A preliminary reference by the Portuguese Competition Court: (Un)lawful apprehension of emails in antitrust proceedings?

A preliminary reference by the Portuguese Competition Court: (Un)lawful apprehension of emails in antitrust proceedings?

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?

  1. 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)?
  2. 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

Joint bids by bus companies found to be illegal horizontal cooperation in Finland

Joint bids by bus companies found to be illegal horizontal cooperation in Finland

Introduction

In accordance with the well-established main rule, a bidding consortium does not restrict competition if it allows the parties to participate in projects that they would not be able to undertake individually, e.g., due to the size or complexity of the project. In its decision of 22 November 2023, the Finnish Market Court interpreted this rule strictly and decided that certain bus companies were not allowed to submit a joint bid since they were potential competitors. Six bus companies participating in the bidding consortium were imposed penalty payments in amounts ranging between EUR 120,000 and 380,000, in total EUR 1.5 million.

Background

In the early 2010s, local bus transport was opened up for competition in accordance with Regulation (EU) No 1370/2007 on public passenger transport services by rail and by road. In this context, the City of Turku together with surrounding municipalities in Southwest Finland organised public tender processes under the Regulation.

Six bus companies, which already owned a joint company Turun Linja-autoilijain Osakeyhtiö (“TLO”), decided that TLO shall participate in two public tender processes in 2013 and 2014 on behalf of the companies. In both tender processes, only one competing tender was submitted.

Four of the six companies established also another joint company LS-Liikennelinjat Oy (“LSL”), which participated in a tender process organised in 2016. In this tender process, two competing tenders were submitted, one of which was submitted by the largest company among the owners of TLO.

 Position of the Competition and Consumer Authority

The Finnish Competition and Consumer Authority (“FCCA”) considered that the six bus companies were potential competitors and, therefore, the joint bids consisted in a restriction of competition. According to the FCCA, the companies could have, with certain exceptions, submitted individual tenders. Therefore, Article 101 TFEU (and the corresponding Section 5 of the Finnish Competition Act, 948/2011 as amended) prohibited the cooperation in the form of bidding consortia.

According to Chapter 5.4 of the Commission’s Horizontal Guidelines (Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, 2023/C 259/01), a bidding consortium agreement does not restrict competition within the meaning of Article 101(1) if it allows the parties to participate in projects that they would not be able to undertake individually. In that scenario, the parties to the bidding consortium agreement are neither actual nor potential competitors for the implementation of the project.

Based on the investigation, the FCCA made a proposal to the Finnish Market Court to impose a fine of EUR 1.9 million on the bus companies. (In Finland, the FCCA may not impose fines. Instead, the Market Court decides, as a first instance, on the existence of an infringement and the consequences thereof.)

Position of the bus companies

The bus companies’ main argument was that separately they were all too small to be able to submit tenders. The annual turnover of the companies varied between EUR 2.5 and 7 million except one which generated annual turnover of approx. EUR 30 million.

The bus companies argued that none of the companies had buses or drives available, i.e. buses which would not already have been reserved for the service of existing contracts and other operations. Thus, the participation in the tender processes (or some parts of them) would have required an investment in at least five new buses as well as the hiring of new employees. The companies should also have invested in depots. Also, the largest company participating in TLO argued that the company was fully occupied with obligations based on other recently concluded service contracts and could not have submitted an independent tender.

Further, the bus companies submitted that including necessary investment costs in the separate tenders would have resulted in considerably higher prices than a joint tender, which enabled flexible use of existing resources. Possible new investments could have been made by the joint company (TLO/LSL) instead of the individual companies. The risks involved in the investments were aggravated by the conditions, according to which the contracting authorities preserved the right to make changes to the routes and service frequency during the contract period.

Decision of the Market Court

The Market Court stated, first, that TLO and LSL were not full-function joint ventures (to be assessed under the merger control rules) since they could not discharge the obligations under the contracts autonomously. Instead, they were dependent on the resources of the owners which operated most of the routes included in the contracts concluded by TLO and LSL.

The Market Court also found that it was a common practice in the bus transport sector that bus companies invest in new vehicles after having been awarded the contract and that the risks involved in the contracts were not exceptional in nature. The Market Court also confirmed the FCCA’s position that the companies were – with some exceptions – able to carry the risks involved in the required investments.

