commission's state aid approval for the capacity mechanism for the electricity market in Great Britain, by both the General Court and the Court of Justice of the European Union. Following, the annulment of the UK's state aid approval for the operation of the capacity market regime, the UK was forced to suspend payments to capacity providers in the UK. Total payments at the time were estimated to be around £1 billion. The Commission subsequently opened a formal investigation into the scheme and issued a new approval in October 2019.81 The delayed payments to capacity providers were settled in full on 20 January 2020.
VI MERGER REVIEW
The CMA carries out both Phase I and, if warranted, in-depth Phase II merger investigations in the UK. Save for a limited category of investigations (in which the government makes the final decision), decisions at Phase II are made by a panel independent from the case so as to avoid any 'confirmation bias'. The UK regime is also unusual in that merger notifications are voluntary, but the CMA has the ability to investigate non-notified transactions (and, if found necessary, impose remedies in completed mergers), and it has an active Merger Intelligence Unit that monitors merger and acquisition activity for transactions that may raise competition concerns. At the beginning of 2020, the CMA had seven ongoing Phase II cases.
i Significant cases
In April 2019, the CMA blocked the proposed high profile merger between two of the UK's largest supermarkets, Sainsbury's and Asda, after an in-depth Phase II investigation.82 The CMA determined that the proposed merger would lead to a substantial lessening of competition across the UK and would result in increased prices and reduced quality of service for customers, such as fewer delivery options, when shopping online. The case had interesting procedural impacts for the CMA, as in January 2019 the CAT held that the CMA had treated the parties unfairly by not allowing them more time to respond to the nineteen working papers and annotated issues statement that the CMA sent between 9 November 2018 and 28 November 2018. The CMA had given the parties very limited extensions to submit responses to the CMA's working papers. The CAT held that the deadlines given were insufficient and that the CMA should have given the parties more time. Interestingly, the CAT explicitly recognised that this problem could become more common once the CMA takes full competence over merger control in the UK (i.e., following the expiry of the Brexit transition period).
In February 2019, the CMA for the first time ordered parties to a completed merger to reverse pre-closing integration.83 The CMA believed that this particular integration prejudiced its ability to assess the deal's impact on competition in the UK. While the merger control regime in the UK remains voluntary, it does not prohibit the CMA taking this type of action or requiring pre-closing clearance. This is, however, the first time the CMA has issued an unwinding order during an ongoing merger investigation (the CMA referred the deal to an in-depth Phase II investigation in January 2019), and highlights that parties who integrate prior to closing run a very real risk of being subject to an unwinding order in complex merger reviews.
Tobii appealed the CMA's decision to the CAT, whose judgment was published on 10 January 2020.84 The CAT unanimously dismissed Tobii's grounds for challenging the CMA's decision, save for one aspect: Tobii succeeded in demonstrating that the CMA's finding that the merged company would have the ability and incentive to foreclose its rivals by increasing the wholesale price of particular relevant software, and thus harm competition, was not supported by sufficient evidence (but upheld the CMA's findings on horizontal unilateral effects). The CAT dismissed the parts of the CMA's decision that discussed this foreclosure ability and incentive. The CAT has now invited the parties to make additional submissions, addressing how its ruling impacts the merger between Tobii and Smartbox. Responses from the parties are expected a few weeks from the date of the judgment.
In October 2019, the CMA issued its final report on Ecolab Inc's acquisition of the Holchem Group Limited. Ecolab is a US-based global supplier in water, hygiene and energy technologies, and Holchem is a UK-based manufacturer and supplier of cleaning chemicals and ancillary services primarily to industrial customers active in the food and beverage industry. The CMA concluded that the merger would result in a substantial lessening of competition due to concerns in the market for the supply of formulated cleaning chemicals to food and beverage customers in the UK. Following a Phase II investigation, the CMA found that the only possible and effective remedy would be to block the merger and to require Ecolab to sell Holchem. Ecolab has applied for a review of the CMA's decision.85 It states that the CMA's finding of a substantial lessening of competition is not supported by evidence.
