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Fcwp Report 1 Final Version
1. BADC Fair Competition
Working Party
Report 1 - Final Version 6 August 2009
The BADC and competition matters: Early Analysis
Prepared and presented in draft form to the BADC Committee 18 April 2009 by TK
Checked by OFT Executive Officer Phil Butcher
Thursday, 6 August 2009 1
2. The BADC and
Competition Matters:
Early Analysis
I. Competition
II. The BADC as an entity
III.Categories of (BADC) behaviour that must comply
IV. Pitfalls: Examples of OFT identified anti-competitive
behaviour
V. Worst case scenarios
VI. Compliance strategy
Appendix 1: Letter from Phil Butcher, OFT Executive Officer
Thursday, 6 August 2009 2
3. This report would not be possible without...
... the patience and assistance of Philip Butcher of the OFT.
Philip is keen I pass on a message to everyone at the BADC...
• ‘Finally, I would ask that you stress that the membership or
leadership of the association can in no way discuss pricing
information, set pricing that the individual members must
adhere in their normal business, artificially divide markets or
territory or act in any way that could significantly effect
competition between members.’
• ‘I would also stress that the assistance I have provided is no
substitute for professional legal advice.’
(email correspondence, Phil Butcher OFT, 6 August 2009)
Thursday, 6 August 2009 3
4. Part 1: Competition
• Competition Theory
• UK Authorities
• Two principal types of anti-competitive behaviours
• Bringing the BADC up to Date
• Vulnerabilities
• Opportunities
• Benefits of Compliance
Thursday, 6 August 2009 4
5. Competition Theory
On a broad level, the main aim of competition
law is to ensure that UK and EC markets
remain competitive. (OFT424 p3)
‘Competitive markets provide the best means of ensuring that the economy's resources
are put to their best use by encouraging enterprise and efficiency, and widening choice.
Where markets work well, they provide strong incentives for good performance -
encouraging firms to improve productivity, to reduce prices and to innovate; whilst
rewarding consumers with lower prices, higher quality, and wider choice.
Where markets operate freely and effectively competition can be expected to bring all
the benefits mentioned above. However, markets can and do fail. Competition policy is
therefore used to ensure the efficient workings of markets and to avoid such market
failures, most notably to prevent abuses of market power (that is less innovation, higher
prices, lower choice, and lower quality than would result from efficient competition).’
http://www.berr.gov.uk/whatwedo/businesslaw/competition/index.html
Thursday, 6 August 2009 5
6. UK Authorities
*
* Since the draft version of this report this UK department has changed names from The Department of
Business and Regulatory Reform (BERR) to the Department for Business Innovation and Skills(BIS). See
Appendix 1.
Thursday, 6 August 2009 6
7. The Government has created a new Department for Business, Innovation
and Skills whose key role will be to build Britain’s capabilities to compete in
the global economy.
The Department was created on June 5, 2009 by merging the Department
of Business Enterprise and Regulatory Reform (BERR) and The Department
of University Innovation and Skills (DUIS).
The BERR had only recently been created on 28 June 2007 on the
disbanding of the Department of Trade and Industry (DTI). BERR has a wide
range of responsibilities. The main areas covered were essentially those
previously covered by the DTI: Company Law, Trade, Business Growth,
Employment Law, Regional Economic Development, and Consumer Law.
(http://en.wikipedia.org/wiki/BERR)
Thursday, 6 August 2009 7
8. The Office of Fair Trading (OFT) exists to make
markets work better.
The OFT was established as statutory corporation
under the Enterprise Act 2002 and took over
Competition Act 1998 powers from Monopolies
Commission. The OFT addresses anti-competitive
practices and consumer empowerment, by a mix
of enforcement and communication, so benefiting
businesses and consumers.
Thursday, 6 August 2009 8
9. Recent competition
regulation activity
• 1998 The EC Treaty (Articles 81 & 82)
• 1998 Competition Act (UK)
• 2002 The Enterprise Act (UK)
• 2003 EC Regulation 1
• 2004 the OFT publishes an extensive series of
guidance booklets on Competition Law. Most of
the OFT information in this report is drawn from
these publications.
