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Digital Business Lawyer

Brexit offers opportunity to improve UK competition policy framework, finds Lords Report

The UK House of Lords European Union Committee’s (‘Committee’) Report entitled ‘Brexit: competition and State aid,’ published on 2 February 2018, has found that while there is general agreement that the UK should maintain the principles underpinning its competition policy post-Brexit, respondents also believe Brexit presents some opportunities for the UK to improve its competition regime outside the EU.

The Committee’s Report, which sets out the findings of an inquiry conducted by the EU Internal Market Sub-Committee into aspects of Brexit relating to competition, including the implications of Brexit on competition law and enforcement in the UK, has found that despite noting that ongoing consistency with the EU’s approach to competition policy - at least in the short term - could help provide stability for UK businesses in the face of the changes brought about by Brexit, nonetheless Brexit provides an opportunity for the UK to develop a ‘more effective’ competition enforcement regime. “With the repatriation of responsibility for enforcement decisions previously taken by the European Commission, the UK will have the freedom to take a more innovative and responsive approach to antitrust enforcement and merger control, including in relation to fast-moving digital markets and dominant online platforms,” states the Committee Report.

“I have to say that I don’t share the Committee’s reasoning on this point,” comments Becket McGrath, Partner at Cooley LLP. “There are many ways in which national competition regimes can be reformed within the framework of the EU, as has been demonstrated by the frequent reforms undertaken by the UK Government since 1998. The range of different national regimes within the EU is also a testament to this. The only benefit of leaving that framework is that the Competition and Markets Authority (‘CMA’) will no longer be obliged to follow all of the case law of the European Court of Justice (‘ECJ’), meaning that it could, for example, take a more lenient approach to vertical restraints or adopt a wholly effects based approach to abuse of dominance cases. This benefit is marginal however, since most of that case law is sound and runs with the grain of UK competition policy. The European Commission generally does a good job of protecting the interests of British consumers, as well as those of other Member States, and the CMA will be doing well simply to fill that gap.”

In reference to the challenges of fast-moving digital markets and dominant online platforms, Jonathan Cornthwaite, Partner at Wedlake Bell, is in support of the recommendations made by the Sub-Committee in its report on Online Platforms and the Digital Single Market published in 2016, in which the Sub-Committee urged the CMA to make greater use of interim measures, and to introduce time limits for the negotiation of commitments between competition authorities and dominant firms. “I also think that ‘the repatriation of responsibility’ would free the UK to take a critical look at current merger turnover thresholds to see whether they are inappropriate for technology and online media markets, as currently some tech sector mergers which could merit regulatory scrutiny can sometimes escape that scrutiny as they fall below the current turnover thresholds,” states Cornthwaite.

“Looking at abuse of dominance cases, the main characteristic of UK enforcement over recent years has been a reluctance to intervene (at least, outside the area of pharmaceuticals, where there are particular policy considerations related to the role of the NHS),” comments McGrath. “This stems from a deep institutional wariness of being overly-interventionist with respect to unilateral conduct. At the moment, and particularly given the increased resource constraints that the CMA will likely face post-Brexit, I would anticipate this continuing.”

The emphasis the Committee places on the potential for the UK to differentiate its competition framework from that of the EU post-Brexit has given rise to concern from commentators over the potential impact such changes could have on digital businesses that maintain large user bases in the UK. “The implications for digital businesses would likely depend on the type of business,” comments Paul Stone, Partner at Charles Russell Speechlys. “On the one hand, some global digital businesses may prefer consistency of approach between the EU and UK regimes, to minimise compliance costs and to be able to adopt the same business practices across Europe. On the other hand, businesses that adopt a more tailored approach on a jurisdiction by jurisdiction basis may prefer there to be changes to the UK regime.”

“I can’t see any benefits for digital businesses from these potential changes, with the impact of Brexit being almost entirely negative,” concludes McGrath. “The most immediate impact on large digital businesses undertaking mergers will be the additional costs of notifying their deals with both the European Commission and CMA (currently avoided under the ‘one stop shop’ principle). There will also be the potential for greater compliance costs, if the EU and UK antitrust regimes diverge to the extent that a different risk analysis is needed for each. It is also possible that the CMA will be less aggressive in taking action against certain vertical restraints that can make life harder for digital businesses, such as online sales bans or territorial exclusivity, since the relevant case law flows from EU single market principles.”

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