by Ana Mayoral | Jun 3, 2024 | Niet gecategoriseerd
On 14 May 2024 the Competition Council of the Republic of Lithuania fined Capital Realty (acting as a franchisor) and 20 of its franchised real estate agencies with a total fine of EUR 710,751 for price fixing agreement. Capital Realty and other members of “Capital” franchise network were found to have colluded to enforce a minimum commission fee of 3 percent for brokerage services, thus restricting mutual competition. This is the first case in Lithuania’s competition law practice where a franchise network was fined for anticompetitive actions.
The Competition Council’s investigation revealed that from February 2015, Capital Realty and an initial group of 10 agencies agreed to charge a minimum 3 percent commission fee for brokerage services to their clients. By 2017, an additional 10 agencies joined this agreement.
According to the Competition Council, regular meetings between February 2015 and December 2020, email communication between the managers of agencies, as well as general meetings of “Capital” franchise network members confirmed that these agencies collectively decided to maintain this minimum commission level, preventing any competitive price reductions. The investigation revealed that various additional measures helping to uphold the agreement were implemented (i.e. evidence collected by the Competition Council shows that managers agreed to introduce price monitoring and shared pricing data; internal audits and trainings were organized during which the “standard” pricing level within the “Capital” network was communicated).
Capital Realty and other agencies disagree with the agreement and claims that the commission fee discussed between the members was a price recommendation provided by Capital Realty. According to Capital Realty, by providing its agencies with price recommendations and other guidelines it sought to preserve the integrity of the “Capital” network and the quality of services. However, the Competition Council dismissed Capital Realty’s arguments entirely.
The decision is not final yet as it is open for appeal at the Regional Administrative Court within a month of its delivery. It is expected that Capital Realty and other members of “Capital” franchise network will challenge the decision in court. Nevertheless, the Competition Council’s ruling sends a clear message to businesses that franchisees are competitors and must be allowed to compete freely even within the franchise network.
Edita Daukšienė, Associate Partner
Darius Miniotas, Partner
WALLESS Lithuania
by Eric Janssen | Apr 18, 2024 | Niet gecategoriseerd
Since 1 July 2023, the Belgian rules on the screening of foreign direct investments (“FDI”) have been in force. As the decisions of the Interfederal Screening Commission (“ISC”) are not published, the rules’ application and interpretation still raise a lot of legal uncertainty. On 4 April 2024, the ISC published guidelines to provide further clarification.
Since 1 July 2023 a mandatory notification procedure has been in place in Belgium for transactions involving a non-EU investor investing in a Belgian target active in certain specific sensitive sectors. This notification procedure is in addition to other, already existing, requirements like mandatory merger notification to and approval by the competition authorities. In particular, transactions by a foreign investor acquiring either control over or 10% or 25% of the voting rights in a Belgian target – depending on the target’s activities – must be notified to and approved by the ISC before they can be implemented. This screening system applies to foreign investments in Belgian targets active in a number of exhaustively-listed sensitive sectors, like defence (including dual-use goods), healthcare, energy, telecoms, transport, critical technology and raw materials, critical infrastructure (whether physical or virtual), food security, private security, media, cybersecurity, access to sensitive information and personal data, and biotechnology. More information on the introduction of the Belgian FDI rules is available in our dedicated blog post
On 30 June 2023 – right before the entry into force of the Belgian FDI system – the ISC published some guidelines on the rules’ application and interpretation, but it was explicitly indicated that this guidance merely concerned a proposal of guidelines.
On 4 April 2024, the ISC has now shed some more light onto this new and non-public screening process by publishing finalised (as they are no longer called a “proposal”) and expanded guidelines.
While the system still raises a lot of questions, the new guidelines at least provide some very welcome clarity on at least some elements. The following are some examples of such clarifications.
According to the new guidelines, prior notification and approval is also required:
- For an asset deal, if it leads to a change of control;
- For the sale of a company division;
- For internal restructurings, even if the Belgian target ultimately remains owned or controlled by the same non-European company;
- If the number of voting shares that eventually exceeds the thresholds is acquired spread over multiple occasions;
- If the foreign investor’s voting rights before the entry into force of the Belgian FDI rules (i.e. 1 July 2023) did not exceed the threshold, but his/her share of voting rights exceeds the threshold due to an investment after that date;
- For an investment through which the foreign investor’s existing control increases;
- For an investment through which the foreign investor’s veto rights increase.
