Enterprise Act 2002: Market Investigations

The market investigation†provisions of the Enterprise Act†2002 replace the monopoly†provisions of the Fair Trading Act†1973 (the "FTA"). The market†investigation provisions of the Act†ensure that designated UK†competition authorities continue†to have the power to investigate†markets without the need to†show, as would be required for†investigation under Chapter II of†the CA98, an agreement between†the firms in the market or any†abuse of a dominant position†(held either by a single firm or†multiple firms).

The new market investigations regime -†like its predecessor - comprises two†stages: an initial investigation of potential†problems in a market by the Office of Fair†Trading (the "OFT"), and, if necessary, a†reference to the Competition Commission†("CC") for fuller investigation. If the CC†investigation results in adverse findings,†there is scope for remedies to be adopted.†They are essentially forward looking, and†do not have the effect of declaring firms'†past conduct to have been unlawful. In this†respect, the regime is in stark contrast to†the prohibitions in the CA98.

The following summary describes the market†investigation provisions of the Enterprise†Act, and draws attention to the key†differences from the previously applicable†monopoly provisions of the FTA.

Who can initiate a†market investigation?

There are essentially three ways in which a†market investigation reference may be†made, namely by:

the OFT (which may make a reference†either of its own volition or pursuant to a†"super complaint", see following) (S 131);

the sectoral regulators (comprising the†Director General for†Telecommunications, the Gas and†Electricity Markets Authority, the†Director General for Water Services, the†Director General of Electricity Supply for†Northern Ireland, the Director General of†Gas For Northern Ireland, the Rail†Regulator and the Civil Aviation†Authority) (S 131); and

the appropriate Minister, in specified†circumstances (S 132).

Primary responsibility for making market†investigation references will lie with the†OFT. In anticipation of this role the OFT†established a division entitled the "Markets†and Policy Initiatives Division" under the†leadership of Jonathan May to monitor†markets and conduct preliminary†investigations to determine whether†markets might warrant investigation. This†formalises the position that pre-existed†under the FTA.

The Enterprise Act establishes a new†procedure for the making and handling of†"super-complaints". Section 11 of the Act†requires the OFT, upon receipt of a†complaint from a designated consumer†body, to publish its response to the†complaint within 90 days, stating whether†or not it will take action in response to the†complaint. (As at the date of publication,†the Secretary of State has not published an†order listing the consumer bodies that will†have the power to make such complaints.)

A designated body will be able to make a†complaint if it concludes that there is a†feature, or combination of features, of a†market in the UK that appears to be†significantly harming the interests of†consumers. For these purposes,†consumers comprise individuals who†receive the goods or services other than in†the course of business - essentially end†users acting as consumers (S 183(1)).

These provisions of the Enterprise Act†will therefore create a strict timetable†pursuant to which the OFT must fast-track†its response to complaints made by†designated consumer bodies.

What conditions must be met†for a market investigation to†be undertaken?

The circumstances in which a market†investigation reference may be made to the†CC are as follows.

In summary:

if the OFT is to make a reference, it must†be satisfied that the conditions specified†at S 131 of the Act are met;

if a relevant Minister is to make a†reference, he/she must suspect that†the same conditions as specified at†S 131 are met and either (1) the OFT†must have decided not to make a†reference under S 131, or, (2) if the†Minister has provided the OFT with†information relevant to the question of†whether or not a reference should be†made, he/she must be not satisfied†that the OFT will make a reference†within a reasonable delay (S 132).

S 131 Conditions for a market†Investigation

The conditions identified in the Act which†must be met if the OFT is to have the power†to refer matters to the CC for investigation†are as follows:

the OFT must have reasonable grounds†for suspecting that any feature, or†combination of features of a market in†the UK for goods or services prevents,†restricts or distorts competition in†connection with the supply or acquisition†of any goods or services in the UK or a†part of the UK (S 131(1)); and

the market must not have formed the†basis of any undertaking given in lieu†of a reference within the last 12 months†(S 131(4)(a)); and

the market must not have been the†subject of a ministerial reference to†the CC which has not yet been†determined (S 131(4)(b)).

A "feature" of the market in the UK for†goods or services is defined to cover:

the structure of the market concerned†or any aspect of that structure;

any conduct (whether or not in the†market concerned) of one or more than†one person who supplies or acquires†goods or services in the market†concerned; or

any conduct relating to the market†concerned of customers of any person†who supplies or acquires goods or†services (S 131(2)).

It is to be noted that, if these tests are met,†then the OFT has a power, rather than a†duty, to make a reference. It is also to be†noted that the "features" of the market†which may form the basis of a reference are†far more widely defined than the "conduct"†of potential monopolists, which was the†basis for intervention under the...