Thursday, 6 August 2009 9
10. Two Prohibitions
• Anti-competitive agreements (e.g. cartels )
between businesses are prohibited by
Chapter I of the Competition Act 1998
(CA98) and Article 81 of the EC Treaty
• Abuse of a dominant position in a market is
prohibited by Chapter II of CA98 and Article
82 of the EC Treaty.
(http://www.oft.gov.uk/advice_and_resources/resource_base/legal/competition-act-1998/)
Thursday, 6 August 2009 10
11. Bringing the BADC up
to date
• The BADC (as the SBFD) was established long before the
modern competition statutes (1998, 2002, 2003) came into being.
• The BADC (as the SBFD) was established with a social club
constitution as a template, which may not be helpful as a trade
association.
• Our profession appears generally to be behind the times
considering competition regulation.
• The OFT is very interested in professions like ours growing
more competition minded not only in the UK, but Europe as
well. We may be small, but a significant part of the UK economy
is made of small businesses and the OFT is interested in making
all markets work better.
Thursday, 6 August 2009 11
12. Vulnerabilities
There are significant penalties for parties
falling foul of Competition law.
These will be presented in
a later part of this presentation
‘Worst Case Scenarios’
Thursday, 6 August 2009 12
13. Opportunities
• The Office of Fair Trading (OFT) exists to
make markets work better. Free advice and
guidance can be gained from the OFT.
• There are bodies which provide support to
encourage the development of organisations
such as our, and provide constructive goals
and targets for organisations to improve
how they are serving their membership.
One of these organisations is the Trade
Association Forum (www.taforum.org)
Thursday, 6 August 2009 13
14. Benefits of compliance
• Greater legitimacy and recognition
• Advice and guidance from sources set up to
support associations like ours
• The authority to speak on behalf of our
profession to the media and to advise the
government
• Peace of mind that we are serving the
membership, encouraging them to compete fairly
in the profession
Thursday, 6 August 2009 14
15. Part 2: The BADC as an Entity
What type of entity are we in terms of
competition law? are we:
A business?
An association of undertakings?
A club?
A trade association?
A professional body?
Thursday, 6 August 2009 15
16. Is the BADC a
Business?
Thursday, 6 August 2009 16
17. OFT Criteria and Application
• A business or ’Undertaking’ includes any natural or
legal person or entity involved in economic
activity, regardless of its legal status or how it is funded
that offer goods and services to market. It includes
companies, firms, businesses, partnerships, individuals
operating as sole traders, agricultural cooperatives,
trade associations and non-profit making organisations.
(OFT513 p2)
• If you are involved in any economic activity, or if the
members are engaged in an economic activity then you
are subject to competition law. AND business regulations.
(telephone call TK to Philip Butcher OFT, 3 April 2009)
Thursday, 6 August 2009 17
18. ✓Business
If the BADC is conducting exams,
workshops, and other economic
activity, for the purpose of Competition
Law, it is a commercial venture/
business/undertaking.
(telephone call TK to Philip Butcher OFT, 3 April 2009)
Thursday, 6 August 2009 18
19. Is the BADC an Association
of Undertakings?
Thursday, 6 August 2009 19
20. OFT Criteria
Any body formed to represent the interests of
its members in commercial matters may be an
association of undertakings.
An association of undertakings is deemed to represent the interests of
those undertakings which have chosen to join, and it is therefore
irrelevant how the association is organised. It is not necessary for it to
have any formal constitution for its activities to fall within the scope of
Article 81 and/or the Chapter I prohibition.
An association of undertakings will fall within Article 81 and/or the
Chapter I prohibition if its decisions, rules, recommendations or other
activities lead to an appreciable restriction of competition, regardless of
the exact form that the association takes. (OFT408 1.4)
Thursday, 6 August 2009 20
21. ✓ Association of Undertakings
‘The BADC is an association of
undertakings by virtue that the
membership is linked by a common
economic activity.’