As regards efficiency gains, the Market Court noted that the bidding consortia could have produced cost savings and economies of scale. However, this line of argumentation was rejected by the Market Court, since the bus companies had not demonstrated that the restrictions on competition were necessary in order to achieve the efficiency gains or that the companies had considered different options in order to find the measures which had the least restrictive effect on competition on the relevant market.

Conclusions

The Market Court’s judgment confirms that actual or potential competitors must exercise utmost care when considering the participation in a bidding consortium even in cases where the individual companies do not have all required resources for implementing the project at the time of the tendering. The Market Court’s assessment of the existence of potential competition may be seen as rather strict since, according to the judgment, potential competitors are not allowed to submit a joint tender e.g. in order to reduce the risks involved in the investments that are necessary in order to fulfil the contractual obligations, or to submit a more competitive tender (unless they manage to satisfy the test of Article 101(3) TFEU).

It might be seen as problematic that competition law prescribes, under penalty of a heavy fine, the risk level and investments companies are required to assume when submitting tenders and, thus, driving the price level up which is in contrast with the general aim of the procurement rules. The concept of “potential competitors” has been developed to determine whether companies operate on the same relevant market rather than to be used for assessing whether it is reasonable, from commercial perspective, to assume the risk involved in the proposed contract and investments required.

However, in the interpretation of the decision the specific circumstances of the case must be taken into account, which may (at least to some extent) in this case explain the strict findings of the Market Court. First, the tendering processes took place during a period when the public transport market was being opened up for competition. It appears from the facts of the case, that one of the reasons for submitting the joint tenders was an intention of the six bus companies to continue business as before, i.e. avoid changes in the market situation, thus, indicating cartel behaviour. Second, it was not established that the participation of all the six companies (or four companies in case of LSL) was necessary in order to obtain the efficiency gains and necessary resources for the operation of the routes in question. Alternatively, the companies could have formed bidding consortia consisting of two or three companies.

Sami Hartikainen

Czech NCA fines Austrian furniture retailer for breach of commitments tied to a concentration

Czech NCA fines Austrian furniture retailer for breach of commitments tied to a concentration

Czech NCA fines Austrian furniture retailer for breach of commitments tied to a concentration

The Czech Office for the Protection of Competition fined XLCEE-Holding GmbH, an Austrian furniture retailer, CZK 20,324,000 (approx. EUR 824,000) for not fulfilling its commitments tied to a concentration between undertakings. The decision is not definitive as it has been challenged through an appeal.

In mid-2023, XLCEE-Holding GmbH faced a decision from the Office for the Protection of Competition that imposed a significant fine of CZK 20,324,000 (approx. EUR 824,000) on XLCEE-Holding GmbH for its breach of commitments related to the concentration between undertakings. Specifically, XLCEE-Holding GmbH sought exclusive control over Kika Nábytek s.r.o. and Lambda Properties Czechia s.r.o., entities engaged in furniture and home accessory retailing under the Kika brand. This concentration formed part of a broader transaction encompassing Kika’s operations in Slovakia, Hungary, and Romania.

The genesis of this substantial fine traces back to 2019 when XLCEE-Holding GmbH pursued approval from the Office for a concentration of Kika Nábytek s.r.o. and Lambda Properties Czechia s.r.o. At that time, XLCEE-Holding GmbH operated the XXXLutz and Möbelix retail chains in the Czech Republic.

At an initial administrative stage, the Office identified significant concerns regarding potential competition issues, particularly within the Pilsen Region (located in the western part of the Czech Republic). To address these apprehensions, XLCEE-Holding GmbH offered commitments aimed at alleviating anti-competitive effects. One such commitment entailed divesting a retail outlet in the Pilsen Region to an independent entity, distinguished from XLCEE-Holding GmbH. The Office acknowledged this commitment, mandating its fulfilment as a precondition for approving the concentration.

Given that XLCEE-Holding GmbH failed to meet its obligation to sell the retail store in the Pilsen Region, further administrative proceedings were triggered. According to the Office, the endeavour of XLCEE-Holding GmbH to find a buyer was insufficient.

