Jonathan DC Turner
The UK Competition Act 1998 and
Thirteen Old Square
London WC2A 3UA, UK
Tel: +44 (0)20 7831 4445
Fax: +44 (0)20 7841 5825 firstname.lastname@example.org
This is a copy of an article published in the European Intellectual Property Review, April 1999. It is not guaranteed to be up-to-date when downloaded. Copyright is reserved by the author and moral rights have been asserted. The article may be copied and distributed provided this done free of charge and in relation in the whole article, including details of authorship and this notice, without any amendments.
1984 the author wrote an article in this Journal
entitled “The need for an effective competition policy”.
That article argued that the lack of an effective competition law
was a principal cause of Britain’s relative economic decline in the
course of this century. It
concept that monopolies and restrictive practices may and usually do
operate against the public interest is a British invention, which has been
more exploited abroad than at home. It
is high time this changed. The
Government should introduce legislation whereby all unjustified
anti-competitive practices are unconditionally prohibited, subjected to
unlimited fines, and treated as breaches of statutory duty entitling third
parties to compensation for any damage suffered as a result of their
adoption. .... Difficulties which may arise in deciding whether such
practices are ‘unjustified’ could be substantially mitigated by
providing that regard should be had to decisions taken in the application
of corresponding provisions of US and European Communities law.
No single measure would more effectively implement the present
Government’s declared policy of promoting competition.”
article also pointed out that an effective competition policy was entirely
consistent with strong protection of intellectual property rights
promoting innovation and quality; and that inadequate appreciation and
exploitation of intellectual property resulted from ineffective control of
anti-competitive practices. In
the absence of competitive pressure intellectual property rights lose
their proper function of enabling undertakings to obtain a competitive
advantage from innovation and quality.
that article the author prepared a draft Bill. With the assistance of Hugh
the article and draft Bill were brought to the attention of leading
figures of the main political parties. A Green Paper of 1988
accepted the case for radical reform and the principle of harmonisation
with EC competition law. However, as a result of
political considerations, legislation was postponed until the recent
return of decisive government.
main provisions of the Competition Act 1998
Competition Act 1998 contains many features which were in the author’s
draft Bill. Essentially it
brings UK competition law into line with the EC model which has now been
adopted in a number of other member states.
A provision in similar terms to Article 85 of the Treaty of Rome
(called the “Chapter I prohibition”) prohibits agreements and
concerted practices which prevent restrict or distort competition in the
UK, unless they are exempted on UK grounds equivalent to Article 85(3) or
are exempted from Article 85 under Article 85(3).
A provision in similar terms to Article 86 (called the “Chapter
II prohibition”) prohibits abuses of dominant positions within the
both cases, the requirement of an effect on trade within the UK is
substituted in the Act for that of an effect on trade between member
states of the EC.
In the case of the Chapter I prohibition there is also a
requirement that the agreement, decision or practice is, or is intended to
be, implemented in the UK, analogous to the criterion for EC jurisdiction
identified by the European Court in the Wood Pulp case.
provides that in determining questions arising under this legislation,
courts and tribunals
of the existing UK competition law (apart from the control of mergers and
acquisitions and general investigations of oligopolies) is repealed,
including sections 44 and 45 of the Patents Act 1997 on tying and
automatic extension provisions in patent licences and contracts for the
supply of patented articles.
short, the Competition Act extends prohibitions equivalent to articles 85
and 86 to situations in the UK where EC law does not apply because there
is no or insufficient effect on trade between the UK and other member
states. This extension is
important not only because it covers many situations not previously
covered by articles 85 and 86, but also because it provides greater
authority and proximity of enforcement.
This article will concentrate on the implications for private
rights, but to put these in context, it is desirable first to survey the
main provisions of the Act.
Act applies to most types of commercial conduct and most sectors of the
economy. However, mergers and concentrations are excluded from Chapters I
and II and remain subject to control under the Fair Trading Act 1973.
More regrettably, professional rules of a wide range of professions
(including lawyers) will be excluded from the Chapter I prohibition unless
Ministers decide otherwise following a recommendation of the Office of
Fair Trading (OFT).
is also a provision enabling the Secretary of State to modify the
legislation in relation to “vertical agreements” or “land
Definitions of these terms are not provided in the Bill but are to
be prescribed by Order.
This will apparently enable any modification to be aligned with any
measure which may be adopted by the EC following the European
Commission’s review of vertical restrictions.
The term “vertical agreements” may refer generally to
agreements between companies at different stages of commerce, but the
Commission’s Green Paper on vertical restraints focused more
specifically on agreements for the supply of goods for resale, and its
recent White Paper covers vertical agreements for the supply of
goods for resale or processing or for the marketing of services.
Modification of the UK Act will not be required if the EC proceeds by
revision of the block exemptions, since the revised block exemptions will
apply automatically under Chapter I.
However, the power to modify the UK Act could be used if the
Commission adopts a Notice setting out Community policy in relation to
is not clear whether the power to modify the Act in relation to “land
agreements” will only be used in relation to agreements for the supply
of goods for resale, such as tied house and petrol station agreements, or
whether it will be used in relation to leases generally.
If the latter, it could be relevant to the exploitation of
intellectual property in distribution franchising.
OFT has extensive powers of policy development, investigation and decision
similar to those of the EC Commission.
It will propose block exemptions for adoption by the Secretary of
and grant individual exemptions under the equivalent to Article 85(3).
It will be able to carry out investigations where there are
reasonable grounds for suspecting contraventions.
In doing so, it may require the production of documents and (in certain
circumstances) enter premises without warrant and without advance warning.
the OFT concludes that the prohibitions are contravened, it may impose
and make orders to bring the infringement to an end.
The OFT may also make interim orders to protect the public interest
or prevent serious irreperable damage to particular persons pending the
completion of an investigation.
and conduct may be notified to the OFT for guidance
or a decision as to compatibility with
the Act. Notification confers
immunity from penalties for breach of the Chapter I prohibition (but not
Chapter II) until the guidance or decision is given.