(Email from Philip Butcher, OFT, 6 August 2009)
Thursday, 6 August 2009 21
23. Club?
• Club is definitely not a term used in Competition Law. For
the purposes of Competition Law the BADC would be
considered an association of undertaking, irrespective of
the constitution of the organisation or the preference of
the members. The individuals that make up
the membership are members because they share/are
linked a common economic activity and no other reason.
(email from Philip Butcher, OFT, 6 August 2009)
• Example: A plumberʼs association deals with matters of
plumbing. Further Example: The plumberʼs football club
is not an association of undertakings since the
professional activity (plumbing) is not related to the
activity of the association (football.)
(telephone call TK to Philip Butcher OFT, 3 April 2009)
Thursday, 6 August 2009 23
24. X Club
• The BADC is not a club.
• However, we could have a club unrelated to
stage combat within our association.
Example the BADC Football club.
(call to PB 3 April 2009.)
Thursday, 6 August 2009 24
25. Is the BADC a Trade
Association?
A Professional Body?
Thursday, 6 August 2009 25
26. OFT Criteria for Trade
Association
Trade associations are the most common form of association of undertakings
The functions of such associations in furthering the trade interests of their
members are diverse but they can be broadly categorised as:
• representing to Government, the European Commission and other public
bodies the interests of members on legislation, regulations, taxation and
policy matters likely to affect them
• promoting and protecting the interests of members in the media
• collecting and disseminating statistics and market information, and
• information about legislation and Government policy
• promulgating standards, codes of practice or standard terms and
• conditions of sale
• providing a range of services of an advisory or consultancy nature on, for
example, legal, accounting, training or environmental matters
• providing advice of a more commercial nature.
(OFT408-5.1)
Thursday, 6 August 2009 26
27. Overlaps with Professional Body
• the term Professional Body and Trade Association are largely
interchangeable and are not defined under the Act or Article 81
(see OFT 408 1.4). Both Trade Associations and Professional
Bodies can set down standards, educational and/or experience
qualifications and standards of conduct for their members.
• The only major difference is that traditionally
Professional Bodies have a government recognised role in the
regulation of a profession, for example the Royal College of
Physicians, and have the powers/ability to remove or bar persons
from the given profession, so that one could not work as a doctor
without being a member of the Royal College i.e. to be struck
off. The counter example would be a plumber is still able to trade
without being a member of the National Association, however the
lack of membership can effect their reputation and marketability.
(email from Philip Butcher, OFT, 6 August 2009)
Thursday, 6 August 2009 27
28. ✓ Trade Association
If all the members are engaged or aspire to
engage in the same business then yes we are
a trade association. Because of what the
association represents the BADC is a trade.
(telephone call TK to Philip Butcher OFT, 3 April 2009)
Thursday, 6 August 2009 28
29. Is the BADC a
Professional Body?
Thursday, 6 August 2009 29
30. * Professional Body
It would be good to think of ourselves as one.
(call to PB 3 April 2009.)
The BADC is best viewed as a trade association.
This does not prevent the BADC representing the
industry or its membership to the media or government.
However as its reputation as the benchmark for the
standards of practice, conduct and skill for its membership
grows and gains wider industry recognition to the extent
that it represents those involved in the industry, there is
no reason that the BADC should not aspire the status of a
professional body. (Email from Philip Butcher, OFT 6 August 2009)
Thursday, 6 August 2009 30
31. Summary of Part 2
The BADC in terms of compliance, should
comply with competition law as:
✓a commercial venture
✓an association of undertakings
✓a trade association
✴and a professional body.
(call to PB 3 April 2009)
Thursday, 6 August 2009 31
32. Our Responsibilities
We have a responsibility to make sure our
association’s behaviour is compliant with
competition law.
We have a responsibility to make sure our
members are aware of their obligation to
comply to competition law. This may be as
simple as referring them to OFT guidance and
the OFT website, and letting them know they
can call in for free advice.
Thursday, 6 August 2009 32
33. Part 3: What categories of BADC
behaviour need to comply?
