Overview

Agreements and Practices

Both EU and Irish legislation prohibits agreements, concerted practices and decisions by businesses or businesses association which have as their the object or effect the prevention, restriction or distortion of competition. The prohibition covers formal and informal agreements, arrangements and tacit understandings between businesses not to compete or to limit competition.

EU law applies to the restriction or distortion of competition between States. The Irish Competition Act applies to the restriction or distortion of competition in the State or in any part of the State.  Therefore local businesses in a particular area town may breach competition law, where they fix prices or collude terms on terms and conditions of supply. What matters is not the geographical area but whether this is in fact restriction in the particular market. The geographical scope of the market will depend on the nature of the goods and services supplied.

The following types of an agreement, arrangements and practices are specified in both Irish and EU legislation without limiting the general prohibition

• those which directly or indirectly fix prices or trading conditions;
• those which limit or control production, markets, development or investment;
• those which share markets or supplies;
• those which apply dissimilar conditions to equivalent transactions (e.g. price discrimination);
• those which make contracts subject to the other conditions that have no connection with such contracts.

The legislation covers a broad range of anti-competitive arrangements, from the most blatant to the most subtle. The classic anti-competitive practice is price-fixing. Parties who might otherwise compete with each other substitute competition for agreements or practices to their mutual benefit. The efficiency which free competition should, in principle, produce is lost to the detriment of buyers.

Price Fixing and Collusion

Price fixing and similar arrangements may occur between businesses at the same level in the supply chain (the horizontal level), e.g. retailers. It may be imposed or agreed upon between businesses at different levels the in the supply chain ( vertical level).

This might occur in the case of so-called resale price maintenance by which the supplier,  wholesaler or manufacturer tries to maintain the price in the market by requiring wholesalers or retailers down the chain, to maintain the same or similar prices.

The prohibition extends in scope from agreements between cartels and industry-wide arrangements to local agreements and arrangements between smaller-scale businesses with more limited market power.  The prohibition may more readily apply to dominant market players, but it is not limited to them.

The prohibition covers market sharing, agreements to divide up territories and agreements not to compete.  It covers predatory pricing and price discrimination. It covers attempts to divide up the market and offer different prices to different purchasers without objective and justifiable grounds for price discrimination.

The prohibition applies to the rules of a trade association and professional bodies which contain restrictive practices. Informal arrangements, including recommendations e.g. or recommended prices and fees scales of the professional body, are prohibited. for example, the High Court declared that certain rules of the Register of Electrical Contractors of Ireland violated the prohibition.

Restricting Supply and Price Discrimination

Coordinated restrictions on supply and the division of markets are capable of undermining competition. The imposition of differing conditions falls within the prohibition where the differential price or condition does not have an objectively justifiable basis.

For example, where a purchaser of equipment is obliged to buy all his supplies and consumable parts of the equipment from a particular supplier without good objective justification, this is likely to fall within the prohibition.

Price discrimination involves treating different parts of the market differently. The imposition of differential pricing without an objective justification may constitute an unlawful practice.  Differential pricing may be predatory in nature, aimed at driving a competitor out of the market.

This might consist of temporarily driving down prices in order to force a competitor into insolvency. This may also fall within the above prohibition or be an abuse of a dominant position.

Concerted Practices

Concerted and collusive practices and arrangements do not require proof of an agreement or arrangement between the participants. However, evidence may show patterns and practices from which it might be inferred that parties have coordinated their prices or other conditions of sale.

There may be a thin line between how legitimate competition and illegitimate price fixing appear to third parties. If, for example, all or several firms in the industry vary their prices at the same time, it may be possible to infer a concerted practice.

It may, on the other hand, be the case that the market is very sensitive that each must react to the other’s actions. There must be some element of communication and concerted action.

The object or effect of the agreement decision or concerted practice must be the restriction or distortion of competition. It does not matter that the parties are not consciously aware that they are suppressing competition. If this is the effect of their actions or arrangements,   then the prohibition will apply.

Justified Restrictions Valid

The are many types of agreements which fall within the prohibition but which bring advantages and benefits to consumers, which outweighs the detriment caused. Agreements or arrangements which are within the terms of the prohibition are potentially validated if the below-mentioned conditions apply. They must

• contribute to improving the production or distribution of goods or services or
• promote technical or economic progress
• while allowing a fair share of the resultant benefit to consumers and
• not impose irrelevant, unnecessary terms and
• not afford  the opportunity of eliminating competition in respect of a substantial part of the goods or services

Vertical Agreements

Both the Irish Competition Authority and the EU Commission Competition Directorate have the power to specify the terms and conditions for certain types of agreements which, if they are complied with, will generally be valid under the above exception to the prohibition. The declaration is not an absolute guarantee that the courts will not find that, in a particular case, there has been a breach of competition law. However, coming within the terms of the exemption would carry significant weight and credence.