If the guidance or decision is favourable, no further action is to
be taken by the OFT unless (a) the OFT has reason to believe that there
has been a material change of circumstances, or (b) the OFT has reason to
suspect that materially incomplete or misleading information was supplied,
or (c) guidance only has been given and a party to an agreement applies
for a decision under Chapter I or a third party makes a complaint under
Chapter I or II.
No fine may be imposed after favourable guidance has been given
unless the OFT gives notice removing the immunity, and the notice may only
be backdated if it reasonably suspects that the party provided materially
incomplete or misleading information.
is also provision for immunity from fines for “small agreements”
and abuses of dominant position of “minor significance”
However, these are not expressly excluded from the Chapter I and II
prohibitions. Whether they
are excluded by importation of the “de minimis” doctrine of EC
in accordance with the EC interpretation clause
is discussed below.
of the OFT can be appealed to an appeal tribunal of the Competition
(which replaces the Monopolies and Mergers Commission),
and from there on a point of law to the Court of Appeal.
It seems that decisions of the OFT and the Competition Commission
can also be challenged by judicial review.
relation to regulated utilities the OFT shares its powers with the
issues relating to private rights
the Bill contains these elaborate provisions for enforcement by public
authorities, it does not specify what effect the prohibitions have on
private rights. The only
express provision is section 2(4), the equivalent of article 85(2) of the
Treaty of Rome, which simply provides that agreements prohibited under
Chapter I are void. Provisions of earlier legislation governing private rights,
including sections 44 and 45 of the Patents Act 1997, are repealed.
issues will have to be resolved on the basis of the EC interpretation
clause and general principle, including the following:
How void are agreements prohibited by Chapter I?
Does the invalidity affect provisions which do not restrict
competition or which would be exempted?
Does it affect transfers of property by, or pursuant to, agreements
prohibited by Chapter I?
Is conduct prohibited by Chapter II also void?
Can a person claim damages in respect of a breach of Chapter I or
II? Does it make any
difference if the claimant was party to the breach?
Can a person claim an injunction restraining breach of Chapter I or
II? If so, in what
Can conduct prohibited by Chapter I or II affect the enforcement of
proprietary rights? If so, in
of the EC Interpretation Clause
considering these issues specifically, it is necessary to look more
closely at the effect of the EC interpretation clause.
Although on the face of it, the concept seems clear enough, there
are some difficulties in transposing the principles of EC Competition law
into the different context of the UK Act.
European Court has indeed held in Polydor
v Harlequin and its Opinion
on the EEA Agreement
that provisions on free trade and competition in similar terms have
different meanings depending on their context.
According to these cases, in the context of the Treaty of Rome
these provisions are interpreted in the light of that Treaty’s
objectives of achieving economic integration between the member states
leading to the establishment of a single internal market and economic and
monetary union; its creation of a customs union; its establishment of a
new legal order taking precedence over national laws; and the powers which
it confers on the Community to achieve the uniform application of
Community law and the abolition of disparities between the national laws
of member states. In this
context, a principle of exhaustion of intellectual property rights is
incorporated into the interpretation of provisions on free trade and
Where these factors are absent, the principle of exhaustion is not
the other hand, one of the reasons for the European Court holding that
articles 85 and 86 cannot be interpreted so as to deprive the owner of
intellectual property of the essence or substance of the right is that
article 222 of the Treaty of Rome provides that “This Treaty shall in no
way prejudice the rules in Member States governing the system of property
It could be argued that a different conclusion could be reached in
a context where article 222 does not apply.
there a form of renvoi?
a first question to consider is whether the incorporation of EC law by the
EC interpretation clause of the UK Act also incorporates the concept that
principles applicable to provisions of the Treaty of Rome on free trade
and competition do not necessarily apply to rules in similar terms outside
the context of the rest of the Treaty of Rome.
EC interpretation clause of the Competition Act states that
would seem to follow from this that, the interpretation of provisions in
similar terms should reach a similar same result, even though the context
is different. On this basis,
principles applicable to the Community rules on competition by virtue of
their context in the Treaty of Rome, such as protection of the specific
subject-matter and exhaustion of intellectual property rights, should be
applied under the UK Act, despite the difference in context.
the other hand, where EC law provides that it is for national courts to
determine matters, such as the effects of infringements of articles 85 and
86 on private rights, it is submitted that a form of renvoi should
operate. In accordance with
the requirement of consistency, the UK courts must apply the same
principles of UK law in the application of the UK Act as they would in
applying articles 85 and 86.
intellectual property rights
leads to a second question: should the application of the UK Competition
Act take into account the scope of rights under UK intellectual property
laws, or should it be based solely on the treatment of intellectual
property rights under EC competition law?
issue is complicated by the fact that the principles of EC law in this
area are themselves far from clear.
However, it appears that where restrictions accepted by or imposed on an
undertaking fall within the “specific subject matter” of intellectual
property rights, they do not normally infringe articles 85 or 86 of the
Treaty of Rome, or at any rate this is a factor to be taken into account
in assessing whether they infringe these provisions.
in relation to article 85, the criterion appears to be whether the
agreement prevents restricts or distorts competition by comparison with
the competition which would otherwise exist, having regard to the possible
enforcement of the “specific subject-matter” of intellectual property
In relation to article 86, it appears that the enforcement of the
“specific subject-matter” of an intellectual property right cannot be
itself an abuse but can offend article 86 if it is an instrument of an
“specific subject-matter” recognised by the European Court may be
limited by reference to the applicable national law.
For example, in the Windsurfing case, the assessment of the agreements was based on the
fact that the German patent protected only the novel rig and not the board.
However, the “specific subject-matter” is not necessarily the
same as the scope of the national law protecting the intellectual property
right; indeed, if it were the same, the European Court would not have had
to develop the concept. The
“specific subject-matter” is determined by the European court by
reference to the “essential function” of the right
and incorporates a principle of Community-wide exhaustion,
at any rate to the extent that the intellectual property is exploited by
the sale of articles.
contrast, under UK intellectual property law free circulation depends on
the concepts of implied licence and non-derogation from grant, except in
areas where UK law has been harmonised to conform to EC legislation.