According to the new guidelines, no prior notification and approval is required:
- For greenfield investments (as only investments into existing Belgian targets are notifiable);
- For public tenders (except if a notifiable investment occurs in the context of such a public tender);
- For the reduction in the number of joint controlling shareholders (unless, as a result, the voting share thresholds are exceeded or if this leads to a change of control);
- If the foreign investor’s voting rights before the entry into force of the Belgian FDI rules (i.e. 1 July 2023) already exceeded the threshold (which, however, was irrelevant at that time), and then his/her share of voting rights further increases due to an investment after that date. While the draft guidelines indicated that a notification was required in this situation, the new guidelines now indicate that no notification is required, except if the foreign investor acquires control over the Belgian target due to the new investment;
- For an investment through which the foreign investor’s existing control decreases;
- For an investment through which the foreign investor’s veto rights decrease;
- For an investment in a Belgian target that is not itself active in one of the sensitive sectors, even if a non-Belgian entity belonging to the same group is active in a relevant sector;
- For corrections of material errors or purely formal amendments to investment agreements signed before 1 July 2023 (though substantial changes could be notifiable).
According to the new guidelines, the following elements are irrelevant to determine whether or not prior notification and approval is required:
- The size of the investment;
- The Belgian target’s turnover (with two specific exceptions);
- The Belgian target’s market share, whether in Belgium or abroad;
- The Belgian target’s number of employees;
- Whether or not the transaction is notifiable in other jurisdictions;
- The identity and the activities of the Belgian target’s clients (although this information can be relevant for the transaction’s substantive assessment);
- The fact that the Belgian target has a Belgian public authority as its client (although that could mean that the target has access to sensitive information, which could justify a requirement to notify).
The guidelines give a reminder that it is up to the foreign investor to determine whether or not a filing is required – there is no possibility in that regard to ask for some preliminary decision or ruling on the notification requirement. No further clarification is given on the interpretation of the sensitive activities and sectors – the guidelines are limited to a general note that the activities and sectors have to be interpreted on the basis of the purpose of the screening mechanism, i.e. to safeguard national security, public order and strategic interests.
In general, the guidelines encourage always notifying an investment in case it is uncertain whether it falls within the scope of application. While the notification process of course has timing consequences for the deal, at least notification before the ISC is free of charge, while administrative fines (up to 10% of the investment’s value) may be imposed for lack of or an incomplete notification.
In that regard, the guidelines also advise including in the transactional documents a solution to potential problems linked to the target’s unwillingness to provide certain information or the target’s provision of incorrect information – as even in such a situation the foreign investor is the one responsible for the notification and thus can be fined.
Moreover, the guidelines confirm that the ISC can – in the context of a negative decision following an ex officio investigation when no prior notification was made – order a divestment. It is thus key in any transaction involving a foreign investor to carefully study the notification requirement and, if required, to diligently prepare the filing documents.
by Eric Janssen | Apr 3, 2024 | Niet gecategoriseerd
Antitrust issues in vertical relationships are no longer below the competition authorities’ ‘radar’. This trend of not only focusing on horizontal but also on vertical competition law infringements has once more been seen with the Belgian Competition Authority’s decision to fine Le Creuset EUR 490,112 for having implemented a resale price maintenance policy with its distributors over a six and half year period.
RPM as an infringement by object
Le Creuset Benelux (“Le Creuset”) is a company specialising in premium kitchen and wine accessories in Belgium and Luxembourg, selling directly to customers via its own physical and online shops, and also through a network of distributors.
The Belgian Competition Authority’s (“BCA”) investigation, which started in March 2017, found that between 2009 and 2016, when providing the new wholesale prices to its distributors each year, Le Creuset also communicated to its distributors recommended resale prices and recommended promotional resale prices. While those resale prices were designated as “recommended”, the BCA found evidence that in reality Le Creuset expected its distributors to strictly apply those prices and to apply the promotional prices within a fixed period. When Le Creuset introduced a selective distribution system in 2013, one of the mandatory criteria was specifically to respect Le Creuset’s pricing policy. Moreover, Le Creuset monitored the resale prices applied by its distributors and adopted ‘pressure’ tactics and penalties for non-compliance. For example, through e-mails, calls and visits, Le Creuset regularly reminded its distributors of the importance of respecting Le Creuset’s pricing policy. Le Creuset monitored its distributors’ prices by: checking their internet sites, visiting their physical shops, mystery shopping, and discussing retailers’ prices with competing retailers. Le Creuset also informed retailers of the fact that other retailers were already applying compliant prices and promotions. If there was non-compliance, then Le Creuset suspended orders, blocked deliveries, refused promotions, ended or did not renew the selective distribution contract, or suspended a retailer’s premium distributor status.
The Belgian Competition College found that Le Creuset’s pricing policy in fact amounted to the imposition of minimum resale prices. This vertical restriction of the freedom of Le Creuset’s distributors to independently set their own resale prices (also called “resale price maintenance”) constitutes a restriction of competition by object, which is prohibited by Article 101 § 1 of the Treaty on the Functioning of the European Union (“TFEU”) and Article IV.1 §1 of the Belgian Code on Economic Law (“BCEL”). For this severe competition law infringement, the College imposed a fine on Le Creuset of EUR 490.112.