When imposing the fine, the Office recognized that finding a suitable buyer and implementing the acquisition process might have been made more difficult by the course of the global COVID-19 pandemic. However, despite acknowledging these difficulties, the Office proceeded with the fine, underscoring the stringent adherence to regulatory commitments even amidst external adversities.

Pierstone

New powers of the European Commission to control the concentration of undertakings in connection with the provisions of Regulation (EU) 2022/2560 on subsidies distorting the internal market

New powers of the European Commission to control the concentration of undertakings in connection with the provisions of Regulation (EU) 2022/2560 on subsidies distorting the internal market

New merger control powers of the European Commission under the Foreign Subsidies Regulation

In recent years, the European Union’s legislative bodies have drafted new laws to combat the potential influence of third countries on proper functioning of the internal market. The regulatory measures have introduced a mechanism for examination and control by the European Commission of subsidies granted by third countries for planned economic activity in the EU of publicly or privately owned undertakings.

Legal framework

Work lasting until mid-2021 resulted in adoption of Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (known as the Foreign Subsidies Regulation or FSR). The FSR entered into force on 12 January 2023, but most of its provisions began to take effect on 12 July 2023. The FSR introduced new obligations for undertakings benefitting from subsidies from third countries (i.e. countries outside the EU) which could give them a competitive advantage on the EU’s common market. In particular, the regulation introduced special rules and procedures for oversight of public procurement procedures and concentrations of undertakings.[1] The rules in this area took effect recently, from 12 October 2023. Detailed rules governing proceedings based on the FSR were adopted in Commission Implementing Regulation (EU) 2023/1441 of 10 July 2023 on detailed arrangements for the conduct of proceedings by the Commission pursuant to Regulation (EU) 2022/2560.

Aim of the FSR: a level playing field for competitors in the internal market

Foreign subsidies can negatively impact and disrupt equal terms for doing business by undertakings on the EU’s internal market, thus harming competition within the EU.

The FSR was designed to close a loophole, because none of the existing laws[2] had solved the problem of subsidies from third countries distorting competition in the EU. By contrast, subsidies from EU member states have been (and continue to be) subject to strict control based on the EU’s state aid rules.[3]

Thus, on one hand the FSR introduces new legal instruments needed to eliminate such distortions of the internal market, in order to ensure equal footing for business operations. On the other hand, the FSR imposes new duties on undertakings subsidised by third countries seeking to operate in the EU, where the subsidies they have received allow them to obtain a competitive advantage on the EU’s common market.

 

As pointed out in the FSR, foreign subsidies can distort the internal market and undermine the level playing field for various economic activities in the Union. This could in particular occur in the context of concentrations entailing a change of control over Union undertakings, where such concentrations are fully or partially financed through foreign subsidies, or where economic operators benefiting from foreign subsidies are awarded contracts in the Union. Hence the introduction of control mechanisms enabling the Commission to examine the origin of funds giving a competitive advantage to foreign undertakings taking part in concentrations or seeking the award of public contracts, and to respond appropriately to ensure fair and consistent conditions for undertakings doing business on the internal market.

Definition and categories of foreign subsidies

A foreign subsidy shall be deemed to exist where a third country provides, directly or indirectly, a financial contribution which confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries.

In turn, the regulation provides for a broad, open-ended understanding of the notion of a “financial contribution,” covering a wide spectrum of support measures, not just cash transfers. Under FSR, examples of financial contributions include:

  • Transfer of funds or liabilities, such as capital injections, grants, loans, loan guarantees, fiscal incentives, setting off of operating losses, compensation for financial burdens imposed by public authorities, debt forgiveness, debt-to-equity swaps, or rescheduling
  • Foregoing of revenue that is otherwise due, such as tax exemptions or the granting of special or exclusive rights without adequate remuneration
  • Provision of goods or services or purchase of goods or services.

Significantly, financial contributions should be understood to cover contributions by the central government or public authorities at any other level, a foreign public entity whose actions can be attributed to the third country, or a private entity whose actions can be attributed to the third country. These restrictions also apply to international undertakings established in the EU but receiving subsidies from countries outside the EU.

