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What are Invalid Agreements?

Compliance Knowledge Base | Competition Law

Posted by: Morgan Rennie Published: Mon, 10 Sep 2018 Last Reviewed: Mon, 10 Sep 2018
What are Invalid Agreements?

If an agreement which is created between two or more organisations includes provisions that are anti-competitive in nature and infringe upon competition law, then the agreement will be rendered invalid. Consequently, the terms of the agreement which has now been classified as invalid cannot be enforced. If an organisation in the UK persists in enforcing this invalid agreement, then they will face the potential consequences set out in the Competition Act 1998 and Enterprise Act 2002. Therefore, an organisation should be aware of the type of agreements they can lawfully create and which they cannot.

What makes an agreement invalid?

An agreement will be deemed as invalid if any provision within that agreement breaches part of competition law. For an agreement to be valid, you need to ensure that its provisions do not breach competition law.

If agreements include the following provisions, they will become invalid in line with competition law:

- If the fixing of purchases and selling prices is included within the agreement.

- If there is control of production or the market referenced within the agreement.

- If there is reference to the sharing of markets or supply within the agreement.

- If there is intent to create a competitive disadvantage for other trading parties through applying dissimilar conditions to equivalent transactions.

In March 2018 the European Commission concluded an investigation into invalid agreements between eight Japanese firms who were found guilty of conducting invalid agreements from 1998 to 2012. The fine which was eventually imposed by the European Commission reached €254 million across the firms, which include Matsuo Electric Co., Rubycon Corp., Tokin Corp., Nippon Chemi-Con Corp., Hitachi Chemical Co., Elna Co. and Nichicon Corp.

What are Invalid Agreements?

It was discovered that these firms engaged in the sharing of vital information which included their pricing intentions in the future and their individual knowledge of the market. They then used this information to create invalid agreements; sensitive information was used to create agreements on pricing agreements and implementation. These invalid agreements would then allow the organisations involved to coordinate their behaviour in the market, effectively controlling the market with one another. This resulted in the ability to avoid price competition, which is completely anti-competitive in nature and demonstrates that these agreements should have been rendered invalid as they breach competition laws.

The European Commission found evidence throughout their investigation of the communications between the relevant organisations and the demand that each organisation destroys any evidence of these anti-competitive agreements. However, the European Commission had been able to find enough evidence to penalise these firms and subject them to crippling fines.

If a firm conducts anti-competitive practice the case is published by the European Commission or the relevant body which is conducting the investigation. Reputational damage occurs, and the organisations involved will suffer a loss of trust from customers as well as business associates who will no longer wish to conduct business with such an organisation. Consequently, the repercussions for anti-competitive behaviour extends beyond the formal fining process and tarnishes the organisation's reputation.

As part of an organisation you need to be aware of what constitutes an invalid agreement or anti-competitive behaviour in order to protect your organisation's ethical business conduct. Training and knowledge of competition laws will enable an organisation collectively to establish the right business practice needed to avoid anti-competitive behaviour.

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