On this basis, an owner of an intellectual property right cannot
normally restrict the subsequent resale, repair or use of an article which
it has sold, but can do so if the original sale was subject to a specific
condition and that condition has been brought to the notice of subsequent
the assessment of a restriction, for example as to the class of persons to
whom a patented product may be resold within the UK,
take into account the fact that, under UK patent law, the patent could be
enforced against a person who has notice of the resale restriction?
It could be argued that the principle of EC competition law is that
a restriction is permitted under articles 85 and 86 if it is within the
scope of an intellectual property right as adjusted by the free trade
provisions of the Treaty; and that this principle permits a restriction on
resale within the scope of an intellectual property right within a member
the logic of this argument, it is submitted that for the application of
the UK Act to be consistent with EC competition law, as required by the EC
interpretation clause, principles such as exhaustion of rights have to be
recognised in the application of the UK competition law in relation to
trade within the UK, whatever the position under UK intellectual property
third question is whether the requirement of consistency laid down by the
EC interpretation clause of the UK Act means (a) that the principles
applied under the UK Act should be the same as those developed under EC
competition law, or (b) that the principles applied under the UK Act
should not conflict with those developed under EC law, or (c) merely that
the determination of an individual case under the Act should be consistent
with any determination of that case under EC competition law.
importance of this question is increased by the fact that the European
Court of Justice may lack jurisdiction to determine questions arising out
of disputes as to the interpretation of the Act unless it has to be the
same as EC law. The European
Court has held that it has jurisdiction under article 177 of the Treaty of
Rome to answer a question referred by a national court where the dispute
concerns the meaning of a national provision intended to have the same
meaning as a corresponding provision of Community law,
but not where it concerns the meaning of a national law which is merely
similar to a provision of Community law.
seems that the EC interpretation clause is intended to go beyond
possibility (c), consistent treatment of individual cases, since it refers
to “the principles applied, and decision reached”. A literal
interpretation might support possibility (b), that the principles should
not conflict, since the clause requires “consistent” treatment rather
than the “same” treatment. However,
it is submitted that legal principles can only be fully consistent if they
are the same, i.e. possibility (a). If they are not the same, they lead to
different conclusions in at least some cases.
Furthermore, the application of complementary (but not identical)
principles under the UK Act would be contrary to the aims of obtaining
greater certainty and simplified compliance by the incorporation of
principles of EC law.
on trade and the requirement of appreciable effects
fourth question is how the EC interpretation clause applies where the
wording of the UK Act is similar but not identical to that of the Treaty
of Rome. The most significant example is the requirement that the
agreement or conduct “may affect trade within the United Kingdom”. The
corresponding requirement in the Treaty of Rome is that the agreement or
conduct “may affect trade between member states”.
That requirement has been interpreted by the European Court on the
formulation, frequently reiterated by the European Court with minor
variations, is that the agreement or conduct must be
of endangering, directly or indirectly, actually or potentially, freedom
of trade between member-States in a way which could harm the attainment of
the objectives of a single market between the member-States.”
European Court has also observed on many occasions that the purpose of the
requirement is “to define, in the context of the law governing
competition, the boundary between the areas respectively covered by
Community law and the law of the member-States”.
is difficult to see how this concept can be sensibly applied to the
requirement under the UK Act that the agreement or conduct “may affect
trade within the United Kingdom”. Moreover,
section 60 of the UK Act (the EC interpretation clause) itself contains
the qualifications “having regard to any relevant differences between
the provisions concerned” and “so far as is compatible with the
provisions of this Part”. It
might seem that in relation to this concept, EC law should be disregarded.
so, it is necessary to determine how the requirement that the agreement or
conduct “may affect trade within the United Kingdom” should be
interpreted in accordance with UK principles.
Sections 2(7) and 18(3) specify that for these purposes “the
United Kingdom” means “the United Kingdom or any part of it”, and
there is no express requirement that the effect must be “appreciable”
It seems likely that effects which are insignificant or “de
minimis” in the normal meaning of that phrase should be ignored, but it
may be more difficult to argue on the basis of a purely UK approach that
the effect on trade must meet some higher threshold of being
“appreciable” or “liable to jeopardise the objectives of a single
market in the UK”.
begs the question whether agreements whose effects are not appreciable
even in the context of the UK market will escape the UK Act. The
corresponding principle of EC competition law is closely linked in the
case-law of the European Court with the requirement of an effect on trade
between member states.
It is not clear whether it can be derived independently from the
requirement that the agreement has as its “object or effect the
prevention restriction or distortion of competition within the common
market” and hence imported into UK law via the equivalent phrase in the
UK Act. Moreover, the European Court has sometimes held that “object”
and “effect” are alternatives, so that if an agreement has as its
object to prevent restrict or distort competition, it is not necessary to
establish that it has had that effect, let alone that it has
had that effect to an appreciable extent.
difficulty is compounded by the fact that the provision of the author’s
original draft Bill and subsequent Government drafts,
expressly requiring a significant effect on competition in the UK, has
been omitted from the Act. A further complication is that the UK Act
expressly provides limited immunity from fines for “small agreements”
and “conduct of minor significance”.
This might appear to imply that there is no general exclusion of
such agreements and conduct from the operation of the Act, in that
otherwise these provisions would be redundant.
However, the OFT has power to remove the immunity if it considers
that the agreement or conduct is likely to infringe Chapter I or Chapter II.
Accordingly these provisions provide an additional immunity from
fines to certain agreements and conduct which may nevertheless be found to
infringe the Act, and are not inconsistent with a general requirement of
the difficulties, it seems that a requirement of appreciable effects
should be imported by the EC interpretation clause, since the absence of
such a requirement would give rise to a significant inconsistency between
the application of the UK and EC law, contrary to section 60.
Guidance prepared by the OFT assumes this conclusion.
is now convenient to return to the questions identified above regarding
the impact of the UK Act on private rights.
How void are
agreements prohibited by Chapter I?
Article 85(2) of the Treaty of Rome and section 2(4) of the UK Act provide
without qualification that a prohibited agreement is void. However, the European Court has held that only the
restrictive clauses of the agreement are invalidated by article 85(2), and
that it is for national law to determine the effects on other provisions
of the agreement and orders and deliveries made under it.
