TOUGH COMPETITION

Irish competition law was fundamentally revised five years ago, but has it delivered on its promises, asks Philip Andrews.

It's been five years since Irish competition law was, for the third time in a decade, fundamentally revised. The revised statute, the Competition Act 2002, was heralded by enforcers as a "substantial step forward in the development of a strong and pro-active competition policy in Ireland".

In tandem, funding for the Competition Authority - Ireland's primary competition law enforcement agency - was increased, from around €2 million in 2002 to nearly €5 million today. The question now being asked (including by Department officials) is: Have the policy innovations delivered results?

Cartel Enforcement

A primary aim of the 2002 Act, according to Mary Harney, the sponsoring Minister at the time, was to "toughen up on hardcore competition offences". To that end, the statute increased the maximum jail sentence for offences from two to five years, the stated aim being to "send the clearest possible signal that blatantly anti-consumer activities such as price fixing will not be tolerated in this country".

In addition, Irish legislators upgraded the Competition Authority's investigation powers - so-called "dawn raids" (surprise searches) can now be carried out at homes, as well as the businesses, of any "director, manager or any member of staff" - and included a number of notable statutory presumptions against defendants with a view to easing the prosecution burden.

What are the results? In many ways, it has been an impressive start. Since 2002, 18 criminal convictions have been obtained against companies and individuals for cartel offences.

Fines totalling around €150,000, and two jail sentences (of, respectively, six and 12 months, albeit both suspended) have been imposed.

Undoubtedly, that's an impressive outcome. Indeed, they are reportedly the first successful criminal cartel prosecutions in Europe.

The headline statistic masks a number of possible concerns, however. Firstly, of those 18 convictions, 17 were obtained in respect of one cartel investigation - the heating oil case in the west of Ireland. The other prosecution arose out of an investigation of various Ford car dealers and resulted in the prosecution of one party only - an employee of the dealers' trade association investigated on an "aiding and abetting charge". In other words, in five years, only two cartels have been brought to book.

Secondly, the Competition Authority did not appear to capitalise fully on its earlier success in and experience from the heating oil case in the subsequent Ford dealers case.

As mentioned, the Ford dealers investigation has, to date, resulted in the prosecution of one trade association employee.

Overall, it suggests that experience and lessons learnt from the earlier investigation may not have been put into effect in more recent cases.

Thirdly, the heating oil prosecutions (17 of the 18 convictions) were taken on foot of legislation pre-dating the 2002 Act. That suggests that the major challenge to successful competition law enforcement may be as much operational as the law itself.

Against that background, recent Competition Authority calls to amend legislation to further increase enforcement powers (including "tough new penalties" for obstruction) may be viewed with some scepticism.

Merger Control

Another key reform of the 2002 statute was the adoption of a new "depoliticised" merger regime, aiming to "take merger control out of the political arena". Without doubt, the Competition Authority's operation of the merger control regime - particularly its technical expertise in terms of economic analysis - deserves recognition.

The Competition Authority's record on merger control (95 per cent of transactions cleared at phase one, 5 per cent involving phase two investigations, and around 0.5 per cent of notified deals blocked) is very much in line with international best practice.

In addition, the transparency of the existing merger regime and the Competition Authority's efforts to articulate clearly its rationale in each determination help achieve consistency, predictability and, ultimately, fairness, in applying merger control laws, enhancing the credibility and effectiveness of merger control enforcement.

Advocacy

Equally, it is appropriate to recognise the Competition Authority's continual efforts to keep competition at the forefront of economic policy in Ireland.

Competition Authority advocacy clearly played an important role in bringing about the repeal of the Groceries Order. Some of the recent market studies undertaken by the Competition Authority were, in terms of their breadth and scope, extremely challenging. It is a credit to the responsible officials that those studies have been completed to the standard achieved. Competition Authority studies and submissions play an important role in influencing policy makers.

In future, however, with a view to ensuring appropriate use of resources in the competition regime and to limiting delay, the scope of such studies might need to be more focused.

In addition, the Competition Authority needs to enhance the status and role of competition policy in the eyes of the public. In particular, the apparent priority enforcement focus on trade associations and other forms of collective representation needs to be explained.

One of the most important roles of any competition authority is to educate businesses and consumers about the benefits of competition.

Tackling Monopolies

Another stated Competition Authority priority - tackling monopolisation and other market restrictions through civil enforcement - remains as much a challenge today as it did five years ago.

The two major civil enforcement cases taken since the coming into force of the Competition Act - the ILCU case and the BIDS case - have undoubtedly resulted in disappointing outcomes for the Authority. In the BIDS case - taken by the Competition Authority against an association of beef producers on foot of industry rationalisation plans - the High Court held that the Competition Authority had "failed to demonstrate by credible evidence that the objectionable features of the arrangements are likely, as a matter of probability, to have appreciable anti-competitive effects."

Similarly, in the ILCU case, in which the Competition Authority sought to require the Irish League of Credit Unions to share services and facilities with another representative association, the Supreme Court held that the Competition Authority had "failed to provide a convincing analysis of ILCU's activities as being anti-competitive".

The key issue in both cases, in other words, was the clear and fatal lack of evidence corroborating the Competition Authority's assertions.

This suggests that additional time should be spent testing the strengths and weaknesses of cases internally, before a decision is taken to prosecute. Investigations of anti-competitive behaviour are complex and require specialist knowledge. This complexity requires a strong focus on quality control.

To be sure, the core changes implemented by the Competition Act - increased sanctions for hardcore violations and adoption of an independent merger regime - were the right policy choices.

As the Competition Authority has itself noted, however, competition law enforcement continues to encounter "significant challenges" and a key enforcement priority - achieving a consistent record of successful prosecutions - has yet to be realised.