COMPETITION LAW II Lucie Bnyaiov Public Law Protection

COMPETITION LAW II Lucie Bányaiová Public Law Protection of Competition • • Antitrust (cartels; abuse of dominant position, abuse of market power) Merger control State aid Public procurement, PPP - public private partnership 1

COMPETITION LAW II Public Law Legislation • Legislation on protection against cartel conduct, abuse of dominant position and merger control rules are contained in Competition Act No. 143/2001 Coll. • Abuse of market power prohibited in Act No. 395/2009 Coll. on substantial market power • Rules relating to state aid are contained in Act on State Support No. 215/2004 Coll. • Public tendering legislation is contained in Public Procurement Act no. 137/2006 Coll. and Concession Act no. 139/2006 Coll. 2

COMPETITION LAW II Supervising Authority • Supervision over observation of all aspects of public competition legislation is performed by Office for Protection of Economic Competition (‘the Competition Office’). • Amendment of Competition Act – supervision over other public authorities and bodies in respect of possible anticompetitive conduct • www. compet. cz 3

COMPETITION LAW II Relevant Market • Competition happens in a market – its definition is crucial namely for application of antitrust and merger control rules. • Relevant market comprises a product or group of products or services (interchangeable/substitutable) and the geographic area in which these products are produced and/or traded. • Two components of relevant market: the product market and the geographic market. 4

COMPETITION LAW II Product Market • The relevant product market is determined according to three criteria: - Demand-side substitution; - Supply-side substitution; - Potential competition. Factors influencing supply/demand: transportation cost, fidelity of customers, long-term contracts, administrative costs, start-up costs…. 5

COMPETITION LAW II Geographic Market • The geographic market is an area in which the conditions of competition applying to the product concerned are the same for all traders. • The same factors used to determine relevant product market should be used to define the relevant geographic market. Obstacles limiting accessibility of products/services from geographic perspective – e. g. transportation costs, lack of information on the part of potential purchasers, administrative barriers/technical norms • Case of Funeral Organizers/Undertakers Association • Case of Dr. Max and Lloyds Pharmacies merger • Case of RWE, case of Poultry Breeders – national market 6

COMPETITION LAW II State Aid • Aim is to minimize the unjustifiable advantages in economic competition by receiving unjust and unjustifiable state assistance with their business – e. g. tax relieves, financial support, privatization of state property. • State aid is not permitted and is granted only under extraordinary circumstances. • State aid rules contained in EC legislation. • Supervision over state aid vested in the European Commission. The Competition Office functions as a monitoring, coordinating and consulting body. The Act on State Aid merely defines the role of the Office. 7

COMPETITION LAW II Public Procurement • Ultimate goal is the preservation of public funds, via competitive bidding in a competitive climate. • From competition perspective – aim is to ensure free and open competition between the suppliers. • Public procurement Act sets detailed procedure to be followed in order to achieve the above goals. • Applies not only to state institutions as such but to any person that should use public funds – e. g. municipalities or foundations or entities that for a certain project received state funding. • Competition Office supervises and monitors observance of public procurement rules and may impose remedial measures as well as penalties on the tenderer. 8

COMPETITION LAW II Public Private Partnership • Means of cooperation between the state and a private entity in the area public services • State entrusts to a private entity total or partial management of certain services of public nature and the private party assumes part or full risk for due performance of the service. • From competition perspective – aim is to ensure free and open competition between the potential providers of the service. • The PPP Act sets detailed procedure to be followed in order to achieve the above goals, in case of lack of rules, the rules contained in the Public Procurement Act to apply. 9

COMPETITION LAW II Cartel Regulation – Prohibited Agreements • Under Article 3 of the Competition Act, any agreement between entities, decision by associations of entities, and concerted practice which result or may result in the distortion of competition is prohibited. Prohibition applies also to agreements entered into by entities outside of the Czech Republic which may distort or do distort competition in the Czech Republic, provided of course there is no EU dimension to the pertinent agreement. • Agreements – wide interpretation - include any type of agreements, including gentleman ententes and oral arrangements. • Decisions of associations – decisions of various professional chambers, regardless of voluntary or mandatory nature of membership. Case of Funeral Organizers Assotiation. Undertakers, Case of Association of Graphics and Graphic Designs • Concerted practice – coordinated behavior that replaces independent business decision – case of Drug/medicine distributors, • Prohibition applies to both horizontal and vertical agreements. • No factual participation is no excuse – case of GIS 10

COMPETITION LAW II Statutory Examples of Prohibited Agreements The Competition Act provides a list of examples of such agreements: • direct or indirect fixing of prices or other business terms and conditions; case Delta – bakeries case, case HUSKY, case CRT • limiting or control of production, sales, research and development or investments; case of Albatros • division of markets or sources of supply (market allocation); GIS case • tying; • application of different conditions to identical or equivalent transactions with other entities, thereby placing them at a competitive disadvantage; and • group boycott. 11