In December 2019, the CMA referred the Amazon/Deliveroo merger to a Phase II investigation.86 Earlier in December, the CMA had found that the merger could result in a substantial lessening of competition within markets in the UK. In its Phase I investigation, the CMA had held that the deal could lead to higher prices and a worse service for customers ordering restaurant meals and convenience groceries for 'ultra-fast' home delivery. The CMA thus launched a Phase II investigation based on two key concerns. First, based on internal documents and interviews with senior personnel, the CMA had discovered that Amazon might have had intentions to re-enter the UK market for restaurant meal deliveries (even though it had only recently exited the UK market), if it had not invested in Deliveroo. Instead, without Amazon, the UK has just three major players in food delivery: Deliveroo, Just Eat and Uber Eats. Second, the CMA found that in the market for grocery delivery, Amazon and Deliveroo are rivals with 'major expansion plans' and that a merger could reduce competition. Neither company was able to offer remedies for the CMA's concerns. The decision to investigate marks the CMA's increased wariness over the reach of large-scale technology companies, and is perhaps not hugely surprising based on a general move towards tighter regulation in the online market generally. The CMA's final report is expected in late May 2020.87
The UK government, acting through the relevant Secretary of State, may review a transaction involving the acquisition of a UK business if a relevant merger situation is created.88 The Secretary of State can intervene in these transactions on specified public interest grounds, which are set out in Section 58 of the EA02. These include national security (e.g., defence sectors),89 cases relating to accurate news and free expression (e.g., newspapers),90 media plurality, media standards and broadcasting,91 and prudential regulation.92 If the relevant Secretary of State considers that one or more of these public interest grounds are met, and has 'reasonable grounds' to suspect that the transaction in question results in a relevant merger situation (or is informed as such by a competition regulator), then he or she can issue a PIN (public interest intervention notice).93 It should be noted that the Secretary of State also has the power to intervene in transactions on the basis of a consideration that is not specified, but that, in his or her opinion, ought to be.94 In these cases, the Secretary of State must present an order for approval before both Houses of Parliament where such approvals must be given within 28 days.95 As such, the public interest grounds under which the UK government can intervene in a transaction that creates a relevant merger situation are relatively fluid and flexible, allowing the government to continually revise and alter its approach to these forms of investment in the UK.
Daily Mail/i newspaper
On 22 January 2020, the Secretary of State for Digital, Culture, Media and Sport issued a PIIN in relation to the completed acquisition by Daily Mail and General Trust (DMGT) of JPI Media Publications, owner of i newspaper, on media plurality grounds over concerns that the takeover will impact the 'sufficient plurality of viewpoints' in newspapers in the UK. At the time of writing, the CMA and Ofcom are both reviewing the transaction and have invited comments from third parties – the CMA is assessing whether a relevant merger situation has been created and Ofcom is assessing media public interest concerns. Both are to report back to the Secretary of State by 13 March 2020.
In July 2019, BEIS intervened in a transaction between Connect Bidco Limited and Inmarsat plc on grounds of national security. Inmarsat operates satellites that manage critical government communications for the UK (and other countries), particularly in emergency services, naval operations, and border control. The CMA concluded that the transaction did not raise any competition issues. However, so far as national security was concerned, the parties offered undertakings to provide assurances that sensitive information will be protected and enhanced security controls will be in place to ensure the continued supply of key services used by the UK Ministry of Defence. The measures also included a high standard of physical security in relation to company processes and premises, system security in relation to IT processes, and personnel security in relation to employees and management. The Ministry of Defence will also be allowed to audit compliance with security measures. In October 2019, BEIS accepted the parties' undertakings as appropriate to mitigate the national security risks.
In September 2019, BEIS issued another intervention notice on national security grounds in connection with Advent International Corporation's proposed acquisition of Cobham Plc. Cobham is known for pioneering the technology that allows for the mid-air refuelling of planes, and also for manufacturing electronic warfare and communication systems for military vehicles. The CMA prepared a report on the transaction for BEIS, considering in particular the national security implications of the transaction. However, in December 2019, BEIS announced that the statutory undertakings from the parties were acceptable and that the acquisition would not be referred to the CMA for further assessment. Undertakings included strengthening existing security arrangements protecting sensitive operations and information and ensuring any new board structures will comply with national security requirements. Although Cobham is active in defence-related areas, the fact that BEIS reviewed a case concerning a US acquirer makes clear that even foreign direct investment transactions from the UK's allies will be subject to public interest scrutiny.
In December 2019, the Secretary of State issued an intervention notice on the grounds of national security in the merger between Gardner Aerospace Holdings Ltd and Impcross Ltd. Gardner Aerospace manufactures aerospace finished components, including machine and metal parts, and Impcross assembles parts for Civil and Defence aircrafts. In addition, an order was made by the Secretary of State pursuant to Paragraph 2(2) of Schedule 7 to the EA02 to prevent any actions that might raise national security concerns. For instance, the order prevents the completion of the transaction and the transfer of material or information between the parties while the CMA's review is ongoing. The order was presented to the UK Parliament in December 2019, with government setting out the conditions of the Order in detail.96 Beyond what is needed to protection national security, the Secretary of State has confirmed that the order will not impede the companies when acting in the normal course of business.97
ii Trends, developments and strategies
Following changes implemented in June 2018 the government can now intervene in mergers in three key sectors if the annual UK turnover of the target is over £1 million (the threshold in all other sectors is £70 million) or if the target alone accounts for 25 per cent or more of purchases or sales of any goods or services in the UK (in all other sectors the parties have to overlap such that there is an increment leading to a combined share of supply of 25 per cent or more).98 These are: (1) the development or production of military or dual-use goods; (2) the design and maintenance of computing hardware; and (3) the development or production of quantum technology.
