The Competition Act 1998 received Royal Assent on 9 November 1998.

It represents a major reform of UK competition law.

Under the Act, the Office of Fair Trading (OFT) will have wide-ranging powers - including the ability to make 'dawn raids' - to investigate anti-competitive agreements and behaviour, and to levy fines of up to 10% of group-wide UK turnover.The main provisions of the Act are expected to come into force on 1 March 2000, and all agreements and practices will have to comply, including pre-existing agreements (subject to transitional provisions).

As well as fines, companies which fail to comply will face the possibility of damages actions being brought by affected third parties.

It will take time to establish effective compliance procedures and change companies' agreements and practices.

THE ACT'S OBJECTIVESThe object of the Act is to provide a strong deterrent against cartels and other anti-competitive agreements and against abuses of market power.

There are two prohibitions.

These are based closely on current EU competition law, except that they will apply even where inter-state trade is not affected, and provision is made for them to be interpreted in accordance with EU case law.

Where necessary, anti-competitive action will be able to be halted pending detailed investigation.

The prohibitions will replace the Restrictive Trade Practices Act 1976, Resale Prices Act 1976, and Competition Act 1980.PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS (THE CHAPTER 1 PROHIBITION)The chapte r I prohibition will apply to all agreements and commercial arrangements which have the object or effect of preventing, restricting or distorting competition in the UK.

To infringe the prohibition, an agreement will need to have an appreciable effect on competition.

Except in relation to an agreement involving price fixing, resale price maintenance, market sharing, or which is one of a network of similar agreements, the Office of Fair Trading (OFT) is currently suggesting that unless the parties' relevant market share exceeds 25%, there will be no appreciable effect.

Any infringing agreement will be void and unenforceable, subject to the rules of severance, which may in many cases mean that only the provisions which infringe the prohibitions will be void and unenforceable.The chapter I prohibition will potentially affect the following types of agreements and provisions:- cartels;- joint ventures;- price fixing;- resale price maintenance;- dividing markets/customers;- agreements to limit production;- agreements to limit or co-ordinate investment;- collusive tendering ('bid rigging');- agreements between sellers and between purchasers;- exchanging commercially sensitive information with competitors;- intellectual property licences;- research and development agreements;- certain distribution and purchasing agreements;- certain land agreements;- exclusivity provisions;- discrimination;- restrictive covenants.ExemptionsSome agreements which restrict competition may have wider economic benefits which outweigh their anti-competitive effect.

These agreements will be capable of exemption.If exemption is available, it will be able to be obtained in one of two ways: by application to the Director General of Fair Trading (DGFT), or, in appropriate cases, other sectoral regulators, for individual exemption, or by ensuring that the agreement fits within the terms of a block exemption.

Agreements benefiting from individual or block exemption at EU level will be automatically exempt.ExclusionsIn addition, there are a number of exclusions from the Chapter I prohibition.

The details of exclusions for so-called vertical agreements between suppliers and distributors (except price-fixing agreements), and land agreements, will appear in due course in secondary legislation.

Other exclusions cover, for example, mergers qualifying for investigation under the Fair Trading Act 1973 which the Secretary of State has announced will not be referred to the Competition Commission - which from 1 April 1999 will replace the Monopolies and Mergers Commission.NotificationAs well as applying for an exemption, parties unsure as to whether their agreement infringes the Chapter I prohibition will be able to notify the agreement to the DGFT to seek a declaration of non-infringement (negative clearance).

Notification of an agreement will secure immunity from fines, from the date of notification until at least the date on which the application is determined.Guidance, formal decision and administrative lettersFor both negative clearance and exemption, two types of decision will be available: guidance (confidential, with positive guidance being of persuasive value in a court, and conferring immunity from penalties); and a formal decision (public statement following consultation with third parties, and an exemption being legally binding and providing immunity from penalties).

However, it is envisaged that following most notifications an extra-statutory administrative letter will be issued, equivalent to 'comfort letters' issued by the European Commission, which is likely to have a persuasive value in a court.

Indeed, it is now possible to apply to the OFT for guidance that agreements entered into since 9 November 1998 - and, on an informal basis, draft agreements - will comply with the Act.PROHIBITION OF ABUSE OF A DOMINANT POSITION (THE CHAPTER II PROHIBITION)It will be unlawful for a business to abuse a dominant position in the UK or a part of it.

In many cases a firm will reach the threshold for dominance with a 40% market share, although companies with market shares below this level may be viewed as dominant in some circumstances.

The following are examples of conduct - usually of an exclusionary or exploitative nature - which when practised by a dominant firm may be viewed as abusive:- discriminatory prices;- excessive prices;- predatory pricing;- cross-subsidisation;- loyalty discounts and rebates;- target discounts;- excessive profits;- refusals to supply;- refusing to allow a competitor to use essential facilities;- customer selection/selective distribution;- tie-in sales and bundling;- full-line forcing;- quantity forcing;- exclusive contracts;- restrictive or discriminatory trading conditions;- restrictions on the supply of parts or other inputs required by competitors;- refusing to license intellectual property rights;- restrictive licensing policies.Businesses will be able to seek negative clearance as for the chapter I prohibition, but not exemption.