Some takeaway points
The EUR 490.112 fine was set taking into account the statutory maximum fine of 10% of the infringer’s annual group turnover. In this case, that maximum was still calculated on Le Creuset’s annual Belgian turnover (as was provided in the law at the time of Le Creuset’s infringement). However, companies should be aware that the Belgian Code on Economic law was amended on this point in 2019. Consequently, the BCA can penalise restrictive practices committed since then with fines up to 10% of a company’s annual worldwide group turnover – even if those practices were, for example, limited to Belgium. The significant increase of the maximum amount of the fine was introduced to strengthen its deterrent effect.
One aspect to note is that the College stressed the distributors’ participation in the resale price maintenance scheme. The decision explains that through their behaviour, the distributors contributed to, and at the very least acquiesced in, Le Creuset’s policy of minimum resale prices. In fact, they applied prices in line with this policy, monitored the prices charged by their competitors, and when they found that prices were not in line with Le Creuset’s policy, they complained to Le Creuset and asked Le Creuset to intervene. At Le Creuset’s request, the distributors agreed to modify their prices and provided information on their current and/or future prices. Finally, the distributors agreed to Le Creuset’s intervention in the organisation of promotions. It was important for the College to find an agreement on the resale price maintenance scheme between Le Creuset and its distributors. Mere unilateral behaviour by Le Creuset could only have been penalised under Article 102 TFEU or Article IV.2 BCEL (the prohibition on abuse of dominance) but only to the extent that the College could prove Le Creuset was dominant. By stressing the distributors’ participation, the College could qualify Le Creuset’s pricing policy as a vertical restrictive agreement falling under the prohibition of Article 101 TFEU and Article IV.1 BCEL. Despite the distributors’ active role in the scheme, the College however did not go that far to impose a fine also on the distributors for their cooperation.
Finally, it is interesting to note that this is not the first time that the BCA has imposed a fine for resale price maintenance. In January 2023, Caudalie, the cosmetics company, was fined for imposing sales restrictions and applying a resale price maintenance scheme (see here, here and here for our blog posts on the Caudalie case). The fine imposed on Le Creuset should serve as a reminder and a warning to companies that the competition authorities, including the BCA, are no longer disregarding vertical practices.
by Ana Mayoral | Mar 15, 2024 | Niet gecategoriseerd
Recent developments in Estonia regarding competition policy and enforcement
This article provides a brief overview of recent key developments in Estonia regarding competition policy and enforcement. Namely, the status of the transposition of the ECN+ Directive into Estonian law, the Estonian Competition Authorities’ (“CA”) analysis of the 2020 pharmacy reform, investigation of a potential grain cartel and CA’s analysis of the food market.
Transposition of ECN+ Directive[1] into Estonian law
Although Member States had to transpose the ECN+ Directive in national law by 4 February 2021, Estonia has yet to do so. After several delays and contrasting views, the Estonian government finally initiated the amendment of the Estonian Competition Act and related laws to transpose the ECN+ Directive into Estonian law (“Draft Law”) at the Estonian Parliament (Riigikogu) this February, i.e., February 2024. According to the Draft Law, the amendments are set to take effect on 1 June 2024, however, the Draft Law is still pending at Riigikogu.
The current legal framework in Estonia provides that anti-competitive agreements are classified as crimes (punishable by pecuniary punishment and imprisonment), and abuses of dominance and other competition offenses, such as failure to obtain a merger clearance, are treated as misdemeanours (punishable by a fine). In addition, CA may issue precepts (in Estonia: ettekirjutus) ordering an undertaking to carry out a certain act or to cease violations of the law. If the undertaking fails to comply with the precept, CA may issue penalty payments (in Estonian: sunniraha).
The Draft Law introduces a new competition field-specific administrative procedure (in Estonian: konkurentsijärelevalvementlus) to be carried out by CA which will replace the current system in Estonia (including the criminal proceedings applicable to anti-competitive agreements). CA will oversee competition law compliance, but as a result of the recent political compromise, fines for any competition law violations will be determined and imposed by the administrative court, rather than by CA itself. For a competition violation, undertakings may be fined up to 10% of their overall global turnover generated in the preceding financial year. Whereas, procedural measures typically associated with criminal investigations, such as surveillance and detention, cannot be applied in the new special administrative procedure.
The Draft Law proposes considerable changes to the current competition law enforcement system and remains a topic of intense debate among practitioners, enforcers, and other interest groups. As of the date of this article, the Estonian Chancellor of Justice and the Estonian Supreme Court, among others, have submitted additional opinions to Riigikogu expressing their concerns about the Draft Law. These concerns include constitutionality of certain provisions in the Draft Law and the lack of proper procedural regulation for the proposed new special administrative procedure. Therefore, it remains uncertain when and in what form the Draft Law will be passed by Riigikogu.
2020 Pharmacy Reform
In January 2024, CA published its ex post analysis[2] of the outcomes of the Estonian pharmacy reform (ownership restrictions) that entered into force on 1 April 2020. CA analysed the ways the reform had affected the pharmaceutical sales market with focus on the competition situation and independence of pharmacies. For this, CA surveyed a sample of 42 general pharmacies. In short, CA found that the pharmacy reform had not achieved its goals.