The government's long-term objective is to reform more comprehensively its powers of scrutiny over investments that may pose a risk to national security.99 The intention is to implement this regime with a new piece of primary legislation. Under the proposed changes, notification will remain voluntary but parties will be encouraged to notify their transaction. Where parties choose not to notify, the government may still decide to 'call in' transactions that result in a 'trigger event'. It is proposed that these trigger events will include the acquisition of more than 25 per cent of an entity's shares or votes, significant influence or control over an entity, or further acquisitions of significant influence or control over an entity beyond these thresholds. Acquisitions of assets will also be covered, which is not always the case under the existing rules. The timescale for post-closing intervention in national security cases will be increased from four to six months after the details of the transaction are in the public domain.
The government has indicated that it will consider three factors when determining whether a trigger event could lead to a national security risk. These are 'target risk', whereby the entity or asset in question could be used to undermine national security; 'trigger event risk' whereby the acquisition itself gives someone the means to undermine national security; and 'acquirer risk', where the acquirer itself has the potential to use its control over the target to undermine national security. While there is arguably now a tougher approach to transactions raising national security concerns as these deals are subject to more scrutiny, it is anticipated that the majority of these will be approved with some undertakings. As demonstrated by the case law above, to date there have been no prohibitions.
The government was originally expected to publish draft legislation in 2019, following its assessment of comments received as part of the current consultation process. However, like the delayed responses to the CMA's proposed reforms, due to other government business (principally related to Brexit) no draft has yet been published and legislation is not expected until later this year at the earliest. Nevertheless, national security does still remain an ongoing interest and concern generally. In the Queen's Speech in December 2019, reference was made to the government's intention to introduce 'national security and investment legislation' to strengthen the government's existing powers to scrutinise and intervene in business transactions (takeovers and mergers).100 In any event, the continued use of intervention notices in cases with perceived public interest implications is a very clear trend that is set to continue. Indeed, in December 2019, the Secretary of State also issued an intervention notice on the grounds of national security in relation to the anticipated acquisition of Mettis Aerospace Limited, a manufacturer of aircraft parts and components, by Aerostar, a Chinese fund. The CMA produced a report, submitted to the Secretary of State in February 2020.101 The report detailed merely that in the CMA's view that no relevant merger situation had been created because the parties had since decided not to proceed with the transaction. Neither party has commented publicly on the reasons for abandoning the merger, but doubtless the intervention notice played at least some role in that decision. In any event, merging parties active in the affected spheres will need to be very aware of the prospect of Secretary of State intervention going forward.
The CMA is certainly engaging with the full breadth of its powers when it comes to exercising its jurisdiction in merger control cases, and that is a trend that is likely to continue. In its draft annual plan for 2020–2021, the CMA notes that it enters 2020–2021 with a high volume of ongoing casework, and an 'unprecedented number of Phase II merger investigations'.102 Once the Brexit transition period expires, the CMA expects a significant increase in the number of merger investigations carried out after the expiry of the transition period given its expected, widened jurisdiction.103 The CMA is clearly not shirking that extended jurisdiction, evident from its decision in January 2020 to open an investigation into the proposed Takeaway.com/Just Eat merger, notwithstanding the fact that Takeaway.com exited the UK market in August 2016.104 While the precise reasons for seeking to investigate the proposed merger so late are unknown, the CMA stated that new information had come to light. The review will be focused on whether Takeaway.com would (absent the Just Eat transaction) have re-entered the UK market. While not yet known, it is possible the new information in the CMA's possession came to light as part of its review of Amazon/Deliveroo which raises a similar concern so far as the CMA is concerned at this stage in the review.
In addition, the government anticipates that between five and 29 additional cases per year will be caught by the national security amendments introduced in June 2018 (see above). If the long-term changes are implemented as currently proposed this will materially increase the number of cases expected to be reviewed on national security grounds: BEIS has estimated 100 cases will be subject to detailed review of which around half are likely to be subject to some form of remedy. As has been demonstrated by the cases to date, no transaction has been blocked, but rather accepted provided certain undertakings are followed.105 In terms of potential reform, in June 2019 the CMA announced that it intends to revise and update the substantive Merger Assessment Guidelines to reflect the significant development of the digital markets since 2010 when the Guidelines were published.106 It is anticipated that in 2020, the CMA will be consulting on these proposed revisions.
