By Professor Morten Hviid
With its announcement of proposals which will make it easier for businesses and consumers to challenge firms they believe are acting anti-competitively, the Department for Business, Innovation and Skills (BIS) is making a significant move in its attempt to secure vibrant, competitive markets.
This comes hot on the heels of plans to replace the Office of Fair Trading and the Competition Commission with a single body – the Competition and Markets Authority (CMA).
While it would have made more sense to consult on private and public enforcement at the same time, this is an important and positive step.
But why have two types of enforcement, one public by the CMA and one private by businesses or through a collective action on behalf of consumers?
Previous consultations on private enforcement both in the UK and the EU have envisaged the two types of enforcers having different aims. On the one hand the CMA, taking a broad view of the public interest, aims to stop the current violation and to deter future violations from the same and other businesses.
On the other hand private enforcers take a narrow personal view, and aim to obtain compensation for the harm endured.
Based on this vision, enforcement can be privatised when its benefits go primarily to the enforcer bringing the case. But things are not that simple.
What BIS and all of us want to achieve is a world in which the competition laws are respected and violations are deterred. The first priority of enforcement is therefore deterrence of similar behaviour in the future, creating a positive competition culture where businesses play by the rules.
Enforcement based on seeking compensation for the harm one has suffered is not likely to deliver this.
Private competition cases can be divided up into two groups: those where the infringement has already been found by the competition authority are known as follow-on actions. Others where the competition authority has not been involved at all are called stand-alone actions.
In follow-on cases, the CMA has already done the heavy lifting of establishing that the violation took place and identifying and imposing an appropriate sanction aimed at deterrence. Obtaining compensation for those harmed by the violation by essentially running the same case again will generate a lot of additional costs, at least some of which is likely to be passed on to future consumers.
The addition to deterrence should not be necessary, unless the sanctions imposed by the CMA were inadequate. Indeed the addition may be harmful, stopping firms from actions which they fear might be classified as anti-competitive but which could lead to lower costs and hence lower prices to consumers.
The consultation document rightly asks whether there are better ways to ensure compensation for harms already identified through public enforcement, for example by giving the CMA powers to help those harmed getting compensation.
The benefits to society of stand-alone cases are much clearer. Where they lead to a successful challenge, public resources are saved and deterrence achieved. Will this happen?
In stand-alone cases, those enforcing the competition rule will have to shoulder the full burden and in particular the full risk of this. While successful enforcers may get their legal costs back, a lot of their own time spent on the case may not be recovered. The consultation document recognises this, pointing to the importance of both the costs and speed of private enforcement. Proposals to establish the Competition Appeals Tribunal as the venue for competition actions in the UK and designing fast track procedures for small and medium size enterprises aims to achieve this.
Importantly, the consultation takes a more nuanced approach to the remedies which might be sought in a private action. The extension to consider injunctions to bring the anti-competitive behaviour to an end is therefore to be welcomed.
Taking the broader view of the remedies available in a private action also enables private enforcement to be placed in the right relation to the enforcement by the CMA. This division of enforcement between private and public enforcers should not be based on the aim of the remedy, it should be determined by who can do the job best and at the lowest costs.
While some may see this simply another case of privatisation, it is important to acknowledge that in some cases those affected by the violation are best placed to enforce competition law - they may have better information about both the existence and nature of the infringement and better access to proof that this has occurred. Such firms are not necessarily interested in compensation, but in ending the anti-competitive behaviour through an injunction.
Will private enforcement deliver? Only if consumers and small firms are on the ball.
Many firms remain ignorant about competition law, not thinking that it is relevant. Equally their legal advisors may not be well versed in the details of competition law nor have the resources to undertake a case. There is a strong need for education. It is not just a matter of avoiding getting on the wrong side of the law, it is also about whether they can use this law to curb potential abusive behaviour by their suppliers and buyers. This is really about help to self-help.
Professor Morten Hviid is director of the ESRC Centre for Competition Policy, University of East Anglia, Norwich.
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