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Competition 2017: Trends & Conclusions

The competition market has remained strong this year, with a number of high-profile deals subject to scrutiny. Meanwhile, the European Commission continues to be vocal on crucial competition matters. In addition, increasing levels of enforcement from authorities, and the recent rise in class action damages litigation, have resulted in a high demand for legal services. However, the market has also experienced significant challenges, most notably with the UK voting to leave the European Union in 2016, causing substantial uncertainty in both the UK and the EU. That said, practitioners we spoke to were wary of suggesting that the competition legal market would be adversely affected by such developments.

Increasing Enforcement in the UK

Sources report that there has been an uptick in enforcement efforts from the regulatory and competition authorities, as they look to exercise the full range of their powers. In the UK in particular, there is increased interest in holding individuals to account for competition law infringements, including through criminal prosecution and director disqualification. Currently, criminal prosecution for a cartel offence carries the maximum penalty of a five-year prison sentence and an unlimited fine. To date there have been relatively few prosecutions, yet experts say the Competition and Markets Authority (CMA) is actively looking to increase its successes following the first criminal prosecution in September 2015 and another in March 2016. In December 2016 Daniel Aston, managing director of Trod Ltd, became the first director to fall foul of the tougher legal stance when he was disqualified for his part in unlawful activities. One source stated that “the CMA is currently clearly committed to making directors personally accountable” for breaches in competition law by cartels.

Furthermore, recent cases brought by the CMA as well as other European competition authorities demonstrate that these authorities are “keen to bring enforcement actions against small companies” where applicable. The authorities clearly “intend to prioritise prosecutions and tackle cartels robustly” with a well-defined commitment to “the inherent public interest in doing so”. The result of this increased regulatory scrutiny is that competition lawyers may well experience a greater demand in compliance and regulatory advice from clients looking to implement effective completion compliance policies to safeguard against their risk. 

More Litigation

A further trend over the past year has been the recent “spike in class action damages litigation”. This rise is, in part, driven by the recent EU Damages Directive, which seeks to harmonise the rights of cartel victims seeking damages, and which has now been implemented in all major jurisdictions. As a result, “lots of firms are now moving into the competition damages space”, including those “who haven’t previously done work in this area” as there is “big money to be made here”. As one source described it, “This area of competition work was talked about as the up-and-coming area, but it has now up and come!”

Due to this rise in litigation, it is expected that the next five years or so will see an increase in the number of firms who offer claimant services. “We may well even see some of the bigger firms do more claimant work on the side of corporate claims,” according to one source, as these firms look to expand the range of their competition law practices to take advantage of this trend. The directive is applicable across Europe and so international firms with a truly European footprint are expected to be particularly well placed to feel the benefits.

Despite this, litigation in the UK is still expected to be prevalent due to the country “being a particularly suitable environment to bring class actions”. Indeed, sources argued that this is unlikely to be affected by Brexit as “the UK is a large enough market in itself for it to be very worthwhile to bring a claim in”.

Brexit

Undoubtedly the most frequent word on everyone’s lips during this year’s research was “Brexit”, yet opinion is split over its impact on the market. On one hand, “Brexit is freezing future appetite for litigation” due to the high level of uncertainty as to the legal and economic position of the UK after the deal is negotiated, as well as the length of time litigation takes to go through the courts. On the other hand, “the Damages Directive certainly has facilitated more class action litigation” in the UK regardless of Brexit, sources told us.   

In the short term, it is expected that competition work will increase for firms. There will be a big increase in enforcement and investigations in the UK post-Brexit, and “generally more work in the UK that would have otherwise gone to the EU Commission”. In the longer term, however, “some firms will have to relocate teams to Europe, and there are currently quite advanced plans to do this” with Ireland, France and Germany expected to be the preferred destinations. “It looks more credible to European clients to have their lawyers located in EU,” said one lawyer. It is predicted that “over time clients will come to not instruct lawyers in London, as London will simply not be in the European Union. It will be like English lawyers advising on French law now.”

Ultimately, the level of competition work coming through to firms “will depend on the deal achieved between the UK and Europe through the Brexit negotiations”. Currently “there is still lots of work around – the EU commission is still prosecuting cartels, for example”, and “it is business as usual until we known what EU regime we are signed up to”.

