Competition

The Enterprise Act 2002: the Provisions that affect IP
& Technology

John Lambert

7 Dec 2002

Last updated 17 Dec 2005

The Enterprise Act 2002 received royal assent on 7 Nov 2002. It was passed to improve competitiveness, empower consumers and modernize insolvency law. It consists of 281 sections and 26 schedules. Its importance to intellectual property owners and their professional advisors is considerable. Although competition law does not deprive patentees, trade mark and registered design proprietors, copyright and other intellectual property owners of their monopolies or exclusive rights it has always restricted the exploitation of those rights. The new Act will reinforce the Office of Fair Trading ("OFT"), which will become the principal instrument for enforcing not only national but also Community competition law in this country. It creates a new tribunal, which will be well resourced, to facilitate damages claims by those who claim to have
suffered loss or damage from infringements of competition law including claims by consumers. It criminalizes participating in a cartel and disqualifies directors of companies whose undertakings have breached national or Community competition law.

Scope

This article focuses on the provisions most likely to affect IP rights and technology transfer, that is to say the introduction of new cartel offences, directors' disqualification and other institutional changes. For information on the rest of the Act see The Enterprise Act 2002.

Cartel Offence
The following new offence is created by s.188 (1) of the Enterprise Act 2002:

"An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements of the following kind relating to at least two undertakings (A and B)."

Such arrangements must be intended to:

"(a) directly or indirectly fix a price for the supply by A in the United Kingdom (otherwise than to B) of a product or service,
(b) limit or prevent supply by A in the United Kingdom of a product or service,
(c) limit or prevent production by A in the United Kingdom of a product,
(d) divide between A and B the supply in the United Kingdom of a product or service to a customer or customers,
(e) divide between A and B customers for the supply in the United Kingdom of a product or service, or
(f) be bid-rigging arrangements."

Unless subsection (2) (d), (e) or (f) applies, the arrangements must also be intended directly or indirectly to fix a price for the supply by B in the UK (otherwise than to A) of a product or service, to limit or prevent supply by B in the UK of a product or service, or limit or prevent production by B in the UK of a product. The maximum penalties for an offence under these provisions is imprisonment for a term not exceeding 5 years, a fine, or to both for conviction upon indictment, and imprisonment for a term not exceeding 6 months, a fine not exceeding the statutory maximum or to both for summary conviction. A prosecution for an offence under s.188 may be instituted only by the Director of the Serious Fraud Office, or by or with the consent of the OFT.

Directors' Disqualification
Five new sections are inserted into the Directors' Disqualification Act 1986 by s.204 of the Enterprise Act 2002. Under these new provisions the court must make a disqualification order against a person who is a director of a company that commits a breach of competition law if it considers that that person's conduct as a director makes him or her unfit to be concerned in the management of a company. A company commits a breach of competition law if it engages in conduct that infringes the Chapter I or II prohibitions of the Competition Act 1998 or arts 81 or 82 of the Treaty of Rome. For the purpose of deciding whether a person is unfit to be concerned in the management of a company the court must have regard to whether that person's conduct contributed to the breach. It is immaterial for these purposes whether the person knew that such conduct constituted a breach. Even if that person's conduct did not contribute to the breach the court must consider whether he or she had reasonable grounds to suspect that the conduct of the undertaking constituted the breach and took no steps to prevent it and, if he or she did not know whether that person ought to have known that the conduct of the undertaking constituted a breach. The maximum
period of disqualification under this section is 15 years. An application under this section may be made by the OFT or by a specified regulator.

Other Changes to Competition Law
The bulk of the competition provisions relating to competition law are concerned with merger control and market investigations. A number of consequential amendments are made to the Competition Act 1998 with regard to the Competition Commission. The OFT is given various powers to conduct criminal and other investigations, including powers of entry. These are not examined in detail here because they are likely to be relevant only incidentally to those involved in acquiring, protecting and exploiting intellectual property. It is stressed, however, that such considerations will often form part of the general picture of a licensing or business sale transaction and the legislative changes that this Act brings about should always be taken into account.

 

 

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