The aim of the Estonian pharmacy reform was to separate the retail and wholesale trade of medicines (in Estonian: ravimid)[3] by setting forth that only pharmacies where the majority is owned by pharmacists have the right to operate. In addition, wholesalers were not allowed to have a stake in or dominant influence over a pharmacy after 1 April 2020.
The analysis showed, however, that the pharmacies continue to be linked to the wholesale traders that previously owned them, e.g. via supply, franchise, sub-lease, or other arrangements. It was concluded that the desired effect of having independently operating pharmacies has not realized. Even after the reform, pharmacies continue to operate within established conditions, relying on various legal and economic factors, particularly on wholesalers and franchise owners.
In the analysis, CA made the following conclusions and recommendations:
- New regulation for medicine prices: the existing model for regulating medicine prices is ineffective. Although medicine prices are negotiated between the medicine manufacturer and the government, and wholesale and retail markups are regulated, CA’s spot analysis of manufacturers and wholesalers in 2020 revealed that manufacturers provide wholesalers significant discounts from the nationally agreed-upon prices. To ensure that these manufacturer discounts reach the retail level and ultimately benefit consumers, a better regulation needs to be developed and additional measures should be implemented to enhance price competition among wholesalers.
- Additional measures to ensure pharmacies’ independence: the current ‘dominant influence’ system is not working as it was supposed to as the pharmacies are still heavily reliant on the wholesalers through various contractual and other measures (such as leasing business premises from franchise owners, loan obligations, IT-systems). Therefore, the law should establish more precise and separate rules with particular attention to the contractual relationships that have evolved within the pharmacy sector after the reform. For example, addressing situations where the rights of use of the pharmacy’s business premises remain under the control of the franchise owner. CA also advises to implement a rule which prevents an individual from simultaneously being a member of the governing body of the legal entity that owns the pharmacy and being part of the group of owners or governing bodies of (or being otherwise closely linked with) the franchise owner, pharmaceutical manufacturer, wholesale distributor, or healthcare service provider.
- Additional requirements for pharmacy ordering systems: pharmacies use ordering systems to manage medicine supply. However, these systems seem to create a situation where ordering medicines from a single wholesaler is favoured, which gives such wholesaler an advantage over other potential wholesale channels. A possible solution would be to create an ordering system where all licensed wholesalers can interact on equal terms. Pharmacists should have an easy way to automatically compare offers from different wholesalers within the system.
- Additional competition law enforcement measures to CA: at present, CA has the authority to issue recommendations based on the market analysis that was carried out by the authority but CA does not have the authority to impose binding structural and behavioural requirements. Given the current debate in other EU Member States regarding whether competition authorities should have the legal power to intervene even when no violation has been identified, granting such additional measures to CA should also be considered in Estonia. Such interventions by the CA would not be aimed at sanctioning undertakings but rather at reducing the behaviour or market power in order to enhance overall economic welfare and protect consumers.
CA’s analysis of food market
In the fall of 2023, CA carried out a brief market analysis of the food prices in Estonia[4]. The aim of the analysis was to identify whether there are any competition failures or significant unexplained changes in the food market, specifically whether there was any ‘greedflation’. CA sought to (i) better understand how the prices of food products sold in Estonia have changed in the past three years; (ii) determine the factors behind the price changes; (iii) asses whether the price fluctuations align with trends in the world market and regions close to Estonia; and (iv) determine whether Estonian agricultural producers, food manufacturers and retail stores have unjustifiably profited at the expense of consumers.
For this, CA analysed the changes in food prices and economic indicators of sector companies during the period of 2019 – 2023 with emphasis on agricultural producers, food industry and retail stores (vertical sector). In the analysis, CA used the publicly available information published by Statistics Estonia, Estonian Institute of Economic Research, Eurostat, and public financial reports from registered companies.
As a conclusion of the analysis, CA found that the food prices in Estonia have been influenced by international policies and market failures, and Estonian agricultural producers, food industry and retail stores have not excessively raised prices or earned unjustifiably large profits. Instead, factors such as the increase of global fuel and energy prices, the Ukrainian war, armed conflicts in Africa, climate change and associated extreme weather conditions have impacted the food prices.
Although, CA did not find that the Estonian agricultural producers, food manufacturers and retail stores had earned unjustifiably large profits from high price increases, CA stressed that it will continue to monitor the developments in the food market. CA stated that it will take measures to enhance its efforts against unfair trading practices to ensure that producers’ goods reach consumers on fair conditions and there exists fair competition between producers’ and retailers’ private level products.
