Mishcon pen and paper next to tea cup

Introduction

What is Competition law?

Competition law is aimed at promoting fair competition by regulating and preventing anticompetitive practices such as agreements to fix prices or divide markets and abuses of a dominant position in a market. In the UK, competition law is primarily governed by the Competition Act 1998 and the Enterprise Act 2002, which are enforced by the Competition and Markets Authority (CMA) 1 The enforcement of these laws helps to ensure that markets operate efficiently, to the benefit of consumers and businesses alike. 

People in a meeting room at work

Why is Competition law relevant for start-ups and growing companies?

Competition law applies to businesses and organisations of all sizes regardless of the sector in which they operate. There can be serious consequences for businesses and individuals for non-compliance, including fines, director disqualification, and imprisonment (in the most severe circumstances). This means it is important that all companies ensure that their practices are in line with competition law. For example, there are several rules, both in the UK and the EU, that govern how businesses should interact with each other in relation to distribution arrangements, licensing, exclusivity, and non-compete arrangements. In addition, companies that deal with, for example, large upstream suppliers should be aware of the obligations placed on dominant companies in terms of how they are expected to behave in the market.

Two people at work handshaking

Chapter I: Anticompetitive agreements

Chapter I of the Competition Act 1998 prohibits anticompetitive agreements, which are arrangements between actual or potential competitors that distort, limit or restrict competition between them 2. The most serious form of anticompetitive agreement is an agreement not to compete, which can involve an agreement to (i) fix prices, (ii) limit production or development, (iii) share customers or geographical markets, or (iv) rig tenders. In addition to express agreements, businesses should be careful to avoid collusion or implied agreements in interactions with their competitors. 

Separately, competition law issues may arise in agreements between businesses at different levels of the supply chain (i.e. vertical agreements), such as exclusive distribution agreements. While often pro-competitive, vertical agreements that contain certain restrictions such as non-compete obligations or territorial restrictions on suppliers can fall foul of competition law. 

a pen on a table in a conference room with people talking in the background

Chapter II: Abuse of dominance

Chapter II of the Competition Act 1998 prohibits the abuse of a dominant position by one or more undertakings that may affect trade within the UK. Dominance in these circumstances is typically assessed based on market share, with a 40-50% share of the relevant market being a useful (but not strict) indication of dominance, though other factors may be considered. Dominant companies have a "special responsibility" not to abuse that position by, for example, imposing unfair purchase or selling prices or other unfair trading terms on downstream market participants, or refusing to supply them with essential inputs.

corporate office chairs

Merger control

The CMA has jurisdiction to review mergers and acquisitions where the UK turnover of the target, or the merging parties' post-merger share of supply, meets certain thresholds. Subject to that jurisdiction, the CMA has the power to block mergers and order certain remedies against the merging parties. Parties do not have to submit their deals for review by the CMA, but the CMA may nonetheless assert jurisdiction and call the deal in for review, which can add delay and uncertainty to deal timelines.

In addition, certain acquisitions by companies with over 33% of the share of supply are now captured by new merger control laws in the UK which are intended to capture so-called "killer acquisitions" by large players of emerging companies. The increased scope for regulatory scrutiny may be relevant to emerging companies seeking to ultimately be acquired by or merge with a larger firm.

1 Sector specific regulators such as the Financial Conduct Authority have concurrent competition powers with the CMA. 

2 See Chapter I of the Competition Act 1998. Actual competitors are regarded as businesses operating within the same market, whereas potential competitors encompass businesses which may enter a new market and compete with other businesses already present therein.