Thus section 60 of the Act results in a kind of renvoi to the
principles adopted by the UK courts where agreements are caught by article
courts have held that the provisions of agreements which are invalid under
article 85(2) are severed, leaving the rest of the contract valid and
enforceable, if the invalid provisions are “textually severable” (in
that they can be struck through with a “blue pencil” without altering
any other language) and if this does not frustrate the contract or deprive
the remaining provisions of the main consideration for them.
In view of this prospect, agreements are often drafted with structured and
sometimes partially repetitive provisions, so that if a broader
restriction is held invalid, it can be excised leaving narrower
could be argued that the test of “substantial severance” adopted by
the House of Lords in DPP v
in relation to delegated legislation is more rational and less
formalistic, and that the principles applied in relation to article 85 and
Chapter I should be revised. Under
the “substantial severance” test, invalid aspects can be removed,
whether or not the wording can be textually severed, provided that the
substance of the remaining provisions is essentially unchanged.
However, the “blue pencil” test is well entrenched in relation
to agreements in restraint of trade and it seems likely that it will
continue to be followed in the application of article 85 and Chapter I
unless an appellate court can be persuaded to review the whole area in an
several provisions of an agreement are caught by article 85(1) and most,
but not all, of them would be exempted, for example under a block
exemption, the conventional view has been that the remaining restrictions
prevent the exemption, and all of the restrictions caught by article
85(1), including those which by themselves would be exempted, are then
However, in Byrne v Inntrepreneur
Neuberger J held that a contractual provision alleged to prevent the
application of the bloc exemption could be treated as excised under an
express contractual provision for severance of invalid terms. The drafting of boilerplate severance clauses should be
considered carefully in the light of this decision.
may be possible to resolve these difficulties under the UK Act by applying
for an individual exemption. In
contrast to the position under EC Regulation 17,
the Act does not preclude the possibility of an exemption taking effect
from a date earlier than the application for exemption; it merely provides
that an exemption may be granted so as to have effect from a date earlier
than when it was granted.
this approach may not assist a party complaining that conduct by the other
party is contrary to the conditions of a block exemption. In Richard Cound v BMW
the Court of Appeal held that if BMW’s conduct deprived the dealership
agreement of the benefit of the block exemption, many of its provisions
were caught by article 85(1) and therefore void, with the result that the
whole agreement was invalid and the claimant could not rely on it.
of property and money under invalid agreements give rise to difficult
questions. In relation to
article 85(2), the European Court appears to have held that this is also a
matter to be determined under the applicable national law.
In Tinsley v Milligan
the House of Lords held that the basic principles of English law were:
The court will not assist the enforcement of executory provisions
of an illegal agreement.
A party may not rely on illegality to assist a claim or rebut a
However, an executed transfer of property pursuant to an illegal
agreement is valid, whether the property is legal or equitable, registered
On the other hand, in Kleinwort
Benson v Lincoln the House of Lords
held that money paid under an unlawful interest rate swap agreement, in
the mistaken belief that it was valid, was recoverable by the payer, even
though the mistake was as to the law rather than the facts.
The House accepted that the general principle of restitution of
money paid under a mistake which they laid down should be subject to
defences such as change of position, compromise and settlement of an
honest claim, and left the details to be worked out in subsequent cases
In Gibbs Mew v.
the Court of Appeal held that restitution was not available in
relation to money paid under an agreement contrary to article 85. They
distinguished this from an unlawful interest rate swap agreement, on the
ground that an agreement in breach of article 85 was illegal rather than
merely unlawful. However, it
is submitted that this distinction is difficult to justify, since in both
cases official enforcement follows an administrative procedure and
financial penalties can be imposed if the breaches of the rules were
deliberate or negligent. The distinction would be particularly difficult
to justify in relation to breaches of Chapters I and II of the Act, since
the procedure is clearly differentiated from that of the criminal law of
the UK. It can also be argued
that Gibbs Mew v Gemmell should
be reconsidered in the light of the subsequent reformulation of the law of
restitution by the House of Lords in Kleinwort
Benson v. Lincoln.
If both Tinsley v. Milligan and Kleinwort Benson v. Lincoln are applied to agreements relating to intellectual property, and Gibbs Mew v Gemmell is distinguished or overruled, the position may be as follows. Where a void provision of an agreement provides for an assignment which has not yet taken place, for example the grant-back of future patents, a party will not be ordered to execute it. Where the assignment has taken place in law or in equity, the transfer will be treated as effective, even if formalities such as registration have not been completed; but the assignor may be able to claim restitution of intellectual property transferred in the mistaken belief that the agreement was valid. Similarly, if a provision for the payment of royalties is void, for example because the rate is excessive, the payer will not be forced to pay royalties which have not yet been paid. Royalties which have been paid belong to the payee, but the payer may be able to recover excess royalties paid in the mistaken belief that they were due.
conduct prohibited by Chapter II also void?
Competition Act does not provide that an abuse of dominant position
contrary to Chapter II is void. Furthermore,
the European Court has held that conduct in breach of Article 86 is not a
nullity and that it is for national courts to determine whether and to
what extent any abuses affect the interests of the parties, and hence the
consequences of such abuses with regard to the validity of any contracts
the principles set out in Tinsley v
Milligan and Kleinwort Benson v
Lincoln are applied, the court will not assist a party to carry out
illegal conduct, for example the enforcement of an executory agreement
which is itself an abuse of dominant position, but will not reverse acts
which have been carried out, unless a party is entitled to restitution on
the ground of mistake.
there is a further principle which may be relevant in relation to abuse of
dominant position. Where the
parties are not in pari delicto,
and in particular where one party is a member of the class of persons
which the prohibition aims to protect, an agreement may held to be
enforceable on the part of the protected party, but not the guilty party.
On this basis an agreement which is part of an abuse of dominant
position may still be enforceable by a victim of the abuse.