These four broad and overlapping categories
define behaviour which needs to comply.
• Decisions
• Rules
• Recommendations
• Other activities that may prevent, restrict
or distort competition
Thursday, 6 August 2009 33
34. Decisions
Decisions has a wide meaning. It may include, for example:
• the constitution or rules of an association of undertakings
• its recommendations or other activities
• In the day to day conduct of the business of an association
• resolutions of the management committee or of the full membership in
general meeting
• binding decisions of the management or executive committee of the
association
• or rulings of its chief executive
will all be decisions of the association. The key consideration is whether
the effect of the decision, whatever form it takes, is to limit the freedom of
action of the members in some commercial matter.
(OFT408 2.2 reformatted to add clarity)
Thursday, 6 August 2009 34
35. Rules
The rules of an association may constitute a decision of the
association, as may any co-ordination of the members’ conduct
in accordance with its constitution.
Any rule which has an appreciable effect on competition within
the common market and which may affect trade between
Member States will fall within Article 81.
A rule which has an appreciable effect on competition within
the United Kingdom and which may affect trade in the United
Kingdom will fall within the Chapter I prohibition. It may be
possible for a rule to fall within both Article 81 and the
Chapter I prohibition.
(OFT408 2.3 reformatted)
Thursday, 6 August 2009 35
36. Recommendations
A recommendation of an association of undertakings may also be:
• a decision
• an oral exhortation which it is intended that members should
follow. This will be the case even if the recommendation is not
binding on the members or has not been fully complied with.
• Any recommendation which has an appreciable effect on
competition within the common market and which may affect
trade between Member States will fall within Article 81. A
recommendation which has an appreciable effect on competition
within the United Kingdom and which may affect trade in the
United Kingdom will fall within the Chapter I prohibition. It may
be possible for a recommendation to fall within both Article 81
and the Chapter I prohibition. (OFT408 2.4 reformatted)
Thursday, 6 August 2009 36
37. Other Activities
This category is a catch all of behaviours which might be
engaged in which have an appreciable effect on
competition.
These other activities may take the form of:
• decisions of associations of undertakings or
agreements between the undertakings which form
part of the association.
• They would cover the exchange of specific price
information.
(OFT408 2.5)
Thursday, 6 August 2009 37
38. Part 3:
Competition Pitfalls
• Anti-competitive Agreements
- less involved parties
- concerted practices
• carving up the marketplace
• Abuse of a dominant market position
• Terms of membership (OFT408 3.19)
• Certification/ Quality Labels
• Exchange of Price information
• Advertising (OFT408 3.14)
Thursday, 6 August 2009 38
39. Agreements
Agreement has a wide meaning and covers
agreements whether legally enforceable or
not, written or oral; it includes so-called
gentlemen’s agreements. There does not
have to be a physical meeting of the parties
for an agreement to be reached: an exchange
of letters or telephone calls may suffice.
(OFT408 2.7)
Thursday, 6 August 2009 39
40. Anti-Competitive Agreements
Article 81 of the EC Treaty and the Chapter I
prohibition contained in the Competition Act
1998 (the Act) both prohibit, in certain
circumstances, agreements which prevent,
restrict or distort competition. (OFT401 1.1)
Thursday, 6 August 2009 40
41. less involved parties
The fact that a party may have played only a
limited part in the setting up of the agreement,
or may not be fully committed to its
implementation, or may have participated only
under pressure from other parties does not
mean that it is not party to the agreement
(although these facts may be taken into account
in deciding the level of any financial penalty.)
(OFT401 2.8)
Thursday, 6 August 2009 41
42. Exchange of Price
Information
The membership or leadership of the
association can in no way discuss pricing
information or set pricing that the individual
members must adhere in their normal
business.
(email from Philip Butcher, OFT, 6 August 2009)
Thursday, 6 August 2009 42
43. Agreements involving
Associations
The functions of trade associations are clearly useful to
members – especially, perhaps, to smaller firms – and they may
also be beneficial in increasing the efficiency of the market
system as a whole.
