Oke Odudu – The Forty-Nine Words
In 1998, my final year as an undergraduate, I was introduced to the text: ‘The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.’
These 49 words, which form part of European Union law, opened a door to the world of competition law, my main area of research and which has occupied almost half my life. The idea is simple: in a market economy the providers of goods and services work hard to offer consumers the most exciting products for the least amount of money: producers compete. Those whose products are less interesting or who charge too much will eventually go bust. Producers can substitute the discipline of competition for the security of co-operation. Instead of competing, they agree to produce the same things, or to the same standards, and to charge the same price. The quality and quantity of goods and services produced is worse and lower than under competitive conditions; at the same time prices are higher. One thing competition law does is prevent competitors from agreeing not to compete.
People are often surprised by the idea that legal research is necessary, since surely the law and its meaning are known. However, it is difficult for the law and its implications to be known beyond a certain point because law is necessarily opentextured: developments occur after a law is adopted that create uncertainty as to whether and how it applies in new contexts. Competition law provides a good example of this. Agreeing not to compete is a very serious offence. Companies can be fined up to ten per cent of their global turnover and individuals face up to five years in prison, fines and extradition to the United States. However the riches to be had by producers that do not compete provide an irresistible temptation to evade the law.
The law applies only when parties agree not to compete and there is evidence of this. The application of the competition rules thus turns on how such agreements may be known to exist. When entering into legally enforceable agreements, parties normally aim to be as clear as possible about what is intended, and generate and preserve evidence, should what was agreed be subsequently questioned. However, since an agreement not to compete is prohibited and gives rise to serious sanctions, individuals and companies want to agree in ways that make it difficult or impossible for anyone to know about it. For example, extraordinary lengths were taken to conceal evidence of an agreement not to compete in the production of certain organic peroxides. The producers employed a consultancy to organise meetings outside the European Union; the agreements were printed on pink and red paper to keep them separate from legitimate documents (printed on white paper). The pink and red papers were handed out during meetings and returned at the end; they were never taken out of the room and kept in a safe.
Competition law could not achieve its purpose if we were to rely on standard conceptions of agreement or means of proving it. One of the most powerful ways to demonstrate illegal agreement is with a whistle-blowing regime. This exploits natural nervousness amongst the parties to the agreement by holding out a tempting offer of immunity for the first, but only the first, to provide evidence: be the first to blow the whistle and there will be complete immunity from a big fine and prison sentences. This was how evidence came to light that British Airways and Virgin Atlantic, firms that like to give the public the impression that they are the fiercest of competitors, had in fact secretly agreed not to compete, resulting in the price of the relevant product increasing from £5 to £60. Three Virgin executives blew the whistle in exchange for immunity from prosecution, but British Airways paid fines of £121.5 million in the United Kingdom and $300 million in the United States and four of their executives faced criminal prosecutions.
Eyebrows might be raised as to why the evidence of people admitting engaging in illegal activity, and standing to benefit from that admission, should be taken as honest. Indeed, the reliability of evidence generated in this manner was questioned when the criminal prosecution of the British Airways executives collapsed after 70 000 documents emerged that were perhaps capable of telling a different story from that of the whistle-blowers. The challenge is to find a method to show an agreement exists without needing any direct evidence of it and several techniques have been devised.
Perhaps one could infer that an anti-competitive agreement has been made if price increases follow a meeting between competitors. Knowing this risk, the producers of organic peroxides reimbursed all expenses in cash to avoid generating evidence that meetings had taken place. Similarly, publicity photos of a cricket match between British Airways and Virgin Atlantic executives held in Sir Richard Branson’s home shortly before price increases were announced were withheld and then released undated. Yet there are legitimate reasons for competitors to meet and so the challenge remains to develop a concept of agreement that does not require direct evidence of what has been agreed, but which excludes events occurring by coincidence, even when they may be identical to those that would have taken place if the parties had colluded. I am working to find something which is less than concrete but sufficiently firm to support the deprivation of liberty and the imposition of swingeing financial penalties. Agreement is only the thirteenth word in the phrase. The more I read and learn about these 49 words the more complexity emerges: even when we get over this thirteenth hurdle the fifteenth word towers.