For example, a licensee under a mandatory package licence may be
entitled to rely on it, even if it is an abuse of dominant position by the
licensor and the licensor would not be able to enforce it against the
licensee. There may also be
less risk in a case of abuse of dominant position of the complainant being
met by the argument that if it were right, its licence would be wholly
void, as in Richard Cound v BMW.
damages be claimed?
conventional UK principles of statutory interpretation,
the Competition Act might have been regarded as not conferring any private
right of action for damages. The prohibitions serve the general public
interest and the Act provides an elaborate system for enforcement and for
immunity where agreements and conduct are notified to the OFT. It would seem to contradict the careful arrangements
protecting parties who have notified the OFT if they remain exposed to
civil liabilities which could be very substantial.
has been suggested that clauses in the Act providing for the use of the
OFT’s findings of fact and information in court proceedings
indicate that the Act confers rights to claim damages.
However, these provisions could be explained as referring to proceedings
relating to the validity of agreements.
the other hand, the EC interpretation clause specifically provides that it
applies to decisions as to the liability of an undertaking for harm caused
by its infringement of Community law.
It is therefore necessary to consider the position under Community
European Court has held that Articles 85 and 86 have direct effect and
confer rights on private parties which national courts must protect.
The European court has not expressly stated that private parties must be
able to claim damages. However,
in accordance with general principles of EC law, the protection of these
rights in national courts must be effective and not less favourable than
the protection accorded to similar rights under national law.
The UK Act could be said to make the second criterion circular, but there
is a strong argument based on the first criterion that the protection of
the rights would be ineffective if damages could not be claimed.
observations of the majority of the House of Lords in Garden Cottage Foods
strongly support the view that damages can be claimed for infringement
of articles 85 and 86, but do not constitute a clear decision to this
effect. Some doubt was cast on this view by the decision of the majority
of the Court of Appeal in Bourgoin,
which seemed to hold that
judicial review provided an effective remedy against the state for breach
of article 30. However, that
decision has been undermined by the subsequent decisions of the European
Court in Francovitch
It is submitted that it is highly likely that the availability of
damages for breaches of articles 85 and 86 will be confirmed.
the clear requirement of consistency with the application of EC
competition law, it is submitted that this point does not require
reference to the Green or White Papers or to Hansard
in accordance with Pepper v Hart.
However, both the Papers
and statements by Ministers
make it very clear that the Act was intended to enable third parties to
claim damages, and this certainly strengthens the argument based on the
application of EC competition law.
if damages can in principle be claimed for breaches of article 85 of the
Treaty of Rome, and hence Chapter I of the Act, the English Court of
Appeal held in Gibbs Mew v. Gemmell
that they cannot be claimed by a party to the agreement, since it
would have to rely on its own illegality.
This was so even where the agreement was effectively imposed on the
claimant by the other party. The
Court of Appeal considered that the parties were in
pari delicto since the duty to comply with article 85 rested on each
of them and was owed to third parties rather than the other contractor.
This decision has since been followed by the High Court in Inntrepreneur
and the Court of Appeal in Trent
Taverns Ltd v Sykes.
the point of view of the public interest in the effective enforcement of
competition law these decisions are regrettable.
A party to an anti-competitive agreement often has a greater
interest and better information than third parties to expose its
incompatibility with competition law.
Furthermore, the Court of Appeal’s analysis of the function of
article 85 appears to be unduly restrictive, and it remains to be seen
whether it will be overturned. The central point is a question of E.C. law
which should be referred to the European Court. In
accordance with the E.C. interpretation clause of the UK Act, the
application of Chapter II should follow the result under Article 85 of the
Gibbs Mew v. Gemmell The Court
of Appeal considered that the position would be different under article 86
since the duty is imposed by that article only on the dominant party.
Nevertheless, an agreement which constitutes an abuse of dominant
position in breach of article 86 or Chapter II is likely also to
contravene article 85 or Chapter I, and it could still be argued that the
victim cannot rely on its participation in such an agreement even in a
claim for damages under article 86.
Gibbs Mew v Gemmell it may still
be possible for a party to a prohibited agreement to claim damages for
misrepresentation as to its validity.
Such a claim was held by Neuberger J to be arguable in special
circumstances in Byrne v
injunctions be claimed?
if there is still room for argument as to whether damages can be claimed
for infringement of articles 85 and 86, it seems clear that injunctions
can be granted to prevent infringements.
In accordance with the requirement of consistency under the EC
interpretation clause, injunctions should also be available to restrain
threatened breaches of the Competition Act.
there are unresolved issues as to whether an injunction should be granted
requiring a party to deal with the claimant.
One type of situation is where the claimant alleges that the other
party is refusing to supply goods or to grant a licence except on terms
contrary to the Chapter I prohibition.
Another example is where the refusal to supply is contrary to a
condition of exemption of existing agreements.
one case an injunction was granted to restrain a brewery from giving
notice of termination of a lawful tied house agreement in accordance with
its provisions where the purpose of doing so was to force the other party
to accept a revised agreement in breach of article 85.
However, it could be argued that there is a distinction between
prohibiting a party from terminating an existing contract for an illegal
purpose and ordering a party to do something which it has no obligation to
do because it is seeking to do something else which is illegal.
ITP v Commission
the European Court upheld the Commission’s order requiring the supply of
information about television schedules and a licence to publish them on
reasonable terms. The
European Court of First Instance has also upheld an interim order of the
Commission requiring goods to be supplied on reasonable terms pending a
On the other hand, in Automec
the European Court of First Instance considered that the Commission
was not entitled to require goods to be supplied to a dealer where this
was only one of several ways of complying with the requirements of EC
competition law; and that it was for the national courts to determine the
private law remedies available to the parties where article 85 was
power of the OFT to give directions “to bring the infringement to an
end” is in similar terms to the power of the EC Commission under article
3 of Regulation 17. It can
therefore be argued that the OFT has power to order a party to supply on
an interim basis and on a permanent basis where this is the only practical
method of compliance with the Act. However,
it appears that the courts may have wider powers to grant injunctions
under the Act.
the Competition Act affect the enforcement of intellectual property?
UK Act does not contain any express provision specifying how it applies to
intellectual property. However,
as discussed above, it appears that principles developed by the European
Court in the application of articles 85 and 86 of the Treaty of Rome are
to be applied under the Act in accordance with the requirement of
consistency laid down by its section 60, despite the different context and
the absence of provisions corresponding to articles 36 and 222 of the
Treaty of Rome.
