Competition time

The Enterprise Bill is on the starting blocks and ready to run into the ground anti-competitive practices.Yet, as Grania Langdon-Down reports, the Office of Fair Trading's new powers have raised concerns about how the proposed criminal sanctions will work

With the government busily touting its Enterprise Bill as a major step towards making the UK the best place in the world to do business, the new legislation signals happy days ahead for competition lawyers.

In a few years, the UK will have gone from having one of the most lax competition regimes to one of Europe's toughest.

The Enterprise Bill proposes jail sentences of up to five years for individuals who dishonestly operate cartels, with civil sanctions including director disqualification for up to 15 years.

With clients' minds focused by the recent antitrust case in the US - where former Sotheby's chairman Alfred Taubman is now appealing after being jailed for a year and a day and fined $7.5 million (5.2 million) for his part in a six-year price-fixing conspiracy with Christie's - competition law has never had a higher profile.

For Andrew Finfer, a Leeds-based solicitor and economist in Addleshaw Booth & Co's trade and regulatory department, the Office of Fair Trading (OFT) will be out for an early scalp here.

'If the jailing powers get through, I am sure the OFT would like to see someone jailed pretty early "pour encourager les autres".

'The prospect of incarceration focuses the mind wonderfully and clients will undoubtedly be double checking with their lawyers to make sure they are not in breach of the legislation.'

The Bill is going through its committee stage and is unlikely to come into force before early summer 2003.

On the competition side, the other main features include making it easier for victims of anti-competitive behaviour to claim damages - there have been no successful actions for 30 years - depoliticising merger decisions and market investigations, and giving consumer bodies the power to make 'super-complaints' to the OFT.

Mr Finfer says: 'I think this is an extremely useful piece of legislation.

It enables the OFT to be put on a surer footing by removing some of the political elements of decision-making, and gives more certainty and professionalism to the enforcement powers.

'And, given the way the tide is flowing in encouraging individuals to bring private litigation against cartels for damages, competition lawyers are going to be kept busy.'

He adds: 'The OFT's current investigation into the price-fixing of replica football kit shows how relevant its work is to consumers.

The Enterprise Bill wants to build on that link to encourage more people to complain about anti-competitive behaviour.'

Fred Houwen, an associate in Clifford Chance's European competition and regulation group, agrees.

'I think the Bill is going to have quite a big impact on the day-to-day practice of competition lawyers.

The criminal sanctions are based on dishonesty and will be tightly defined, so honest business people should have nothing to fear.'

For Michael Rowe, a partner in Slaughter and May's Brussels office, the sanctions may have a 'chilling effect' on competition.

'Sometimes people are almost paralysed by fear that their conduct might be in breach of the law even when it is actually perfectly defensible.

I can see the policy arguments in favour of strengthening the sanctions but it will inevitably mean competition law will become more litigious, and it will be interesting to see how it affects relationships with regulators once investigations can become criminal prosecutions.'

He says there is increasing awareness in the corporate community about competition law and the importance of compliance.

'We are getting enquiries almost daily as to the nature of the proposals in the Bill and how the criminal sanctions are likely to be applied.'

James Quinney, a partner in City firm Herbert Smith's European and competition group, questions whether there is a need for yet another reform of the law when the Competition Act 1998, which came into force in March 2000, is still bedding down.

He says: 'There is also a question mark whether the OFT has the resources and expertise to pursue these new criminal sanctions effectively and fairly.'

Mr Quinney says clients will be looking for more comfort up front when they are in any form of co-operation with another company to ensure there is no question of personal liability.

'And if there is an OFT investigation, solicitors may face difficult questions over conflict of interest between individual employees and the company.

The company may find it best to admit its involvement in a cartel immediately to get full leniency, but that will not necessarily be in the best interests of the individual.'

For Mr Quinney, the other interesting area will be in the new powers the OFT will have to conduct market investigations.

'There is a growing temptation on the part of the authorities to try to fine tune the way the markets work, which can be counter-productive.

'For instance, the Competition Commission's report on small and medium-sized enterprise banking recommended price regulation, so that the four big banks pay interest on such businesses' current accounts.

However, offering interest was a big marketing ploy for some of the new entrants into the market to give them a competitive edge.'

He says the government's claims for the Bill are 'grossly exaggerated' and could make business more wary of setting up here.

'But Gordon Brown thinks competition law is the key to closing the UK's productivity gap.

The boundaries of the law are constantly being pushed by the authorities, which makes it a stimulating environment.'

Sarah Turnbull, an assistant in SJ Berwin's European and competition department, says there are still questions to be answered about how the criminal sanctions will work and how the OFT will work alongside the Serious Fraud Office, which will be bringing the prosecutions.

The powers of investigation and enforcement raise human rights issues.

She says: 'Should we not let the OFT have a bit longer to get to grips with cartels under its Competition Act powers, before raising the possibility of individuals facing prison?'

Mr Houwen says the government has tried to grapple with the human rights issues but warns: 'A lot of work will need to be done to ensure that the Police and Criminal Evidence Act 1984 and the Regulation of Investigatory Powers Act 2000 are complied with during any investigations and prosecutions.

'There will be a lot of pressure on the OFT to come up with results, given its increased funding and the fact that the Competition Act hasn't yielded the spectacular headlines it might have hoped for.'

For Jane Whittaker, head of the competition group at City firm Macfarlanes, the reforms are 'fairly controversial.

The Bill introduces some inconsistency with Europe.

But, increasingly, competition authorities are working together and I imagine the Bill will be a forerunner for other European states to take an equally strong line in time'.

She says clients are already turning to them for advice.

'The other big source of work is from US law firms wanting us to give advice to the UK subsidiaries of their US clients and to co-ordinate compliance exercises from a European point of view.'

When it comes to mergers and market investigations, the government, embroiled in a row over the 100,000 donation it accepted from Northern & Shell just after its purchase of Express Newspapers was approved, is keen to be seen to take politics out of the decisions.

Recommendations from the director-general of fair trading are now accepted automatically.

However, Mr Houwen, who has been watching the Bill through the committee stage, says the proposals are like trojan horses.

'The OFT is supposed to be made more independent by the creation of a board - but the Opposition has questioned how accountable it is going to be if it is independent of the secretary of state, but has no effective parliamentary review.

'A last-minute provision says that if the secretary of state is not satisfied the OFT is acting quickly enough or is not satisfied with the OFT's decision, he can refer a market for investigation.

That left the Opposition gobsmacked.'

But away from the fray of politics, law firms up and down the country are readying themselves for a new law that will keep them on their toes.

As Kate Rees, national head of competition at Pinsent Curtis Biddle, says: 'The powers are a huge step forward for the competition regime.

Any change in the law is good for lawyers, and this Bill offers lots of challenges.'

Grania Langdon-Down is a freelance journalist