Activities of trade associations which have no appreciable effect
on competition will be of no concern.
A trade association may, however, provide directly or indirectly
the vehicle for anti-competitive, or even collusive, activity, and
any decision, rule or recommendation of a trade association or
agreement between its members which has an appreciable effect
on competition may fall within Article 81 and/or the Chapter I
prohibition. (OFT408 5.2)
Thursday, 6 August 2009 43
44. Definition of ‘appreciable effect’
Whether or not an agreement has an
appreciable effect usually depends on the
market shares of the businesses involved.
However, where an agreement fixes prices,
shares markets or imposes minimum resale
prices, it is generally capable of having an
appreciable effect whatever the businesses’
market shares.
(OFT424 p5)
Thursday, 6 August 2009 44
45. Concerted Practices
vs. Agreements
The boundary between the two concepts is
imprecise.
The key difference is that a concerted practice may
exist where there is informal co-operation without
any formal agreement or decision.
The OFT will need to establish that the parties, even
if they did not enter into an agreement, knowingly
substituted cooperation between them for the risks
of competition.
(OFT401 2.11-2.12)
Thursday, 6 August 2009 45
46. Terms of Membership
Rules of admission as a member of an
association of undertakings should be
transparent, proportionate, non-discriminatory
and based on objective standards.
Terms of membership will have an appreciable effect on competition where the
effect of exclusion from membership is to put the undertaking(s) concerned at a
competitive disadvantage.
Similarly, procedures for expelling members of an association may have an
appreciable effect on competition, particularly where they are not based on
reasonable and objective standards or where there is no proper appeals
procedure in the event of refusal of membership or expulsion. (OFT408 3.19)
Terms of membership rules criteria also apply at all levels of membership (which
have an appreciable effect on competition) in an association of undertakings If
basing membership on external recognition (from another organisation), the
rules of admission as a member should be transparent, proportionate, non-
discriminatory and based in objective standards.
(call to Philip Butcher 16 April 2009)
Thursday, 6 August 2009 46
47. Certification/ Quality
Labels
An association of undertakings may certify or award quality labels
to its members to demonstrate that they have met minimum
industry standards.
While such a scheme has benefits for consumers in the form of
quality assurances, it may lead to a restriction of competition. A
scheme is less likely to have an appreciable effect on competition
for the purposes of Article 81(1) and/or the Chapter I
prohibition where certification is available to all manufacturers
that meet objective and reasonable quality requirements.
Where manufacturers must accept additional obligations
governing the products which they can buy or sell, or restrictions
as to pricing or marketing, the scheme is likely to have an
appreciable effect on competition for the purposes of Article
81(1) and/or the Chapter I prohibition. (OFT408 3.20)
Thursday, 6 August 2009 47
48. Restrictions on Advertising
• Restrictions on advertising, whether relating to the amount, nature
or form of advertising, have the potential to restrict competition.
• Whether the effect is appreciable depends on the purpose and
nature of the restriction, and on the market in which it is to apply.
• Rules or decisions of associations of undertakings aimed at curbing
misleading advertising, or at ensuring that advertising is legal, truthful
and decent are unlikely to have an appreciable effect on competition,
• Restrictions which more generally prevent members from using
advertising are another matter. Rules or decisions of associations of
undertakings prohibiting members from soliciting for business, from
competing with other members, or from advertising prices, or prices
below a minimum or recommended level, are all likely to have an
appreciable effect on competition.
(OFT408 3.14)
Thursday, 6 August 2009 48
49. Carving up/ Sharing
Markets
Undertakings may agree to share markets, whether
by territory, type or size of customer, or in some
other way.
Where the object of the agreement is to share
markets in this way, it will almost invariably infringe
Article 81 and/or the Chapter I prohibition. The
OFT considers that such market-sharing
agreements, by their very nature, restrict
competition to an appreciable extent.