European Court has held that the exercise of an intellectual property
right is contrary to article 85 “whenever it is the object, the means or
the consequence of an agreement” prohibited by that provision.
For example, where different parties register corresponding rights in
different countries under an agreement to partition the market contrary to
article 85, the enforcement of the rights is prohibited by Article 85.
It is submitted that the formula “the object, the means or the
consequence” should be taken to refer to the restrictions on competition
in the offending agreement and not to other provisions, in the same way as
voidness under article 85(2) affects only the restrictions on competition.
It is also submitted that “consequence” imports a concept of
causation: the restriction on competition must be the effective cause of
the exercise of the intellectual property right which is challenged.
courts seem to have been reluctant to use the formula “object, means or
consequence of a prohibited agreement”, but have acknowledged the
possibility of a defence to a claim of infringement where the purpose of
the action is to force a party to enter into an agreement contrary to
In Phillips v Ingman (14/5/98) Laddie J
held that there was an arguable defence that the infringement proceedings
were brought pursuant to an agreement for the pooling and reciprocal
enforcement of patents caught by article 85 and/or to impose an agreement
providing for excessive royalties contrary article 85.
However, he did not use the phrase “object, means or
consequence” in his reasoning.
is submitted that the criterion of “object, means or consequence”, as
interpreted above, is
intelligible and rational, and should be applied by English courts in
relation to article 85 of the Treaty and Chapter I of the Act.
It may differ slightly from the principles of English law
applicable to illegal agreements as expounded by the majority in Tinsley
v Milligan, in that it
prohibits the enforcement of rights where this is the consequence of an
illegal agreement which has been executed.
However, this is not an unreasonable approach, as the diversity of
opinion in the House of Lords and earlier English case law demonstrates.
Indeed the classic judgment of Lord Mansfield in Holman
dealt with a point which seems to have influenced English courts in
relation to Euro-defences in some cases, that the defendant has little
relation to article 86, the European court has held that it is for the
national courts to determine the effects of an abuse of dominant position
with the regard to the rights of parties.
However, the European Court has also indicated that the exercise of
an intellectual property right is contrary to article 86 if it involves
abusive conduct by a dominant undertaking (such as arbitrary refusal to
supply independent repairers, refusal to supply spare parts for products
still in widespread circulation, or excessive prices)
or if it is the instrument of an abuse.
Thus it appears that a partial renvoi operates here under s.60 of
the Act: to some extent the effects of an abuse on the rights of parties
must be determined under English principles, but criteria indicated by the
European court must also be applied.
the Pitney-Bowes case Hoffman J
held that it was arguable that there could be a defence to an infringement
action if the existence of the intellectual property right created or
buttressed a dominant position which the plaintiff was abusing, and that
the abuses need not be a direct or even an indirect consequence of the
relief claimed in the particular action.
However, English courts have generally considered that article 86
can only provide a defence to an infringement action if there is
sufficient ‘nexus’ between the invocation of the intellectual property
right and the abuse, but that no nexus was established in the particular
The nature of the nexus required has not been defined.
In Chiron v Murex Staughton LJ
considered that there was no nexus between allegedly excessive prices for
a patented product and enforcement of the patent against infringers, in
that the refusal of relief for infringement would be a disproportionate
and inappropriate remedy for the excessive prices.
is submitted that the term “nexus” is not helpful but that Staughton
LJ’s approach is correct. It
is consistent with the rulings of the European Court that if abuses are
exposed it is for the national court to determine whether and to what
extent they affect the interests of the parties, and hence the
consequences of such abuses with regard to private rights.
Relief for infringement should be denied either if the action for
infringement is itself part of an abuse, or if and to the extent that the
refusal of relief is an appropriate remedy for the abuse.
in some cases, it may be appropriate to refuse relief altogether, for
example where a dominant plaintiff has acquired the intellectual property
right by an abusive grant-bank imposed on a licensee, and should not
obtain any benefit from it. In
other cases, as where the plaintiff is abusing a dominant position by
refusing to supply an ancillary market, it may be appropriate to refuse an
injunction and to award damages in respect of the use of the right.
This would ensure that the market is supplied while recognising the
plaintiff’s contribution in creating the subject-matter.
In this situation the alternative remedy of a possible order of the
OFT or EC Commission requiring the plaintiff to supply the ancillary
market would be problematic: it might be outside their power
and might not be implemented by the plaintiff with maximum enthusiasm.
Finally, in other cases, for example excessive prices, refusal or
qualification of relief for infringement of the intellectual property
right may be an inappropriate remedy for the abuse and provide an
unmerited windfall to the infringer. In this situation the more appropriate remedies may be:
payment of damages (or repayment) to those who have paid too much for the
goods; an injunction at the suit of a person who needs the goods requiring
the dominant undertaking to supply them at a lower price; an order of the
OFT or Commission that the price be reduced; and possibly a fine.
issues discussed above are difficult but important. The recent,
influential report by the McKinsey Global Institute, Driving Productivity and Growth in the UK economy, comments:
work in the United Kingdom and in other countries studied by the McKinsey
Global Institute demonstrates the enormous influence of competitive
intensity on the rate of innovation and adoption of global best practices
in a sector, and thus on growth in the economy as a whole. There is a
strong case for a more robust and focused competitive framework designed
specifically to promote economic efficiency, not just prevent abuses of
market power. ….. A new competition framework will need to address the
productivity challenge facing the United Kingdom by:
the objectives of competition policy on economic efficiency and
productivity. This will entail clarifying the primacy of efficiency over
other objectives in the exercise of competition policy.
the bodies responsible for enforcing competition rules, and clarifying
their roles. These institutions will need to have the resources and
authority to investigate all substantial breakdowns in competitive
intensity, identify any root causes and devise appropriate remedies.
the mechanisms used to identify inappropriate competitive behaviour and
penalise those undertaking it. The impact of a competition framework
depends not only on the action it takes to correct abuses of competitive
power, but also on the broader incentives it creates for competitive
behaviour. A number of mechanisms could be used to this end.
