Member Article

“We consider that the Competition Act, 2002 captures the bulk of the anti-competitive practices which the Groceries Order was originally designed to prevent. However, we consider it desirable to significantly strengthen the Act in some respects and particularly to specially prohibit resale price maintenance, unfair discrimination and “hello money”. Such provisions will, henceforth, be enforced by the Competition Authority.” Page 197 of The Restrictive Practices (Groceries) Order 1987 – A Review & Report of Public Consultation Process (the “Report”) The Department of Enterprise, Trade and Employment’s Review and Report of the Public Consultation Process on the Restrictive Practices (Groceries) Order 1987 (the Groceries Order) published on 11 November 2005 both heralds the demise of the Groceries Order and signals important changes to the Competition Act 2002 (the “2002 Act”). Primary legislation amending the 2002 Act is currently being drafted and is expected to be published in January 2006. While it is not yet possible to comment on the specific legislative proposals, it is possible to briefly consider the general principles and the legal issues arising from the proposed amendments to the 2002 Act. The Report sets out text for a new sub-section 2 to be inserted into Section 4 of the 2002 Act. Section 4(1) of the 2002 Act currently prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State. The proposed new subsection 2 provides as follows: No person or undertaking shall seek to do any of the following: require, whether by threat, inducement, coercion, agreement or otherwise, any person to resell or offer for resale any goods at a fixed price or at a price above a specified minimum price impose, whether by threat, inducement, coercion, agreement or otherwise, any other person a term in a contract which might have the effect of requiring that person to resell or offer for resale any goods at a fixed price or at a price above a specified inimum apply dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage make payment to any person to whom he is supplying goods for the purposes of resale in respect of the advertising of such goods or in respect of the provision of selling space, additional selling space or particular selling space for the goods which are being supplied for resale and receive payment from any person from which he is purchasing goods for resale in respect of the advertising of such goods or in respect of the provision of selling space, additional selling space or particular selling space for the goods which are being supplied for resale The Report indicates that this text is subject to formal legal drafting by the Parliamentary Draftsman’s Office. It also recognises that consequential amendments will be required to other subsections of Section 4. The proposed amendments seek to strengthen Section 4 of the 2002 Act in respect of certain practices currently prohibited under the Groceries Order namely (i) resale price maintenance (subparagraphs a) and b)); (ii) discriminatory practices (subparagraph c)); and (iii) advertisement allowances and “hello money” (subparagraphs d) and e)). The amendments raise a number of legal issues: First, the proposed new subsection seeks to bring within the ambit of Section 4 anti-competitive practices involving the unilateral behaviour of a “person” or an “undertaking”. In order to establish that there has been a breach of the new Section 4(2), it would therefore not be necessary to establish that there is an agreement between undertakings, a decision of an association of undertakings or a concerted practice. This s currently a pre-requisite to establishing a breach of Section 4. The European Court of Justice and the Court of First Instance in considering whether unilateral behaviour falls within the prohibition on anti-competitive arrangements contained in Article 81 of the EC Treaty have confirmed on several occasions that there must be a “concurrence of wills” in order to establish a breach of Article 81*. In bringing unilateral behaviour within the ambit of a provision which deals with anti-competitive arrangements, the new Section 4(2) is therefore a radical departure from the text of the EC Treaty, the current Section 4 and established case law. Secondly, the draft text suggests the new Section 4(2) will apply to practices carried out by a “person”. Section 4 and Section 5 of the 2002 Act currently only prohibit the anti-competitive practices of “undertakings”. Undertakings are defined by Section 3 of the Act as meaning “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service”. Two or more undertakings may be considered as constituting one single undertaking for the purposes of Section 4. For example, undertakings having separate legal personalities may be treated as one and the same undertaking because of their close economic relationship e.g. a parent company and a subsidiary**. Agents and principals and employers and employees generally constitute only one undertaking for the purposes of competition law. However, the new Section 4(2) suggests that any “person”, regardless of whether or not that person is engaged in an economic activity and regardless of the relationship with the person or undertaking with whom the person is dealing, could be subject to the new prohibition. This would mean, for example, that a shopkeeper directing his staff or a company directing its subsidiary to resell goods at a minimum price would be in breach of the new Section 4(2)! Thirdly, a person or undertaking will breach the prohibition in the new Section 4(2) even if the practice is not put into effect. In other words, if a person has the object of carrying out any of the practices in Section 4(2), it will breach the new provision. Under Section 4(1), an arrangement will be anti-competitive if it either has the object or effect of preventing, restricting or distorting competition. The analysis as to whether the prohibition contained in the proposed new Section 4(2) has been breached would therefore appear to be subjective and will require evidence as to the intent of the “person” or “undertaking”. Fourthly, it is unclear whether the prohibition in the new Section 4(2) is intended to be an absolute or a general prohibition i.e. whether it will be possible to establish a justification for the anti-competitive practice. Under the 2002 Act, Section 5 which prohibits the abuse of a dominant position is an absolute prohibition i.e. if it is established that an undertaking has abused its dominant position, there will be no justification for the abuse. However, under Section 4 of the 2002 Act, even if it is established that two or more undertakings have entered into an arrangement which breaches the prohibition contained in Section 4(1), it may be possible to justify the anti-competitive arrangement. Section 4(5) of the 2002 Act sets out four conditions which must be met – i.e. the arrangement (i) must contribute to improving the production or distribution of goods or to promoting technical or economic progress; (ii) must allow consumers a fair share of the resulting benefit; (iii) must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; and (iv) must not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. While it would appear that the new Section 4(2) is intended to be an absolute prohibition, it is possible to envisage circumstances in which a general prohibition would be preferable e.g. the payment of an advertisement allowance to promote a new product for a short timeframe. Fifthly, while the proposed amendments to the 2002 Act are aimed at strengthening the Act in light of the repeal of the Groceries Order, the provisions would appear to have a wider application beyond the groceries sector. In addition, they would appear to apply not just at the wholesaler/retailer level of the supply chain but also to the manufacturer/wholesaler level. The prohibition with regard to resale price maintenance could therefore give rise to issues with regard to sectors of the economy where the wholesale price is fixed e.g. the pharmaceutical sector where prices are to a large extent determined by the State. Similarly, a payment by a manufacturer to a wholesaler to promote a new line of products to retailers could fall within the new Section 4(2). This brief analysis of the proposed amendments to the 2002 Act indicates that there are a number of legal issues arising from the proposed amendments to the 2002 Act as set out in the Report. It is clear that the proposed amendments constitute radical departures from the competition provisions contained in Articles 81 and 82 of the EC Treaty, Sections 4 and 5 of the 2002 Act and from established case law. It is therefore hoped that the legislature will give careful consideration to the proposed amendments. Even with this careful consideration, it is likely that the new legislative provisions will raise a myriad of issues and that the judiciary may well have a role to play in interpreting the new provisions. References * See, for example, Case T-41/96, Bayer AG v. Commission [2000] ECR II-3383 and on appeal, Joined Cases C-2/01 P and C-3/01 P, [2004] ECR I-00023. **See Commission Decision 69/195 Christiani & Nielsen OJ 1969 L165/12 and Commission Decision 70/332 Kodak OJ 1970 L147/24.

 

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