Such subsidies are subject to the regulation if they could (even potentially) distort competition within the EU. This means that the subsidy could improve the competitive position of an undertaking on the internal market, and thus negatively impact the existing competition on the market. The FSR includes an open-ended list of indicators for distortion of the internal market, such as:

  • The amount of the foreign subsidy
  • The nature of the foreign subsidy
  • The situation of the undertaking, including its size and the markets or sectors concerned,
  • The level and evolution of economic activity of the undertaking on the internal market
  • The purpose and conditions attached to the foreign subsidy as well as its use on the internal market.

 

The FSR identifies categories of foreign subsidies most likely to distort the internal market, including:

  • A foreign subsidy directly facilitating a concentration
  • Subsidies involving:
    • Support for ailing undertakings (without a long-term restructuring plan in place)
    • An unlimited guarantee for the debts or liabilities of the undertaking (i.e. without limitation as to amount or duration)
    • Financing measures not in line with the OECD Arrangement on officially supported export credits
    • Submission of an unduly advantageous tender.

Conversely, a foreign subsidy is not considered to distort the internal market when:

  • It is aimed at making good the damage caused by natural disasters or other exceptional occurrences, or
  • The total amount of a foreign subsidy to an undertaking does not exceed EUR 200,000 per third country over any consecutive period of three years.

Additionally, if the total amount of a foreign subsidy to an undertaking does not exceed EUR 4 million over any consecutive period of three years, such a subsidy is unlikely to distort the internal market.

Concentrations subject to notification and control

Provisions of the FSR applies to the following transactions, defined as “concentrations,” where a change of control on a lasting basis results from any of the following:

  • Merger—the merger of two or more previously independent undertakings or parts of undertakings
  • Acquisition of control—the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertaking
  • Joint venture—the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.

The requirement of pre-merger notification applies to concentrations meeting both of the following turnover criteria:

  • At least one of the merging undertakings, the acquired undertaking, or the joint venture is established in the EU and generates an aggregate turnover in the EU of at least EUR 500 million
  • The undertakings participating in the concentration were granted combined aggregate financial contributions of more than EUR 50 million from third countries in the three years preceding conclusion of the agreement, announcement of the public bid, or acquisition of a controlling interest (in the case of an acquisition, the acquirer(s) and the acquired undertaking; in the case of a merger, the merging undertakings; in the case of a joint venture, the undertakings creating the joint venture, and the joint venture itself).

Exclusions from the notification obligation

In certain instances, even when the notification criteria above are met, the FSR excludes the notification requirement, deeming no concentration to have occurred. This applies to:

  • Temporary holding of securities by financial institutions for resale (when credit institutions or other financial institutions or insurance companies, the normal activities of which include transactions and dealing in securities for their own account or for the account of others, hold on a temporary basis securities which they have acquired in an undertaking with a view to reselling them, provided that they do not exercise voting rights in respect of those securities with a view to determining the competitive conduct of that undertaking or provided that they exercise such voting rights only with a view to preparing the disposal of all or part of that undertaking or of its assets or the disposal of those securities and that any such disposal takes place within one year of the date of acquisition)
  • Acquisition of control in bankruptcy or arrangement proceedings (when control is acquired by an officeholder according to the law of a member state relating to liquidation, winding up, insolvency, cessation of payments, compositions or analogous proceedings)
  • Operations by holding companies only to maintain the full value of their investments (i.e. acquisition of control carried out by financial holding undertakings,[4] provided that the voting rights in respect of the holding are exercised, in particular in relation to the appointment of members of the management and supervisory bodies of the undertakings in which they have holdings, only to maintain the full value of those investments and not to determine directly or indirectly the competitive conduct of those undertakings).

Investigative powers of the Commission and interim measures

The European Commission has broad investigative authority to review concentrations of undertakings involving foreign subsidies, and is the only body authorised to enforce the Foreign Subsidies Regulation. This approach is designed to ensure consistent impacts of the Commission’s actions across the entire internal market.