Private law suits, which are currently unavailable in the United
Kingdom, could greatly increase the information and investigative
resources available to the economy, making it more likely that
anti-competitive behaviour will be detected or prevented. In addition,
increasing the scale of penalties could have a substantial impact on
proposed competition bill addresses some but not all of these issues. Its
ultimate impact will depend on how vigorously it is executed.”
thing is clear: the author’s radical opinion published in this journal
in 1984 has become official thinking.
Jonathan DC Turner 1998
 Barrister, 4 Field Court, Gray’s Inn, London.
  12 EIPR 331
 Editor of EIPR
 A Review of Restrictive Trade Practices Policy, Cmnd 331
 This was in sharp contrast to earlier official thinking, for example in the 1979 Green Paper (A Review of Restrictive Trade Practices Policy, Cmnd 7512) that only minor tinkering with the existing system was required.
 S.2-11. The exemption also applies to agreements which would be covered by an EC block exemption if they affected trade between member states: s.10(2)
 s.2(1)(b), 18(1)
  ECR 5193,  4 CMLR 901
 s.3(1)(a), 19(1)(a) and Schedule 1
 s.3(1)(d) and Schedule 4
 Statement of Nigel Griffiths MP (Minister for Competition and Consumer Affairs) in Standing Committee G on 25 June 1998
 The treatment of such agreements under competition law has been controversial because restrictions in them may enhance “horizontal” competition between rival suppliers. The European Court has reaffirmed its case-law that such agreements can be caught by article 85 (see BMW v Ald, Bundeskartellamt v Volkswagen  4 CMLR 478) and the Commission does not propose any amendment to article 85. However, the Green Paper put forward various options including modifications to the block exemptions or a Notice laying down market share thresholds below which there would be a presumption that the agreement was outside article 85. The Commission is currently proposing a broad block exemption of vertical agreements for the supply of goods for resale or processing or for the marketing of services where the supplier does not have market power, and the exclusion of such agreements from the requirement of notification under Regulation 17.
 s.13, 21
 s.14, 22
 s.13(4), 14(4),
 s.15(2), 16(2), 23(2), 24(2)
 s.15(3)-(5), 16(3)-(5), 23(3)-(5), 24(3)-(5)
 Volk v Vervaecke  ECR 295,  CMLR 273
 There is no provision excluding judicial review and the possibility of judicial review was expressly accepted by Lord Simon, Hansard 19/2/98, Col. 381
 s.54 and Schedule 10
  ECR 329,  1 CMLR 677
  1 CMLR 245; and compare the Opinion of the EFTA Court in Mag Instrument v California Trading Company (3/12/1997) with that of the European Court in Silhouette v Hartlauer  FSR 729 on the application of Directive 89/104 in the EEA and the EC respectively
 Consten and Grundig v Commission  ECR 299,  CMLR 418, Deutsche Grammofon v Metro  ECR 487,  CMLR 631
 Polydor v Harlequin  ECR 329,  1 CMLR 677, EMI v CBS  ECR 811,  2 CMLR 235, Silhouette v Hartlauer  FSR 729, Mag Instrument v California Trading Company (Opinion of EFTA Court of 3/12/1997)
 See Consten and Grundig v Commission  ECR 299,  CMLR 418, Volvo v Veng  ECR 6211,  4 CMLR 122
 See the author’s analysis in Vaughan, Law of the European Communities Service (1990-98), part 19, paras 1904-1921 and 1946-1960
 Windsurfing International v Commision  ECR 611,  3 CMLR 489, BAT v Commission  ECR 363,  2 CMLR 470, Coditel v Ciné Vog  ECR 3381,  1 CMLR 49, Pronuptia  ECR 353,  1 CMLR 414
 Hoffmann-La Roche v Centrafarm  ECR 1139,  3 CMLR 217, Volvo v Veng  ECR 6211, ITP v Commission  ECR I-743,  4 CMLR 122, Philips v Ingman (English High Court 13/5/98, appeal pending)
  ECR 611,  3 CMLR 489. The analysis is difficult to justify, given that a valid claim consisting of the combination of the novel rig and board could have been formulated. See the letter of Mr Justice Jacob  EIPR 40
 Hoffmann-La Roche v Centrafarm  ECR 1139,  3 CMLR 217, Pfizer v Eurim-Pharm  ECR 2913,  1 CMLR 406, CNL-Sucal v HAG  ECR I-3711,  3 CMLR 571, IHT v Ideal Standard  ECR I-2789,  3 CMLR 857
 Centrafarm v Sterling Drug  ECR 1147,  2 CMLR 480, Polydor v Harlequin  ECR 329,  1 CMLR 677
 Cf. The position where the work is exploited by broadcasting, performance, exhibition or rental: see Coditel v Ciné Vog  ECR 881,  2 CMLR 362, Basset v SACEM  ECR 1747,  3 CMLR 173, Ministère Publique v Tournier  ECR 2521,  4 CMLR 248, Warner v Christiansen  ECR 2605,  3 CMLR 683
 As in the case of trade marks and the protection of software
 Betts v Willmott (1871) LR 6 Ch 239, Incandescent Gas Light Co v Cantelo (1895) 12 RPC 262, National Phonograph v Menck  AC 336, Roussel-Uclaf v Hockley  RPC 441, Solar Thomson v Barton  RPC 537, British Leyland v Armstrong  AC 577
 Under EC competition law such restrictions are generally considered to infringe article 85: see the author’s treatment in Vaughan, Law of the European Communities Service, part 19 para 1663
 Leur-Bloem  QB 182, Silhouette v Hartlauer  FSR 729
