Anti-Competitive Acts

Prohibition

The terms of the prohibition on anti-competitive behaviour are set out in the general note on competition law. In broad terms, an anti-competitive arrangement, which is not otherwise justifiable on objective grounds, is prohibited. The key provisions of the legislation are in quite general terms, so it may be difficult to apply to a particular set of circumstances.

Breach of the provision may lead to civil enforcement by the Competition Authority, criminal liability and liability to parties who are injured or damage for compensation and even so-called exemplary damages. Therefore it is desirable to identify agreements, practices and conduct which may be prohibited by the legislation.

Formerly there was a procedure whereby notifications of intended agreements and practices could or had to be given to the Competition Authority in advance.  This proved onerous for the Competition Authority, which used a substantial amount of its resources in considering notifications.  In 2002, the legislation was amended to remove the requirement for prior notices.

Agreements and Decisions

Anti-competitive arrangements cover agreements, decisions or concerted practices by undertakings.  There must generally be two undertakings.

An undertaking is a person, partnership, company or unincorporated entity in business for the purpose of production or distribution of goods or services.  This covers non-profit-making bodies which supply goods or services, even if they are state bodies and do not trade for profit.

Individuals or partners in a business or joint venture may be undertakings under the legislation.  Government Departments and liquidators are also subject to the legislation.

An agreement includes any joint intention to participate in the market, with the object or effect of preventing, restricting or distorting competition.  The agreement may be inferred from behaviour.  The agreement need not be in writing or formalised.  It may be made through an intermediary, agent or association.  Any consensus regarding conduct in the market is likely to be in agreement.

Associations of undertakings may make decisions which are subject to the legislation. This is aimed at any form of trade association recommendations, understandings and collective decisions. Associations include professional bodies. The decision need not be binding on members.

Concerted Practices

Concerted practices are looser categories of arrangement than agreements.  It covers any form of co-ordination without an agreement, which substitutes cooperation for competition.  It reflects the principle that competition law requires persons to act independently in the market.

The theory behind competition law holds that if market participants act independently, the welfare of the consumers and society will be maximised.   If parties act in tandem, competition is foreclosed.

There can be a very fine distinction between competitors who watch each other closely and those who engage in a concerted practice.  Concerted practices can include coordination.  Typically, evidence is found in meetings involving an exchange of information and shared initiatives. Evidence is often found in documentation and meetings discussing and proposing coordination.

It may be possible to prove concerted practices by inference.  However, it must be shown that the coordinated conduct was the result of concerted coordination rather than that which follows from the conditions of the market.

Distortion of Competition

In order to be uncompetitive, an agreement, arrangement or decision under the Irish Competition Act, it must have the object or effect of preventing, restricting or distorting competition in trade or goods and services in Ireland.  Where the effect happens between European Union States,  European Union law, which is in identical terms, applies.

Under Irish law, there is a breach of the section if there are anti-competitive effects in a local defined market.  In the case of EU prohibition, it must have an appreciable effect on trade between states.

It is not necessary to show that there is an intention to distort competition.  It is enough that competition is, in fact, distorted. The position must be considered in the light of the relevant product or service market.

In order for regulators or a Court to determine whether there has been a breach of competition law, it may be necessary to obtain expert economic and microeconomic evidence. An economic analysis is required of the circumstances which show restriction or distortion of competition.

A breach of either the Irish or European prohibition has significant implications.  Any contract concerned is completely void.  An agreement which is intended to be anti-competitive would be in breach of Section 4 even if ineffective. Third parties who suffer loss and damage, may sue the parties for compensation.  The circumstances constitute a criminal offence. Civil sanctions also apply.

Infringing Agreements

In a sense, every agreement restricts or distorts competition to some extent.  When a contract is entered, the parties are restricted in their freedom of action in business.  Therefore, the prohibition must be interpreted in a way which has regard to the actual effects of the agreement.

Certain types of agreements will nearly always be illegal, for example, price fixing. Other agreements will have both anti and pro-competitive effects. The prevention, restriction or distortion of competition is necessary.

This is an alteration in the operation of the market relative to free competition.  Some such agreements may not, in effect, be anti-competitive because there is an objective justification.

Defining the Market

The breach must relate to goods and services.  A key issue is to identify the market in respect of which there is anti-competitive behaviour.  This will depend on how interchangeable the goods are and whether substitute goods are easily available.

The question is how much of a variation in the price will lead to substitution.   If price variations do not lead to substantial substitution, then the market will not include these other substitutes.  Would a relatively small change in price cause a shift to the substituted product?  If so, the market must be defined more widely.