(OFT401 3.10)
Thursday, 6 August 2009 49
50. Abuse of a dominant
market position
There are two tests common to assessing whether this prohibition applies:
• whether an undertaking is dominant, and
• if it is, whether it is abusing that dominant position. (oft402 4.1)
The OFT considers it unlikely that an undertaking will be individually
dominant if its share of the relevant market is below 40 per cent, although
dominance could be established below that figure if other relevant factors
(such as the weak position of competitors in that market and high entry
barriers) provided strong evidence of dominance. (OFT402 4.18)
A dominant position may be held collectively when two or more legally
independent undertakings are linked in such a way that they adopt a
common policy on the market. (oft402 4.24)
Abusive conduct: (potentially in our field) is conduct which amounts to
exclusionary behaviour, because it removes or weakens competition from
existing competitors, or establishes or strengthens entry barriers, thereby
removing or weakening potential competition. (oft402 5.5)
Thursday, 6 August 2009 50
51. Part V:
Worst Case Scenarios
(Penalties and Consequences)
Thursday, 6 August 2009 51
52. At an individual level, businesses that comply with the law will avoid the various
consequences of non-compliance. These are potentially very serious and include the
following :
• Investigation by the OFT, the sector regulator or the European Commission
• A financial penalty
• Agreements being void and unenforceable
• Adverse publicity
• Third Party Claims: the possibility of being sued for damages by those
harmed by the unlawful behaviour
• The Cartel Offence (list from OFT424 p3)
And for some relief:
• Exceptions, Exemptions
• Leniency
Thursday, 6 August 2009 52
53. Penalty and Prosecution
Businesses that breech the law can be fined up
to ten per cent of their worldwide turnover and
third parties (including injured competitors,
customers and comnsumer groups) can bring
damages against them. In addition, individuals
found to be involved in cartels can be fined and
imprisoned for up to five years and directors of
companies that breech prohibitions can be
disqualified for up to 15 years.
Thursday, 6 August 2009 53
54. Investigation
The OFT has a wide range of powers to investigate
suspected common law infringements. An investigation
can be very disruptive for a business.
The OFT can:
• Obtain documents and information from businesses
suspected of committing an infringement
• Obtain documents and information from their
competitors, customers or suppliers
• enter and search premises (with a warrant)
(OFT477 4)
Thursday, 6 August 2009 54
55. Knock on Effect
Because the OFT can request documents
and information from a businesses
competitors, customers or suppliers; there is
a further liability that an investigation can
spread to other related businesses and trade
associations.
Thursday, 6 August 2009 55
56. Failure to Co-operate
Anyone who fails to co-operate with the
investigation, obstructs OFT officials or
hides, destroys or falsifies relevant
documents may be guilty of a criminal
offence punishable by a fine and in some
cases imprisonment.
(OFT477 4)
Thursday, 6 August 2009 56
57. Financial Penalties
The OFT may impose a financial penalty on
an undertaking which has intentionally or
negligently committed an infringement.
The amount of the penalty imposed may be
up to 10 per cent of the worldwide turnover
of the undertaking. OFT408 8.2-4)
Thursday, 6 August 2009 57
58. Financial Penalties for
Associations
The involvement of an association of
undertakings may result in financial penalties
being imposed on the association itself, its
members or both.
The penalty shall not exceed 10 per cent of
the sum of the worldwide turnover of each
member active on the market affected by the
infringement. (OFT408 8.2-4)
Thursday, 6 August 2009 58
59. Mitigating Factors
• role of the undertaking, for example, where the undertaking is
acting under severe duress or pressure
• genuine uncertainty on the part of the undertaking as to
whether the agreement or conduct constituted an infringement
• adequate steps having been taken with a view to ensuring
compliance with Articles 81 and 82 and the Chapter I and
Chapter II prohibitions
• termination of the infringement as soon as the OFT
intervenes
• co-operation which enables the enforcement process to be
concluded more effectively and/or speedily
(OFT423 2.16)
Thursday, 6 August 2009 59
60. Aggravating factors
• role of the undertaking as a leader in, or an instigator of, the
infringement
• involvement of directors or senior management
• retaliatory or other coercive measures taken against other undertakings
aimed at ensuring the continuation of the infringement
• continuing the infringement after the start of the OFT’s investigation
• repeated infringements by the same undertaking or other undertakings
in the same group
• infringements which are committed intentionally rather than negligently
• retaliatory measures taken or commercial reprisal sought by the
undertaking against a leniency applicant.
