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Legal Eagle

Company Law

Q: Monopolies and the law

When can you say someone operates a monopoly? Is it against the law for them to do so?

A: The recently-enacted Competition Act 1998 will come into force on March 1, 2000, although there is a one-year transitional period for pre-existing arrangements. It is designed to bring UK law more into line with that which currently prevails on the continent and in the USA. It is apparent from a number of recent competition authority investigations that the entertainment industry is coming under closer and closer scrutiny, and with the new legislation is likely to remain under the spotlight. Under the new Act, which is divided into two chapters, there is a prohibition which applies to agreements and practices that restrict competition and a prohibition which covers abuse of a dominant position, both in the UK. The prohibitions are based on Articles 85 and 86 of the Treaty of Rome (now Articles 81 and 82 respectively). Questions arise, of course, as to what will be regarded as a dominant position in that market and what will be regarded as an abuse. Not unnaturally, the 1998 Act devotes a good deal of attention to each of these separate issues, but there are still grey areas and considerations of space and brevity preclude me from going into much details.

However, practices such as price fixing, refusals to supply, predatory pricing, price discrimination, excessive prices and so on will all be caught if the supplier is in a dominant position within the market and adopts any of these practices, thereby abusing its position. Draft guidance from the Office of Fair Trading suggests that factors such as market share and any competition likely from new entrants to the relevant market will be taken into account when assessing the dominance and that, very broadly speaking, an undertaking with a market share of less than 40 per cent will not be regarded as dominant share in the absence of evidence to the contrary. What will constitute the relevant market is a particularly grey area and will depend on the nature and extent of the goods or services involved and, especially in the case of intellectual property, may not be easy to determine in any given case.

Prior to the new Act coming into force next March, the existing law under the Competition Act 1980 and the Restrictive Trade Practices Act 1976 is much weaker and less focused. Thus the new Act actually prohibits anti-competitive agreements rather than simply making them subject to investigation or registration and administrative control. Further, the powers of investigation of the OFT and its director general are more far-reaching, as are the potential penalties (up to ten per cent of UK turnover). The relevant authorities also have power of entry, search and seizure, (powers which have come to be known as dawn raids).

Quite apart from and in addition to the above, under Article 81 (formerly 85) of the Treaty of Rome which relates to collusion and concerted practices between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market are prohibited, and there is a body of case law in the European Court as to what this means in particular circumstances.

Article 81 itself, however, instances as prohibited any anti-competitive practices agreements which (i) fix purchase or selling prices, (ii) limit or control production, markets, technical developments or investment, (iii) share markets or source of supply, (iv) apply dissimilar conditions to equivalent transactions with other trading parties so as to put them at a competitive disadvantage, (v) seek to force supplementary obligations on other parties which by their nature or according to commercial usage have no connection with the subject matter of the contracts concerned. Again there are exceptions to the general rule and again considerations of available space preclude me from going into further detail.

First published October 1999