 Kleinwort Benson v Glasgow  QB 57
 See the paras 3.15-17 of the 1988 Green Paper (A Review of Restrictive Trade Practices Policy, Cmnd 331); para 1.3 of the August 1997 White Paper (A prohibition approach to anti-competitive agreement and abuse of dominant position: draft Bill); Lord Simon, Hansard 30/10/97, col 1145
 LaTechnique Miniere v Maschinenbau Ulm  ECR 235,  CMLR 357
 Consten and Grundig v Commission  ECR 299,  CMLR 418, Volk v Vervaecke  ECR 295,  CMLR 418, Cadillon v Hoss  ECR 351  CMLR 420, Hugin v Commission  ECR 1869,  3 CMLR 345, Heintz van Landwyck v Commission  ECR 3125,  3 CMLR 134, Cooperative Stremsel v Commission  ECR 851,  1 CMLR 240, Salonia v Poidomani  ECR 1563,  1 CMLR 64, Erauw Jacquery v La Hesbignonne  ECR 1919,  4 CMLR 576
 Commercial Solvents v Commission  ECR 223,  1 CMLR 309, Hugin v Commission  ECR 1869,  3 CMLR 345, Hoffmann-La Roche v Commission  ECR 461,  3 CMLR 211, Procureur v Giry & Guerlain  ECR 2327,  2 CMLR 99, Greenwich Films v SACEM  ECR 3275,  1 CMLR 629
 cf. s.64 of the Fair Trading Act 1973, discussed in R v MMC ex p South Yorkshire Transport  1 WLR 23
 LaTechnique Miniere v Maschinenbau Ulm  ECR 235,  CMLR 357, Volk v Vervaecke  ECR 295,  CMLR 418, Cadillon v Hoss  ECR 351  CMLR 420
 Verband der Sachversicherer v Commission  ECR 405,  4 CMLR 264,
 See “Tackling Cartels and the Abuse of Market Power: A Draft Bill”, dti, August 1996, cl. 2(3)(b) and para 1.10
 LaTechnique Miniere v Maschinenbau Ulm  ECR 235,  CMLR 357, Société de Vente de Ciments et Bétons v Kerpen & Kerpen  ECR 4173,  1 CMLR 511, Richard Cound v BMW CA 10/5/95
 Chemidus Wavin v TERI  3 CMLR 514, Alec Lobb v Total Oil  1 WLR 173, Inntrepreneur v Mason  2 CMLR 293, Byrne v Inntrepreneur High Court, 26/11/98
  2 AC 783
 VAG France v Magne  ECR 4071,  4 CMLR 98, Stergios Delimitis v Henniger Brau  ECR I-935,  5 CMLR 210, Nissan v Dupasquier  4 CMLR 778
 Art 6(1)
 Société de Vente de Ciments et Bétons v Kerpen & Kerpen  ECR 4173,  1 CMLR 511
  1 AC 340
 BRT v SABAM  ECR 313, Greenwich Film v SACEM  ECR 3275
 Kiriri v Dewani  AC 192
 CA 10/5/95
 Cutler v Wandsworth Stadium  AC 398, Lonrho v Shell  AC 173
 s.55(3)(b), 58
 Cf. George Peretz, Detection and Deterrence of Secret Cartels under the UK Competition Bill,  ECLR 145
 BRT v SABAM  ECR 313, Marty v Lauder  ECR 2481
 See e.g. Peterbroeck van Campenhout v Belgian State  ECR I-4599,  1 CMLR 793
 See the observations of Adv-Gen van Gerven in Banks v British Coal  ECR I-1209
 Garden Cottage Foods v Milk Marketing Board  AC 130
 Bourgoin v MAFF  1 CMLR 267
  ECR I-5357,  2 CMLR 66
  3 CMLR 1
  AC 593. Cf. The view of Kon and Maxwell, Enforcement in National Courts of the EC and new UK Competition Rules: Obstacles to Effective Enforcement,  ECLR 443, that the statements recorded in Hansard are decisive
 Para 3.8 and chapter 7 of the 1988 Green Paper (A Review of Restrictive Trade Practices Policy, Cmnd 331); para 1.2 of the August 1997 White Paper (A prohibition approach to anti-competitive agreement and abuse of dominant position: draft Bill)
 Hansard 30/10/97, col 1148 (Lord Simon); 25/11/97, Cols 874, 955-6 (Lord Haskel); 5/3/98, cols 1325-6 (Lord Simon)
 Garden Cottage Foods v Milk Marketing Board  AC 130; Holleran v Thwaites  2 CMLR 917; R v. Secretary of state for transport ex parte Factortame  3 C.M.L.R.1
 Holleran v Thwaites  2 CMLR 917
  ECR I-743,  4 CMLR 122. See also Peugeot  5 CMLR 540,  ECR II-653
 Peugeot  5 CMLR 540  ECR II-653. Interim orders to supply goods and services were also made by the Commission in Boosey & Hawkes  4 CMLR 67 and Roscoff  5 CMLR 177
  5 CMLR 431
 Sirena v Eda  ECR 69,  CMLR 260; Centrafarm v Sterling Drug  ECR 1147,  2 CMLR 480; EMI v CBS  ECR 871,  2 CMLR 235; Keurkoop v Nancy Kean  ECR 2853,  2 CMLR 47
 Grundig & Consten v Commission  ECR 299,  CMLR 418; Keurkoop v Nancy Kean  ECR 2853,  2 CMLR 47; cf. EMI v CBS  ECR 871,  2 CMLR 235, where the agreement had ceased to operate before the Treaty of Rome came into force and the subsequent enforcement of rights assigned under the agreements was held to be permissible
 See the discussion above
 This view is supported by the connotation of “conséquence” in the corresponding French texts of the judgments of the European Court. It is likely that the concept was formulated in the course of a deliberation of the judges of the European Court conducted in French.
 British Leyland v TI Silencers  CMLR 75, British Leyland v Armstrong  FSR 591, Phillips v Ingman (High Ct, 14/5/98) and see also Holleran v Thwaites  2 CMLR 917
 High Ct, 14/5/98
  1 AC 340
 (1775) 1 Cowp 341
 Greenwich Films v SACEM  ECR 3275
Volvo v Veng  ECR
6211,  4 CMLR 122
Hoffmann-La Roche v Centrafarm 
ECR 1139,  3 CMLR 217
 Pitney Bowes v Francotyp-Postalia  3 CMLR 466
ICI v Berk  2 CMLR 91; Ransburg-Gema v. Electrostatic
Plant Systems  2 C.M.L.R. 712; IBM
v Phoenix  RPC 251; Chiron
v Murex  FSR 187,  1 CMLR 410
  FSR 187,  1 CMLR 410
 Greenwich Films v SACEM  ECR 3275,  1 CMLR 629
 See above
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