(OFT423 2.15)
Thursday, 6 August 2009 60
61. Voidness
Agreements found to be anti-competitive are
void.
Thursday, 6 August 2009 61
62. Adverse Publicity
If the OFT subsequently decides there has
been a breach of competition law they will
notify the infringing business and publish a
decision on their website.
(OFT477 p18)
Thursday, 6 August 2009 62
63. Third Party Claims
Third party claims can be conducted
concurrently, independently, or after
OFT enforcement.
Thursday, 6 August 2009 63
64. The Cartel Offence
The Enterprise Act 2002 introduces the cartel offence - a criminal offence for
individuals who dishonestly engage in cartel agreements. The cartel offence will
operate alongside the existing Competition Act 1998 regime, which provides for
the imposition of civil sanctions on undertakings that breach the Chapter I
prohibition on anti-competitive agreements.
An individual is guilty of an offence if he or she dishonestly agrees with one or
more other persons that undertakings will engage in one or more of the
prohibited cartel activities. These are:
■ price-fixing
■ limitation of supply or production
■ market-sharing,
■ bid-rigging.
The offence is committed only if the individual acts dishonestly, a concept which
is well understood in criminal law.
(OFT513 1&2)
Thursday, 6 August 2009 64
65. Exceptions, Exemptions
There are many exceptions and exemptions in
Competition regulation.
For Example: In the case of public interest-professional
bodies should apply a proportionality test, ie. they should
consider whether existing restrictions pursue a clearly
articulated and legitimate public interest objective, whether
they are necessary to achieve that objective, and whether
there are no less restrictive means to achieve this. (OFT408 6.7)
If our interests as an organisation requires us to take an
option that relies on a exception or exemption it may
require more extensive research or legal assistance.
Thursday, 6 August 2009 65
66. Part VI:
Compliance
Thursday, 6 August 2009 66
67. Why bother with
Compliance?
All businesses have a duty to act lawfully, but there are more
practical reasons why compliance with competition law is
particularly important.
Compliance ensures that this aim is achieved to the benefit of
both business and consumers.
At an individual level, businesses that comply with the law will
avoid the various consequences of non-compliance.
Furthermore, a business that has taken adequate steps to achieve
compliance but has nonetheless committed an infringement may
receive a reduction in the amount of financial penalty imposed.
(OFT424 p3)
Thursday, 6 August 2009 67
68. What should the compliance
programme contain?
The content of a compliance programme must be tailored to your
particular requirements. There is no standard programme that can
apply in all cases.
However, there are certain general features that must be included
as a minimum in any programme if it is to work effectively. We
take the view that there are four such features:
• support of senior management
• appropriate policy and procedures
• training
• regular evaluation
(OFT424 p10)
Thursday, 6 August 2009 68
69. 1. Support of Senior management
This element can be achieved in a number of ways, including:
• a personal message to staff from the most senior individual in
the organisation stating their commitment to the programme
• referring to the policy in the business’ mission statement or
code of behaviour and ethics
• making adherence to the programme one of the overall
objectives of the organisation
-or-
• designating a particular member of the board or senior
management team to take on overall responsibility for
ensuring that the programme is functioning correctly and to
report at regular intervals on how it has operated.
Thursday, 6 August 2009 69
70. 2. Appropriate policy and procedures
An effective policy would contain at least the following elements:
• an overarching commitment to comply with competition law
• placing a duty on all employees and directors to conduct
their business dealings within this overarching policy and
seeking a written undertaking from them to this effect
• a commitment to take disciplinary action against employees/
directors who intentionally or negligently involve the firm in
an infringement of competition law – this is essential if the
programme is to be taken seriously.
a framework should be provided to enable employees to:
• seek advice on whether or not a particular transaction
complies with competition law
• report activities that they suspect infringe competition law.