However, some respondents fear that macro-economic pressures could result in a general slow-down of deals and merger work, which will trickle down to negatively impact the volume of competition work. “Brexit may indeed cause long-term claims to fall away from being brought in the UK” as “EU decisions will no longer be binding here”. Despite this, there is “no reason to suspect that there won’t be a high level of cooperation between the EU commission and the CMA”, and so EU decisions may well become highly persuasive on UK law. As a result, one possibility is that “it should be equally advantageous to bring a claim in the UK” and demand for legal services therefore may not be overly affected.

The European Union

As one source succinctly expressed, “Brexit will not stop the EU Commission doing its job.” European firms are expected to be well placed to cope with the effects of Brexit, if indeed there is any change in workflow to law firms in certain jurisdictions. The Netherlands, Belgium, Germany and Ireland stand to benefit most from any movement away from bringing litigation in London. The firms who are expected to do well therefore “are the ones with sizeable Brussels, German and Dutch offices and we may well see a bolstering of numbers in these teams”. Yet “most competition law firms have an EU presence”, so “this change shouldn’t affect firms too much, beyond a change of emphasis” from where work is sourced.

However, the EU is experiencing turbulent times, including a spate of recent terrorist attacks in multiple countries, political uncertainties with the rise of nationalism, economic pressures and the ongoing migrant crisis. Respondents highlighted how, over the past few months, “clients have increasingly been turning to domestic firms in each country” over pan-European firms to meet their legal needs “because they are not sure where the EU as a whole will be in a few years’ time”. Thus “the larger international firms with a wide-ranging EU presence will potentially need to be more creative in how they attract clients”. Indeed, as a result of this trend, at present the UK offices of such firms “are actually doing OK”. A source from one international firm said, “The European offices actually feel more exposed [to such market fluctuations] as they do more of the European work.” This shift is “not going to kill the competition practice” in Europe for international firms, “but such firms will have to adapt to ensure they maintain their market share.”

        Equally it was pointed out that “some of the longstanding, large investigations are coming to a close in Brussels” with “fewer being started or due to be started in the immediate future”. It is “possible that we will see more action taken by national competition authorities and multiple authorities, rather than from the European Commission” over the next year or so.  All of which is to say that local firms across Europe providing competition expertise are expected to benefit from this increase in demand for their services. 

Rest of the World

Further afield, respondents say that “the global piece is now huge in competition law”. Indeed practitioners report that there is an “internationalisation of the legal market taking place” where clients are moving to firms who can offer international services. Firms who are doing well are “the ones who have a strong London base, an EU platform and a US presence”. Clients “are attracted to the firms who can provide a quality service across a range of jurisdictions”. As such, the legal market seems to be polarising into domestic firms and such international firms.

At the same time, some practitioners argue that “it is not enough to just have a good EU presence and international presence”, but rather “a strong US presence is key to the years ahead”. The expected fall in the value of the pound post-Brexit is likely to see US investors becoming interested in London as a very attractive investment option, aided by the common language and a familiarity with the legal system. Thus, competition work out of the US is expected to increase, particularly profiting those firms with an established competition presence here.

In addition, while “everyone talks of the European Commission, increasingly Asia-Pacific regulators want more of the pie,” and it is predicted by some that the future will see Singaporean authorities taking over investigations from other competition authorities. With the problems facing Europe, firms may do well to concentrate their competition practices in the region and benefit from the expected uptick in demand for legal services that will accompany an increase in activity from these regulators.

***

There was a sense among those we spoke to that “as long as firms can adapt and change” the legal market will be robust enough to weather this changing picture worldwide. Market commentators were keen to convey that competition law is “business as usual”, stating: “The truth is that it is very competitive, with lots of firms fighting for a small pool of rarefied work. [Developments such as] Brexit make the pressure more intense but it is a pressure which was already there.” One source added, “The reality is that to ensure survival in any environment, firms need to be sensible about how they market themselves, they need to be innovative and they need to keep costs down”. How firms balance these competing priorities, the changing regulatory landscape and the various moving parts of international competition law will be a key story in the coming few years.

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W11 1QQ, UK