Grain Cartel
The Prosecutor’s Office recently terminated criminal proceedings initiated in 2018 against several undertakings who were suspected of participating in a grain cartel. The proceedings were terminated under the opportunity principle (in Estonian: oportuniteedi põhimõte)[5] with the companies and individuals being required to pay a total of more than 300,000 euros as a pecuniary obligation. Criminal proceedings are still ongoing in respect to one individual. This case stands out as one of the largest cartel investigations of CA.
The investigation focused on six companies suspected of entering into anti-competitive agreements within the grain dryer market in relation to 2018 – 2019 subsidies from the Estonian Agricultural Registers and Information Board (PRIA). Undertakings had the opportunity to apply for investment support from PRIA, including funding for the purchase of grain dryers. As part of the application process, undertakings were required to submit at least three comparable price quotations to PRIA.
CA discovered that the price quotations submitted by these six companies were prepared within a short time frame of each other and looked visually very similar. This raised suspicions that the price quotations had been previously coordinated among the grain dryer sellers, indicating that they were not genuinely competitive.
Before the commencement of the next round of PRIA subsidy applications, CA, in collaboration with the police, carried out an extensive surveillance operation and searches at 12 locations – making it the largest competition-related search in Estonia to date. Based on the evidence gathered, the undertakings were filed with the suspicion of dividing the market for the sale of grain dryers and coordination of price quotations.
Since the undertakings under investigation constitute the majority of grain dryer sellers in Estonia, the alleged anti-competitive conduct had a significant impact on the market.
More information can be found from CA’s webpage here and CA’s 2022 annual report here.
Kaisa Üksik, Head of Competition Practice Group (Estonia) – Walles
[1] Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2019.011.01.0003.01.ENG&toc=OJ:L:2019:011:TOC
[2] Full text of the analysis can be found here: https://www.konkurentsiamet.ee/uudised/apteegireform-ei-ole-konkurentsi-ravimite-muugiturul-suurendanud
[3] As defined in § 2 of the Estonian Medicinal Products Act, English text available from here: https://www.riigiteataja.ee/en/eli/519012024002/consolide
[4] Full text of the analysis can be found here: https://www.konkurentsiamet.ee/uudised/apteegireform-ei-ole-konkurentsi-ravimite-muugiturul-suurendanud
[5] The decision not to prosecute based on the opportunity principle means that in the assessment of the prosecutor and the court the violations have taken place, but for various reasons, criminal punishment is not absolutely necessary.§ 202 of the Estonian Code of Criminal Procedure, English text available from here: https://www.riigiteataja.ee/en/eli/527122023006/consolide
by Ana Mayoral | Mar 8, 2024 | Niet gecategoriseerd
Green screens:
Ireland’s new FDI regime set to go live
Overview
In October 2023, the Irish Parliament signed into law the Screening of Third Country Transactions Act 2023 (“STCTA”). The new law is set to take effect in the second quarter of 2024 after a Ministerial Order is issued. Businesses investing in Ireland must take account of its provisions and ensure that necessary consents are sought where necessary.
The new law grants the Irish Government with powers to scrutinise acquisitions and investments of companies or assets based in Ireland where the acquisitions could give rise to national security considerations. The new regime will operate alongside the existing merger control provisions, meaning some transactions will require approvals under each system of controls.
Key features of the STCTA are as follows:
- STCTA gives further effect to Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union.
- The legislation encompasses both share and certain asset purchases which may affect public order or national security in Ireland;
- STCTA catches only acquisitions made by persons or entities based in “third countries” outside of the EEA. The meaning of this term is fleshed out below.
- For the first time, there will be a positive obligation to notify certain transactions which have that effect to the Minister for Enterprise, Trade and Employment (“Minister”). Failure to notify when required to do so may result in the transaction being legally void and without effect or may constitute a criminal offence;
- The Government may impose certain conditions on an acquisition, unwind steps already taken or block an acquisition completely;
- While the legislation is principally motivated by mitigating the risk of foreign control over sensitive assets or activities, its scope is not limited to transactions where there is a foreign buyer. There is also no de minimis excluding transactions below a certain size or value.
As discussed below, STCTA provides stringent penalties with non-compliance.
When does the STCTA take effect?
As mentioned above, STCTA will take effect on the issuance of a Ministerial Order, expected in Q2 of 2024. This would presumably mean between April and August of 2024.
A surprising aspect of the STCTA is that the Minister may call in deals which completed up to 15 months prior to the entry of the STCTA. After entry into force, (s)he will be able to review transactions concluded either in the five years leading to the date of the review or six months from when (s)he became aware of the transaction, whichever is later.
What type of transactions are potentially reviewable?
The Act potentially applies to any acquisition, agreement or other economic activity which leads to a third country national:
- acquiring all or part of, or an interest in, an undertaking in Ireland. An “undertaking in Ireland” is where (a) it is constituted or otherwise governed by the laws of Ireland, or (b) has its principal place of business in Ireland. This threshold may be met where a third country purchase alters the percentage of shares or voting rights (a) from 25% or less to more than 25%, or (b) from 50% or less to more than 50%
- change in control of an asset which is either physically located in Ireland or otherwise owned, controlled or otherwise in the possession of an undertaking in Ireland).