COMPETITION LAW II Other Frequent Cartel Behavior • Bid rigging – GIS case • Non-compete arrangements 12

COMPETITION LAW II Effect of Prohibited Agreements • Pursuant to the Competition Act such agreements are null and void unless exempted either by the Competition Act itself or in a decree issued by the Competition Office or otherwise. 13

COMPETITION LAW II General Statutory Exemption • Following agreements are exempted: Contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and do not: • impose on the competitors concerned restrictions that are not indispensable to the attainment of the above objectives, and • afford such competitors the possibility of eliminating competition in respect of a substantial part of the products in question. For an agreement to be excluded from the general prohibition, all of the conditions must be observed. Example – networksharing in mobile telephony 14

COMPETITION LAW II Block Exemptions • Competition Act refers to block exemption under EC law for further agreements that are exempted from the general prohibition under Article 3. • Most commonly used: • Commission Regulation (EC) No 330/2010 on application of Article 101 of the Treaty on categories of vertical agreements and concerted practices. 15

COMPETITION LAW II Vertical Agreements Exemption • Applies to vertical agreements where market share of the supplier and purchaser does not exceed 30 % of the relevant market on which it sells the contract goods or services. • Hard-core arrangements not exempted, such as: - RMP; Tuperware case - restriction on passive sales outside of territory; - non-compete obligations exceeding 5 years. 16

COMPETITION LAW II De Minimis Exemption Section 6 of the Competition Act stipulates that the following agreements are exempt from the general prohibition of restrictive agreements stipulated under Section 3 of the Competition Act: • Horizontal agreements if the aggregate market share held by the parties to the agreement does not exceed 10 per cent on any of the markets affected by the agreement. • Vertical agreements if the market share held by each of the parties to the agreement does not exceed 15 per cent on any of the markets affected by the agreement. HUSKY case 17

COMPETITION LAW II Effect of Exempted Agreements satisfying the above conditions will be automatically valid ab initio – as of their execution – and will be in full force and effect and binding upon the parties. 18

COMPETITION LAW II Leniency • Incentive for parties to prohibited agreements to cooperate with the Competition Office. • As of 1 December 2012 – part of Competition Act, previously as soft law in guidelines • Amount of fine reduction or full immunity from fines dependent on the usefulness of the provided information on knowledge of the Competition Office of the notified cartel agreement. • Conditions for obtaining full immunity: - Competition Office had no knowledge of the notified offence; - Detailed description of the alleged cartel arrangement, including its aims, activities and functioning, names, positions, office locations of all involved individuals, all other evidence of cartel agreement must be provided to the Competition Office. 19

COMPETITION LAW II Dominant Position • Under the Competition Act, a dominant position on the market is held by one or jointly by more competitors (joint dominance) which have the market power to a substantial extent, that allows them to behave independently of other competitors or consumers. • The Competition Act contains a rebuttable assumption of dominance. Unless the contrary is proven, it is deemed that the dominant position is not held by a competitor should its market share on the relevant market achieved during the period subject to examination be less than 40 percent. • RWE Case 20

COMPETITION LAW II Abuse of Dominant Position • The fact that the competitor or competitors enjoy a dominant position on certain relevant markets is not prohibited, only the abuse thereof. • Section 11 (1) of the Competition Act generally prohibits any manner of abuse of dominant position to the detriment of other competitors or consumers. In addition to the general prohibition of abusive behavior, Section 11 of the Competition Act offers a non-exhaustive list of types of abusive conduct: 21

COMPETITION LAW II Examples of Abusive Behavior • Direct and indirect enforcement of unfair (unreasonable) conditions and terms set forth in agreements or contracts with other market participants. RWE case (excessive advance payment for gas supplies) • Tying. • Application of dissimilar conditions to equivalent transactions with other competitors, placing them at a competitive disadvantage. RWE case (different conditions for operators of regional distribution networks outside of RWE group) 22

COMPETITION LAW II • Staying or limiting production, sale or research and development to the detriment of consumers. • Predatory pricing. Case of STUDENT AGENCY. Case of České dráhy/Regio. Jet • Denial of access to other competitors for a reasonable consideration to its distribution networks or other infrastructure equipment. RWE case (denial of storage space, denial of natural gas to wholesalers outside of RWE group) 23

COMPETITION LAW II Substantial Market Power • Regulated by Act No. 395/2009 Coll. on substantial market power • Applicable to supplies of agricultural and food products. Aimed to restrict abusive behavior of participants in the market with significant power towards its suppliers but without dominant position. (economic dependance) • Case of KAUFLAND– first fine under the Act on Substantial Market Power 24