(OFT402 p12)
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71. 3. Training
You can deliver the training in a variety of
ways – such as informal seminars, video
presentations and role play. Ideally the
training should be related in some way to
your activities in order to be seen as
relevant and to retain the interest of
employees.You should keep a record of any
training you give. (OFT424 p14)
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72. 4. Regular evaluation
The evaluation element should include some or all of the
following:
• testing of the individual employee’s knowledge of the law,
policy and procedures
• the inclusion of adherence to your compliance policy as an
objective against which an individual’s and a department’s
performance are appraised
• mechanisms for reporting actual or potential infringements
to senior management, and for taking steps to put right the
problem and limiting the risk of recurrence. (OFT242 p14)
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73. Does the programme have to be
extensive?
It is vital that small businesses take compliance seriously.
We recognise, however, that the way in which businesses
choose to ensure compliance may reflect their size.
ie: smaller businesses may not need to implement a
formal compliance programme of the type described but
will need to ensure that employees are aware of and are
kept up to date with the implications of and the need to
comply with competition law. (OFT242 p4)
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75. Appendix 1
This document was reviewed for accuracy and clarity by Philip Butcher at the OFT. His suggestions follow and they have been
included in this report. Here is the text of his email for reference and confirmation..
Dear Tim
Thank you for forwarding a copy of your report to the working party.
By and large the report is accurate and detailed, there are a couple of points that you may wish to address to ensure total accuracy and clarity.
1) On pages 5 and 6, the references to BERR, unfortunately BERR has recently been restructured and renamed to Department of Business Innovation and Skill (BIS for short) their website can be
viewed at http://www.berr.gov.uk/
2) Page 7 the OFT was established as statutory corporation under the Enterprise Act 2002 and took over Competition Act 1998 powers from Monopolies Commission.
3) pg 17: The OFT defines a business/undertaking as "Any natural or legal person or entity involved in economic activity, regardless of its legal status or how it is funded that offer goods and
services to market."
4) Pg 21: Association of undertakings This could be shortened to state "The BADC is an association of undertakings by virtue that the membership is linked by a common economic activity.
5) pg 23: Club is definitely not a term used in Competition Law. For the purposes of Competition Law the BADC would be considered an association of undertaking, irrespective of the
constitution of the organisation or the preference of the members. The individuals that make up the membership are members because they share/are linked a common economic activity and no
other reason.
6) Pg 25-30: the section on professional bodies vs.. Trade Associations.
It may help if I clarify the distinction on these areas As noted the term Professional Body and Trade Association are largely interchangeable and are not defined under the Act or Article 81 (see
OFT 408 1.4). Both Trade Associations and Professional Bodies can set down standards, educational and/or experience qualifications and standards of conduct for their members.
The only major difference is that traditionally Professional Bodies have a govt recognised role in the regulation of a profession, for example the Royal College of Physicians, and have the powers/
ability to remove or bar persons from the given profession, so that one could not work as a doctor without being a member of the Royal College i.e. to be struck off. The counter example would
be a plumber is still able to trade without being a member of the National Association, however the lack of membership can effect their reputation and marketability.
Therefore the BADC is best viewed as a trade association, This does not prevent the BADC representing the industry or its membership to the media or government. However as its reputation
as the benchmark for the standards of practice, conduct and skill for it membership grow and gains wider industry recognition and the extent that it represents those involved in
the industry there is no reason that the BADC should not aspire the status of a professional body.
Finally, I would ask that you stress that the membership or leadership of the association can in no way discuss pricing information, set pricing that the individual members must adhere in their
normal business, artificially divide markets or territory or act in any way that could significantly effect competition between members.
I would also stress that the assistance I have provided is no substitute for professional legal advice.
I hope the above helps and if you require anything further please feel free to contact me again.
Yours sincerely
Philip Butcher
Executive Officer - Enquiries And Reporting Centre - OFT
enquiries@oft.gsi.gov.uk
08457224499
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