This means for example that there may be a relevant transaction where a third country purchaser acquires a controlling interest or a significant quantity of shares in an Irish registered company which runs data centres (perhaps the Irish subsidiary of a multinational group) (as an example of (i) above). Alternatively, if that company bought one or a number of data centres in Ireland from that company the transaction could still be in scope (as an example of (ii)).
Helpfully, STCTA does not apply to internal reorganisations or restructuring within the same corporate group. That exemption is available even in relation to multinational groups where ownership may be transferred to a third country group member. STCTA would be triggered however if there was a subsequent transaction which took ownership or control of the Irish entity outside of the group to a third country person or undertaking.
Are all such deals notifiable?
It will come as a relief to investors that the answer is no. First, the value of the threshold must exceed €2,000,000 (or such other amount as the Minister may dictate from time to time.
Second, the target asset or undertaking must first relate to one of the relevant sectors or activities specified at Article Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, the following. These include the following:
- Critical infrastructure, which includes energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities, including the land/real estate used crucial for the use of such infrastructure;
- Critical technologies and dual use items, such as artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, nanotechnologies and biotechnologies;
- Supply of critical inputs, including energy or raw materials, as well as food security;
- Access to sensitive information, including personal data or the ability to control such data; and
- The freedom and pluralism of the media: amassing too many media outlets creates a risk that news and current affairs will be reported in support of a particular interest or point of view, which in turn is harmful to democracy.
The choice of categories relates directly to the risk of harm to the national interest. For example, if an enemy state were to obtain ownership of a security contractor which had access to Irish Government buildings, that may enable it to access sensitive information related to the national interest. In a similar way, controlling critical inputs could allow a hostile foreign government to exercise leverage over the state government.
Mandatory notification and call-in
All parties to the deal have an obligation to file notifiable transactions no later than ten days’ prior to completion. As referenced below, failure to do so may lead to strict penalties.
The filing must set out key information about the transaction, such as details of the parties and their respective turnover, the value of the deal, products and services affected (in particular those to which the target undertaking or asset relates). The parties must take care to ensure the accuracy of information set out in the filing.
The Minister has sweeping powers to call in and examine any deal which is “notifiable” according to the criteria above. To commence a review, the Minister must consider that the deal would affect or be likely to affect security public order in Ireland. The power may be exercised regardless of whether or not the deal has been notified to the Minister.
Once the decision has been taken to screen the transaction, the Minister will consider whether the transaction will affect security or public order, paying particular attention to the factors listed in Section 13.
Failure to make timely notifications may result in strict penalties. These may include fines of up to €4 million and/or a term of imprisonment of up to 5 years (for conviction on indictment). Similar penalties may result from providing false or misleading information in any filing or otherwise in the course of a review or investigation.
What is meant by “third country”?
A “Third Country” includes any state other (i) Ireland (the State), (ii) an EEA Member State or (iii) a contracting party to the Agreement referred to in 2(1)(C) of the Act (Austria, Finland, Iceland, Liechtenstein, Norway and Sweden) or (iv) Switzerland.
For the purposes of STCTA, an acquisition has a “third country” dimension where it is effected by a third country national or undertaking, defined as follows.
- Third country national – either (i) a natural person habitually resident in a third country or (ii) an unincorporated group or partnership of national persons at least one of whom is habitually resident in a third country
- Third country undertaking –an undertaking governed by (i) the law of a third country, or (ii) controlled by at least one director, partner or member or other person who is a third country undertaking or a third country national.
Perhaps surprisingly, this definition classifies the UK as a third country, notwithstanding the proximity of the two countries and the existence of the UK-Ireland common travel area. The same is true for the USA despite the strong traditional and cultural links that country enjoys with Ireland. UK and US investors may therefore fall within the definition of third country nationals or undertakings. Consequently, they must therefore take account of STCTA when making acquisitions in the jurisdiction.
How long does the review process last?
As soon as practicable after beginning the review of the transaction, the Minister must address to the parties a “screening notice” in writing. Thereafter, a “screening decision” must be finalised within 90 days from the date on which the screening notice in relation to the transaction is issued. The review timetable can be extended to 135 days.
These timelines may be suspended by the Minister where a request for information is addressed to the parties in furtherance of the review but comprehensive replies have not been received within a reasonable time frame.
The issue of a screening notice compels the parties to refrain from completing the transaction or taking any further steps towards completion pending the Minister reaching a final decision as to whether or not to approve the transaction.
If the transaction has already completed, the Minister is empowered to take such steps as may be considered necessary in order to safeguard national security or public order within Ireland. This may include an order to sell the undertaking or asset(s) which have been acquired, thereby undoing the deal. In such a scenario, the market will be aware that the sale is distressed and the acquirer bears a significant risk of recouping less than the purchase price from the re-sale.