COMPETITION LAW II Proceedings before Competition Office • Formal proceedings by serving a notice on initiation of proceedings to the pertinent party. • Competition Office has broad investigative powers, including search of the premises of undertakings concerned and homes of their employees and executives. • Dawn raids and violation of privacy, prior consent of court with search of premises – case of Delta – Bakeries case (ECHR case – Société Colas Est vs. France). • NEW - Amendment of Competition Act – dawn raid to be based on a written authirization of Chairman of the Competition Office containing detailed identification of competitor and premises to be searched. 25

COMPETITION LAW II • Respecting legal privilege – case of Billa/Meinl (based on ECJ decision in Akzo Nobel/Ackros Chemicals • Selfincrimination in proceedings before the Office – case of Koninklijke Philips, case of CRT • Access to file – access to leniency filings can be denied until statement of objections sent to offenders. CRT case • Limited access to file containing trade secrets (no copies) • Amendment to Competition Act confirming case law 26

COMPETITION LAW II • In certain cases, the Competition Office may accept commitments offered by the alleged offenders in the course of the proceedings. The proceedings end without decision on the merit. • Prioritization – Amendment to Competition Act – Competition Office may upon preliminary review of case decided not to continue with prosecution – low impact on competition – no public interest to prosecute (nature of offence, activity in question, importance of relevant market and affected consumers) • Otherwise, the Competition Office either determines that a violation under the Competition Act occurred, renders a decision to this effect and imposes a penalty and/or other remedial measures, and sets a deadline for performance or declares in its decision that the undertakings concerned did not violate the Competition Act. 27

COMPETITION LAW II Remedies and Penalties • The Competition Office may order the parties involved or concerned to refrain from all prohibited activities under such agreement. • The Competition Office may impose remedial measures to restore effective competition • The Competition Office may impose upon each breaching entity a fine up to CZK 10 million or 10 per cent of its net turnover reached during the preceding accounting period. 28

COMPETITION LAW II Merger Control The mergers or “concentration of competitors” subject to the Competition Act: • Merger or amalgamation (consolidation) of two or more competitors previously independently active on the market; • Acquisition of an enterprise of another competitor or a substantial part thereof on the basis of an agreement; • Acquisition of control (directly or indirectly) over another competitor either by acquisition of shares or ownership interest of such other competitor; • Foundation of a concentrative joint venture. 29

COMPETITION LAW II Thresholds for approval of merger by the Competition Office: • aggregate net turnover of undertakings concerned for the last completed accounting period within the market of the Czech Republic exceeds CZK 1. 5 billion and the aggregate net turnover of each of at least two of the merging entities for the last completed accounting period within the market of the Czech Republic exceeds CZK 250, 000; or • aggregate net turnover of (i) at least one competitor being a party to the merger; (ii) an enterprise or its part being acquired (iii) a competitor, over which the control is being acquired; or (iv) at least one of the competitors creating a concentrative joint venture; for the last completed accounting period within the market of the Czech Republic exceeds CZK 1. 5 billion and the aggregate worldwide net turnover of the other merging entity for the last completed accounting period exceeds CZK 1. 5 billion; 30

COMPETITION LAW II • The merger approval proceedings are initiated upon delivery of a petition for approval to the Competition Office together with all documents and information required by the Competition Act. • The Competition Office either decides that the concentration in question is not subject to its consent or, provided that the concentration does not substantially interfere with economic competition, consents to the concentration. Otherwise, the Competition Office does not grant clearance. • If the Office fails to decide on a filed petition within the time limits stated in the Competition Act, after the expiration of the time limits the concentration is deemed to be approved. 31

COMPETITION LAW II • The Competition Office may accept commitments offered by the merging undertakings – to avoid negative clearance by the Competition Office. Case of Merger fo Dr. Max and Lloyds pharmacies • Until the Competition Office renders its decision the competitors concerned may not take any steps implementing the merger, i. e. they cannot exercise control they gained. 32

COMPETITION LAW II Sanctions for Breach of Merger Control Rules • Should the Competition Office find out that the undertaking acquiring control exerciseed control prior to its clearance, it may impose a fine up to the amount of CZK 10 million or 10 % of the net turnover of the pertinent competitor for the preceding year. • Also, if the Competition Office discovers that competitors implemented a concentration before the consent is granted or without filing a petition for the Competition Office’s consent, it may impose on such competitors the obligation to “de-concentrate” or to take other measures which are necessary to restore effective competition on the relevant market. 33

COMPETITION LAW II Private Antitrust Litigation • No specific provisions expressly regulating private antitrust litigation or even specific types of actions for illegal antitrust behavior. • Available private remedies: - general damages pursuant to the Commercial Code - liability for the loss caused by the breach of their duty without regard to their culpability; - right to enforce fulfillment or performance of an agreement if performance is illicitly refused; - restitution of unjust enrichment obtain based due to the illicit practice; - with respect to prohibited agreements or agreements entered into as a result of abuse of dominant position, the invalidation of the agreement in question. • The relevant tribunals are general civil courts, usually regional courts. • One known case – Vodafone sued T-Mobile and O 2 (formerly Eurotel) 34