Irish competition law applies to any part of the State.  This can include shopping centres and towns.  The Competition Act mentions certain specific types of agreements which are likely to be anti-competitive.  They have sometimes labelled hardcore offences and attract the heaviest sanctions.

Price Fixing

Directly or indirectly fixing purchase or selling prices or trading conditions is anti-competitive and would be clearly subject to a civil claim for damages and criminal proceedings.

Price fixing agreements can rarely if ever be justified and constitute almost automatic breaches of competition legislation.  Penalties for price fixing are the most severe.

Limiting Production

Agreements limiting or controlling production, development or investment are anti-competitive.  The limitation of production is a sign of anti-competitive behaviour. Economic theory predicts that cartels and monopolists cartels limit production in order to increase prices and generally, such agreements will constitute automatic breaches.

Occasionally it may be possible to justify restructuring in an industry where agreements limiting or controlling production, markets or cooperating on technical development may be justifiable.  This may be necessary for rationalization, specialisation or restructuring.  Such agreements, however, are presumed to prevent or restrict competition and are therefore liable to be subject to penalties or third parties suing for compensation.

Sharing Markets

Sharing of markets is generally presumptively restrictive of competition.  This may involve dividing markets into shares in the absence of competition.

Markets may be showing arrangements which apply dissimilar conditions to equivalent transactions with other parties placing them at a competitive advantage are presumed to breach competition law.  This may involve companies or businesses together discriminating in price or terms of business.  This provision is similar to a collective abuse of a dominant position.

The conclusion of a contract may be subject to acceptance of obligations which, by its nature, have no connection with the subject of the contract. Agreements which make the conclusion of contracts subject to other irrelevant conditions are presumptively void and potentially constitute a criminal offence.

This may occur, for example, where goods are supplied only on condition that other goods and services are bought.  Another example is where a seller requires a purchaser to buy all their products from it or from a particular provider.

An agreement which would otherwise breach the general anti-competitive prohibition may be validated provided it complies with one of the conditions specified in legislation or specified in a Competition Authority declaration.  The purpose is that agreements whose anti-competitive effects are outweighed by their beneficial benefits are potentially void are validated.

Pre-2002 Act Procedure

Formerly there was a procedure by which businesses were to notify the Competition Authority in relation to certain agreements.  It took a considerable length of time for a decision to issue.

Following revisions of the law in 2002, this notification procedure has been abolished.  It is a matter for the parties to an agreement to consider and assess themselves as to whether there has been a breach of the Act.  This will require an economic assessment of the effect of the agreement.  Ultimately the matter of whether there is an anti-competitive arrangement or not depends on the interpretation of the Court in the circumstances.

The Competition Authority made a considerable number of decisions in relation to a notification.  These ceased to be of legal effect after the new legislation came into force, but they do give an indication of the way the Competition Authority interprets the legislation.

Previously the Competition Authority could grant general licences.  These are now deemed to be declarations for the above purposes.

In considering whether there has been a breach of competition law, the decisions of the European Union Commission, EC and Irish courts may be of assistance.

Conditions Justified

The Competition Act allows her certain types need certain conditions to be valid, notwithstanding it would appear on the face of it, to breach competition legislation.  The agreement must meet all four conditions.  Some of the conditions have a number of alternatives.

• The first condition is that the agreement contributes to the production or distribution of goods and provision of services or promotes technical or economic progress.  This can apply to certain types of co-operation agreements that allow the development of technology, economies of scale and reduce production costs.  Technology transfer agreements may be eligible . EU law gives guidance in relation to decisions on such matters.
• Agreements must allow the consumers a fair share of the benefit.  Joint research and development agreements may justify the co-operation between bodies in that consumers will ultimately enjoy the benefits.  Distribution agreements may lower prices and improve services and efficiency.
• They must not impose any conditions on the businesses concerned which are indispensable to the attainment of the objectives.  This means that the agreements must be no more than restrictive necessary.
• It must not afford the possibility of eliminating competition in respect of a substantial part of the goods or services in question.  The question is whether the arrangement eliminates competition because of the nature of the market.

In addition to the above criteria, the Competition Authority has issued a number of declarations setting out circumstances in which certain types of agreements are potentially valid.  These decisions are published on the Competition Authority’s website.

Bid-Rigging

There is an offence of bid-rigging in Irish law. Bid-rigging is the formation or continuation of an agreement or concerted practice between undertakings in relation to participation or non- participation in a bidding process. It may include:

• An agreement whereby one or more undertakings agree to not submit or withdraw a bid or tender as part of such a process;
• An agreement whereby one or more undertakings submit a bid or tender on terms or conditions arrived at in accordance with the agreement or concerted practice; or
• Collusive tenders.