Commercial Update – Competition Law – Anticompetitive Agreements
20 September 2019
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The consequences of failing to comply with competition law can be very serious and include fines of up to 10% of worldwide turnover, agreements or parts of agreements being unenforceable, and being sued for damages. In addition, depending on the nature of the breach, individuals can be disqualified from being directors for up to 15 years, fined or sent to prison for up to 5 years.
It is therefore very important for businesses to be aware of competition law, not only to avoid the consequences of failing to comply, but also so they can protect their own rights if they are affected by the actions of third parties. As competition law is such a wide area, it is not possible to cover everything in one update and so this update is part of a series of updates and will focus on anti-competitive agreements.
Anti-competitive agreements can take many different forms and they include not only formal written agreements, but also verbal informal ‘gentlemen’s agreements.’ Simply put, they are agreements between different undertakings or associations of undertakings which may affect trade, and which have as their object or effect the prevention, restriction or distortion of competition. Some examples of anti-competitive agreements include agreements which:
· fix purchase or selling prices or any other trading conditions;
· limit or control production, markets, technical development or investment,
· share markets or sources of supply;
· discriminate between customers; or
· carve up markets or customers.
There are also restrictions on what you can agree with distributors or suppliers. This includes restrictions relating to limitations on territories, exclusive purchasing agreements, unfair trading conditions and resale price maintenance (i.e. agreeing to a fixed or minimum resale price).
Companies that run into problems with competition law often do so because it can sometimes be difficult to tell whether practices are illegal. Also, unlawful practices can happen at all levels of a business, all the way from directors to junior staff. This means it is important to work out where the risks are in your business so you can take steps to mitigate them.
To identify your risks, it is always a good idea to start by undertaking an audit of your business to identify where the competition law risks lie and how serious any risks are. Competition law ‘red flags’ you should pay attention to include having contact with competitors, operating in a market where you employ employees from competitors, employing staff who attend events where competitors are present, and working in partnership with competitors. Once you are aware of any risks, it will then be possible to put in place ways of mitigating those risks, such as by training employees, preparing internal polices, and by implementing internal reporting systems. There is no ‘one size fits all’ approach here as the risks faced by businesses will differ depending on the nature of their business and the industry in which they operate, so taking a tailored approach to risk management is important.
If you would like further advice in relation to this issue or further information about our services please contact the Commercial team at 3HR.
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