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After reading through Chapter II of the Competition Act 1998 Donna is still unsure as to whether or not she needs to seek legal advice. Wanting to avoid the expense of a lawyer, she posts a message on an online forum, www.freelegaladvice.co.uk to see if anyone can help her. Read the reply to Donna’s message and answer these questions.



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Subject: Re: Competition Act 1998: OFT Investigation (Nashiconika)
Date: Nov 7, 23.26
Poster: LawGuy1

On Nov 7, 23:26, Donna W wrote:

Hi. I run a small shop in Cricklewood selling electric guitars. I’ve just heard about an investigation into Nashiconika, who are offering discounts to small retailers that are not available to online shops. Apparently this is outlawed under the Competition Act 1998. I get a similar discount from DiAnno, whose guitars account for most of my sales. Could any ruling against Nashiconika also be pursued against DiAnno? If so, I guess this would result in increased costs all round. But could I also be held liable (which would have serious implications for the future of my shop)—or would any fines only be payable by DiAnno? I tried to read Chapter II of the Competition Act just now, but am not really any the wiser. All help very gratefully received, thanks.

Hi Donna. Sorry to have to tell you—but the relevant part of the Act is Chapter I. It’s always best to start at the beginning. 😉 Chapter II focuses on the abuse of a dominant position, which may also be relevant here—but Chapter I applies to the specific kind of agreement you outlined in your post.

As far as I know you wouldn’t have to pay any fines, but DiAnno will probably stop offering the discounts before anyone starts to look into their own agreements. I’m not actually a practising lawyer, so you might want to check this. However, I have just finished my final year dissertation on competition law, so am reasonably familiar with the issues. I’m pasting a few edited extracts of the relevant parts of the Act (plus a few notes) for your information. Hope all goes well for you.

s.2 Agreements etc. preventing, restricting or distorting competition

(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which—

(a) may affect trade within the United Kingdom, and
(b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom,

are prohibited unless they are exempt in accordance with the provisions of this Part.

For an economist, a distortion is basically any departure from the ideal of perfect competition (including things like taxes and subsidies). As far as the Act is concerned, it explicitly provides for your situation in s 2 (2), which states that it is a violation of competition law to

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.

But, the Act does allow for certain exemptions. Don’t know whether these would apply in your case, but this is what the Act says:

(3) The exemption may be granted subject to such conditions or obligations as the Director considers it appropriate to impose; and has effect for such period as the Director considers appropriate.

I think the Director is the Secretary of State, but I’m not sure. Anyone? Whoever he is, he can allow an exemption—but can also force you to obey any conditions he decides should be included. Also, he doesn’t like being lied to (!):

s.5 Cancellation etc. of individual exemptions

(1) If the Director has a reasonable suspicion that the information on which he based his decision to grant an individual exemption was incomplete, false or misleading in a material particular, he may by notice in writing take any of the steps mentioned in subsection (1).

The only other part of the Act that might be of interest to you is about another kind of exemption, block exemptions:

s.8 Block exemptions

(1) If agreements which fall within a particular category of agreement are, in the opinion of the Director, likely to be agreements to which section 9 applies, the Director may recommend that the Secretary of State make an order specifying that category for the purposes of this section.

s.9 The criteria for individual and block exemptions

This section applies to any agreement which—

(a) contributes to—
(i) improving production or distribution, or
(ii) promoting technical or economic progress,

while allowing consumers a fair share of the resulting benefit.
What this all means is that some kinds of agreement may be exempt from the Act (by their very nature). I doubt this applies here, but it’s certainly worth following the investigation (it will be reported on the Office of Fair Trading website).

I hope this is useful. You may end up losing the discounts you’re getting, but that should be about the worst of it. You could always contact DiAnno’s legal department and see what they say, it would save you having to pay a lawyer for advice that you probably don’t really need.

Good luck! LawGuy.

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