Although 2019 saw preparations for the UK's departure from the EU (which formally occurred on 31 January 2020), at the time of writing there is still a considerable lack of clarity surrounding the situation post-transition period. Whether or not the government can agree a deal with the EU remains subject to negotiation. The CMA guidance has clarified the operation and function of competition law enforcement during the transition period and shortly thereafter, but ultimately the provisions of the FTA will govern competition law after the expiry date. Regardless of the outcome of the negotiations, it seems clear that the CMA's jurisdiction and workload, particularly in merger control, competition enforcement, and state aid will only increase once the UK ceases trading as a member of the single market.
1 Marc Israel is a partner, Kate Kelliher is an associate and Ellen Campbell is a trainee at White & Case LLP.
6 See www.legislation.gov.uk/ukdsi/2019/9780111178768 and https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/783233/Draft_guidance_on_state_aid_notifications_and_reporting.pdfassets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/783233/Draft_guidance_on_state_aid_notifications_and_reporting.pdf.
8 The Civil Aviation Authority (CAA) for airport operation and air traffic, Office of Communications (Ofcom) for broadcasting, electronic communications, and postal services, Gas and Electricity Markets Authority (Ofgem) for electricity and gas in Great Britain, Water Service Regulation Authority (Ofwat) for water and sewerage services in England and Wales, National Health Services Improvement (NHSI) for health services in England, the Office for Rail and Road (ORR) for rail services, the Financial Conduct Authority (FCA) for financial services, the Payment Systems Regulator (PSR) for payment services, and the Northern Ireland Authority for Utility Regulation (NIAUR) for electricity, gas, water and sewerage services in Northern Ireland.
12 See https://www.gov.uk/government/news/cma-consults-on-annual-plan. Details of the cases can be found at www.gov.uk/cma-cases.
37 The fine was reduced on grounds that the CMA had erred in treating director involvement as an 'aggravating factor'.
60 See www.ofgem.gov.uk/publications-and-updates/investigation-whether-epex-spot-se-has-infringed-requirements-chapter-ii-competition-act-1998-andor-article-102-treaty-functioning-european-union-respect-wholesale-trading-activities and www.ofgem.gov.uk/publications-and-updates/investigation-whether-economy-energy-e-gas-and-electricity-and-dyball-associates-have-infringed-chapter-i-competition-act-1998-respect-suspected-anti-competitive-agreement.
70 The Department of Work and Pensions also published a subsequent set of regulations governing trustee obligations: the Occupational Pension Schemes (Investment and Disclosure)(Amendment) Regulations 2019, see www.legislation.gov.uk/uksi/2019/982/contents/made.
81 SA.35980 GB capacity mechanism, see https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_35980.
84 See  CAT 1, Case No. 1332/4/12/19. https://www.catribunal.org.uk/sites/default/files/2020-01/1332_Tobii_judgment_%5B2020%20CAT%201%5D_100120.pdf.
85 See case No. 1334/4/12/19. https://www.catribunal.org.uk/sites/default/files/2019-11/1334_Ecolab_summary_of_application_111119.pdf.
88 The Secretary of State for Business, Energy and Industrial Strategy has the power to intervene in all public interest cases, except media mergers, in which the Secretary of State for Digital, Culture, Media and Sport can intervene.
89 Section 58(1)–(2) of the Act.
90 Section 58(2A) of the Act. Media plurality is defined as 'the need for, to the extent that is reasonable and practicable, a sufficient plurality of views in newspapers in each market for newspapers in the United Kingdom or a part of the United Kingdom'. Sections 58(2B) and 58(2C)(a) of the Act.
91 Sections 58(2C)(b)–(c) of the Act.
92 This public interest ground reflects the need to maintain the stability of the UK financial system. To date, this public interest grounds has only been used once in relation to the merger between Lloyds TSB plc and HBOS in 2008. Section 58(2D) of the Act.
93 Under Section 42 of the EA02.
95 Sections 42(7), 42(8)(b) and 124(7) EA02.
103 Case T-793/14 T empus Energy and Tempus Energy Technology v. Commission, see http://curia.europa.eu/juris/liste.jsf?language=en&num=T-793/14&td=ALL and case C-57/19 P Commission v. Tempus energy and Tempus Energy Technology, see http://curia.europa.eu/juris/liste.jsf?num=C-57/19&language=en.