Judicial review
At the culmination of the review, the Minister will reach a “screening decision” either approving or prohibiting the transaction (or potentially approving it subject to conditions). It may be possible for the parties to contest the Minister’s ultimate decision before an internal adjudicator and then before the Irish High Court.
STCTA provides that the parties may, within 30 days from the time they are informed of the screening decision, notify the Minister that they plan to appeal. After giving notice to the Minister, the appellant has 14 days to present the appeal to the adjudicator. An adjudicator’s decision may be appealed to the High Court on a legal issue.
The Act makes it clear that judicial review may be applied to either or both the Minister’s screening decision and the adjudicator’s determination.
Co-existence with competition regime
The STCTA will run alongside the existing Irish merger control regime set out in the Irish Competition Act 2002, as amended by the Competition (Amendment) Act 2022, the focus of which is to protect competition in Ireland rather than public order and security. The merger control regime is administered by the Competition and Consumer Protection Commission (“CPCC”) in Dublin.
The CPCC recently issued its annual report on merger control in Ireland, which is available here: https://www.ccpc.ie/business/wp-content/uploads/sites/3/2024/01/Merger-Report-2023.pdf .. In February 2024, the CPCC acted decisively to declare invalid a merger between Lloyds Pharmacy and McCabes after the CPCC concluded the parties had not responded fully to a request for information about the merger.
Under Section 18(1)(a) of the Competition Act, a merger or acquisition must be notified to the CCPC if:
- the parties have a combined Irish turnover of at least €60 million; and.
- at least two of the parties have an individual Irish turnover of at least €10 million.
Strict anti-gun-jumping rules apply in the Republic of Ireland which prohibit the parties from completing on notifiable transactions which require CPCC approval. Gun-jumping is a criminal offence (and has previously been prosecuted as such). Non-compliance may be punished with fines of up to €250,000.
How to deal with call-in risk in transactions?
The parties should be particularly aware that any attempted completion of a deal that falls within the scope of the mandatory notification duty (either under the STCTA or Competition Act) will be void if clearance is not obtained.
From the perspective of the buyer, that means that completion of any relevant relevant deal should be made conditional on obtaining clearance. The buyer will not wish to commit itself to completing a transaction which may turn out to be illegal and void. The STCTA legislation appears to indicate that this may also be a risk for the seller.
The buyer should consider if warranty protections are appropriate. For example, the buyer may rely on the seller’s judgment as to whether or not the target’s activities bring it within one or more of the seventeen listed categories. Seeking a warranty as to the accuracy of that assessment will provide the seller with some comeback if the deal is ultimately called in. Perhaps even more importantly, the agreement should contain obligations for the parties to both cooperate with the Minister (and each other) if a screening notice is issued.
Regarding the STCTA, there may be a temptation- to think its application is restricted to transactions involving foreign investment from a hostile state or those relatively rare cases where the target’s activity is closely linked to sensitive matters of state (e.g. services to the military or intelligence services). As we have seen, investments from the UK and US are potentially caught. National security issues may not always be clear cut however and the parties would do well to reflect on these carefully before decisions.
Paul Henty, Partner
Beale and Company Solicitors LLP
by Ana Mayoral | Feb 1, 2024 | Niet gecategoriseerd
Introduction:
This Article aims to provide an overview on the recent preliminary reference initiated by the Portuguese Competition Court within the purview of various legal proceedings pertaining to decisions rendered by the Portuguese Competition Authority (“PCA”), all in the context of antitrust procedures.
These decisions dismissed numerous procedural invalidities and irregularities alleged by three different companies following apprehensions and investigations of electronic messages conducted by the PCA and previously authorized by the Public Prosecutor’s office, with a view of gathering evidence of Competition Law infringements in violation of Articles 101 and 102 TFEU, and Articles 9 and 11 of the Portuguese Competition Law.
Legal Background:
In accordance with the Portuguese Competition Law (Law n.º 19/2012), the PCA has the power to conduct the analysis, collection, and apprehension of documents, regardless of their format, provided such proceedings are authorized by the proper “Judiciary Authority”.
The companies subject to the apprehensions challenged their validity before the Portuguese Competition Court, primarily on the basis that the seized documents should fall under the concept of “correspondence”.
This argument stems from the fact that the Portuguese Competition Law in Articles 18(c) and 20(1) only expressly provides for the apprehension of “documents”, prompting discussions within the Portuguese legal system about the concept of “mere document” and “correspondence” and the guarantees associated with the two classifications.
Until very recently, the Portuguese Courts had held in general, with few exceptions, that the documentation obtained by the PCA as a result of electronic communications already received/read by the recipient did not qualify as “correspondence”, given that the PCA did not interfere with the communication process.