A number of Block licences or category licences/declarations have been issued by the Commission and the Competition Authority. They vary from some very general exemptions to sector-specific exemptions. The terms of the exemption or licence will set out types of conditions and stipulations which are permitted (“white clauses”) and/or certain types of clauses which are not permitted (“black clauses”).

The Vertical Agreements Declaration applies to agreements between participants at different levels in the market i.e. wholesalers and retailers, where their market share does not exceed 30%. The agreement may not contain, for example, contain “black” clauses such as resale price maintenance restrictions and restrictions on the kinds of customers who may buy.

A distribution agreement is an example of an agreement which may restrict competition in a way that is objectively justifiable in that it brings benefits which would not be achievable in a free for all arrangement. It may permit sufficient critical mass in a way which ultimately benefits consumers.

The Vertical Agreements Declaration has exceptions to certain otherwise impermissible conditions which facilitate selective distribution. However, there are strict time limits and conditions applicable, which seek to achieve a balance.

Abuse of Dominant Position

The above prohibition is aimed at markets which are potentially competitive in that there are a number of participants who could, in principle, act independently so as to ensure something resembling perfect competition and the consequent economic benefit to consumers. However, where there is a monopolistic participant in the markets, free competition does not arise.

A business is entitled, in principle, to act as selfishly as it wishes within the law. Therefore, the law intervenes to curb potential excesses and abuses by a dominant market participant.

Both Irish and EU competition law prohibits the abuse of a dominant position. The business or undertaking must have a dominant position in trade for any goods and services in the State or a substantial part of the State under the Irish provision. The  EU  provision applies to the abuse of a dominant position by an undertaking having a dominant position in the  EU or a substantial part of the EU.

Finding Dominance

It is necessary to look at the particular local market to see if a particular supplier has a  dominant position. A key consideration is whether that product or service can be easily substituted by another provider. If it can be shown that with a relatively small price change, consumers would readily switch to a comparable provider’s product, it is unlikely that the party has a dominant position.

An element of common sense is applied to the question of whether there is a dominant position. In legal proceedings, economic evidence would be required on the issue of whether there is a dominant position. The market share /strength of competitors and the effective cause of a price difference a which an alternative product can be substituted are important indicators of dominance.

A business in a dominant position must not abuse this position. The legislation, both at the EU and Irish levels, set out four examples of potential abuses of dominant position, including

• directly or indirectly imposing unfair purchase or selling prices or unfair trade conditions;
• limiting production markets or  technical development to the prejudice of consumers
• applying dissimilar conditions to equivalent transactions placing the other party at a disadvantage
• making contracts subject to conditions which have no connection normally have no connection with those contracts.

A trade association can be in a dominant position.

Enforcement

The Competition Authority is the national independent regulator and enforcement agency and deals with cases which do not affect trade between EU States. The EU Commission Competition Directorate is the equivalent EU body and deals with matters which have cross-border effects. Each has investigatory and enforcement powers.

Competition law both in Ireland and the EU, is enforced in four ways.

• Any agreement or arrangement which contravenes the prohibition is void and cannot be enforced;
• the action itself constitutes a criminal offence which can be prosecuted, either summarily or on indictment. In more serious cases, substantial fines and even prison sentences can and have been imposed; Competition law provides very significant fines up to the maximum time is €4 million or 10% of turnover, whichever is greater. Directors of companies who authorise the activity may be convicted directly.
• third parties (e.g. other traders and customers) who have suffered loss by reason of such arrangements have given rise to compensation and may be awarded a penal level of damages from participants; This might apply to a smaller trader who has suffered loss or has been adversely affected by the prohibited arrangements. Similar provisions have existed in America for many years, and cases are regularly taken by way of private enforcement.  There have been relatively few cases taken in Ireland to date
• each of the Competition Authority and the EU Commission have civil enforcement powers. Similar provisions have existed in America for many years, and cases are regularly taken by way of private enforcement. There have been relatively few cases taken in Ireland to date;
• The Authority has extensive powers. It can summons and examine witnesses. It has wide-ranging powers to enter premises, search and seize materials. These powers have been used, particularly at the EU level, to undertake “dawn” raids in order to uncover collusive practices.