Therefore, they were not entitled to a higher level of protection, in light of Article 34 of the Portuguese Constitution, which only allows judicial interference in correspondence in criminal proceedings and provided that such interference is authorized by the proper “Judicial Authority”, in the case, the Juiz de Instrução, i.e. a judge with powers to supervise the criminal investigations. Hence, the legality of apprehensions of “documents”, insofar they were authorized by the Public Prosecutor’s Office, was continuously validated by the Portuguese Courts.
However, in two different rulings rendered in March and April of 2023, the Portuguese Constitutional Court, departed from this judicial trend, by ruling that the distinction between open/read and closed/unread emails was irrelevant, as both categories are “correspondence” and, as such, requiring the same level of constitutional protection as stipulated by Article 34 of the Portuguese Constitution.
This higher Court ruled that an email retains constitutional protection as long as it is stored in a place where only the recipient of the message has access, contending that the apprehension of such electronic messages requires validation and authorization from the Juiz de Instrução.
Consequently, in the two cases at hand, the interpretation of the Portuguese Competition law, suggesting the Public Prosecutor’s office as the competent authority to authorize the apprehension of emails, was deemed illegal and invalid.
These Constitutional Court decisions hold substantial importance, given that abstract reviews of the unconstitutionality of a rule can be requested when the Constitutional Court deems it unconstitutional in specific instances.
Preliminary Reference:
Considering this context, the Portuguese Competition Court decided to refer several questions to the Court of Justice seeking, in essence, whether the apprehension of emails carried out by the PCA, previously authorized by the Public Prosecutor’s office without the interference of the Juiz de Instrução is aligned with the EU laws, including with Article 7 of the Charter of Fundamental Rights of the European Union.
In detail, the questions issued by the Portuguese Competition Court in this preliminary reference were the following:
“1. Are the professional documents in question, sent via email, “correspondence” within the meaning of Article 7 of the Charter of Fundamental Rights of the European Union?
- Does Article 7 of the Charter of Fundamental Rights of the European Union preclude the apprehension of professional documents resulting from communications between company directors and employees via email addresses, when the investigation is concerned with agreements and practices prohibited under Article 101 of the TFEU (formerly Article 81 of the EC Treaty)?
- Does Article 7 of the Charter of Fundamental Rights of the European Union preclude the apprehension of such professional documentation, with the prior authorization of a judicial authority, in this case the Public Prosecutor’s Office, which is responsible for representing the State, defending the interests determined by law, exercising criminal action guided by the principle of legality and defending democratic legality, under the terms of the Constitution, and which acts autonomously in relation to the other bodies of central, regional and local power?”
The undertakings targeted in the anti-trust proceedings invoked different lines of argumentation. In essence, all recognize that EU law does not impose a specific entity to conduct these proceedings and, thus, in so far as the principles of equivalence and effectiveness are respected, it is up to the internal legal order of each Member State to designate the competent authorities (judicial or other) required to specifically authorize the apprehensions of the emails (correspondence). That is the direct consequence of the herein applicable principle of procedural autonomy of Member States.
In this context, the undertakings likewise underline that the level of protection they claimed – the need of the intervention of a Judge – does not compromise the level of protection afforded by the Charter and, in fact, is more protective of the fundamental rights at stake.
In summary, the undertakings targeted claim that if in this issue the Member States have procedural autonomy, their actions are not entirely determined by the EU law. Given that the Portuguese solution requiring the intervention and authorisation by the Juiz de Instrução, supported by the Constitutional Court, does not jeopardise the level of protection of the Charter, nor the primacy, unity and effectiveness of EU law, it is a valid solution conforming with UE laws.
Critical Analysis:
The outcome remains uncertain. The Court of Justice could adopt a more conservative stance, asserting that this issue falls within the purview of national laws due to the procedural autonomy of Member States. Alternatively, it may take a more interventionist approach by offering a set of guidelines for the referring court to follow, opening the door for upholding the legality of the apprehension of the emails by the Public Prosecutor’s Office and, consequently, the sanction decisions issued by the PCA in the past.
This preliminary reference marks another step in the ongoing struggle of companies targeted in anti-trust proceedings, now fortified with a clear stance and support from the Constitutional Court, against the unlawful apprehension of emails.
If the Constitutional Court issues another ruling in a specific analogous case, declaring that the interpretation and practice endorsed by the Portuguese Competition Authority, supported in the apprehension of emails authorized by Public Prosecutor’s Office, the contradicts the Constitution, it will render that interpretation unconstitutional with binding and general force.
This outcome would invalidate all emails seized without the involvement of the Juiz de Instrução in the context of pending anti-trust proceedings, deeming them as inadmissible evidence. Given that a substantial portion of the evidence in these proceedings is comprised of emails, it seems obvious that the majority of PCA’s decisions currently challenged under the various appeal cases would become highly uncertain, to say the least.
As of the moment, the appeal cases are stayed awaiting the finale of this ultimate deadlock.
Lisbon, January 2024
Armando Martins Ferreira / João Nobre Garcia / Mariana Costa Pereira