On its own initiative (ex officio), the Commission may take the following actions:

  • Examine information from any source (e.g. member states, a natural or legal person or a trade association) regarding alleged foreign subsidies distorting the internal market
  • Conduct necessary inspections of undertakings and associations of undertakings in EU member states—officials authorised by the Commission to conduct an inspection, assisted by officials and other persons authorised or appointed by the member state in whose territory the inspection is to be conducted, shall be empowered to:
    • Enter any premises, land and means of transport of the undertaking or association
    • Examine books and other business records, irrespective of the medium, obtain copies of documentation, and seal any business premises and books or records for the period and to the extent necessary for the inspection
    • Ask any representative or member of staff of the undertaking or association for explanations of facts or documents relating to the inspection, and record their answers
  • Conduct a market investigation into the particular sector or the particular type of economic activity, and require the undertakings or associations concerned to supply the necessary information
  • Demand information for pending proceedings not only from the parties, but also from other undertakings or associations of undertakings, or from member states or third countries
  • Interrogate natural or legal persons (with their consent) to gather information concerning the proceeding.

The Commission is also authorised to conduct inspections in the territory of a third country, provided that the government of the third country is officially notified and raises no objection to the inspection.

As a rule, review of concentrations under the FSR is ex ante—notifiable concentrations shall be notified to the Commission prior to implementation. However, the Commission itself may also request prior notification of any concentration that does not meet the notification criteria at any time prior to implementation, where the Commission suspects that foreign subsidies may have been granted to the undertakings concerned in the three years prior to the concentration.

In addition, the Commission may conduct ex post review of a concentration meeting the notification criteria but not notified by the parties prior to implementation, or notified at the request of the Commission. If in such case the Commission finds that the concentration distorts the internal market, the Commission may require the participants to restore the situation prevailing prior to implementation of the concentration as far as possible (e.g. by unwinding the concentration, or if that is not possible, by ordering other appropriate measures).

Moreover, in necessary cases, the Commission may order interim measures to preserve competition in the internal market and prevent irreparable damage, when (i) there are sufficient indications that a financial contribution constitutes a foreign subsidy and distorts the internal market and (ii) there is a risk of serious and irreparable damage to competition on the internal market. The catalogue of interim measures is open-ended, and may include e.g. refraining from certain investments, or offering access to infrastructure (including research facilities, production capabilities or essential facilities) acquired or supported by the foreign subsidies distorting the internal market. Interim measures are adopted by the Commission in the form of a decision. The interim measures may apply for a specific period, which may be renewed as necessary, or until the final decision is taken.

Notification procedure, information to be provided, and possible determinations by the Commission

Notifiable concentrations should be notified to the Commission prior to their implementation and following conclusion of the agreement, announcement of the public bid, or acquisition of a controlling interest. A merger, acquisition of joint control, or creation of a joint venture shall be notified jointly by the parties to the merger or those acquiring joint control or creating the joint venture. In other cases, the notification shall be made by the person or undertaking acquiring control of the whole or parts of one or more undertakings.

As a rule, the parties to a planned concentration must refrain from implementing a concentration before notification, and until the Commission issues a decision or the time limit for issuing a decision lapses (suspension requirement).

The detailed procedures for making notifications and conduct of notification proceedings by the Commission are set forth in the implementing regulation. One of the annexes to the implementing regulation is the notification form that must be used in notifying a concentration (Form FS-CO).

The notification procedure is conducted in two stages. Following notification of the intended concentration by the obligated entities, the first stage, a preliminary review, is held. This should be completed within 25 working days. During this time the Commission will either close the proceeding, or issue a decision launching an in-depth investigation (second stage). This decision is based on the Commission’s determination of whether the undertaking has received a foreign subsidy, and if so, whether it could distort the internal market.

The in-depth investigation should be completed within 90 working days, but the Commission may extend it up to an additional 20 working days. If the parties to the concentration propose commitments to remedy the distortion of the internal market, the in-depth investigation will be extended by 15 working days. The time limits for both the first and second phase exclude periods where the Commission is waiting for the parties to make up shortcomings in the notification, or to submit additional information requested by the Commission.

During the in-depth investigation, the Commission will make a further assessment of the foreign subsidy, including a balancing test, weighing the negative effects of distortion against any positive effects on growth of the internal market, in line with relevant policy objectives of the EU.

After conducting the proceeding, the Commission may issue one of the following determinations:

  • A no-objection decision (if the distortion is outweighed by positive effects)
  • A decision with redressive measures or with commitments (if the measures will fully and effectively remedy the distortion)
  • A decision prohibiting the concentration, where the Commission finds that the foreign subsidy distorts the internal market.

The redressive measures or commitments may include the following (an open-ended list):

  • Offering access to infrastructure (research facilities, production capabilities, or essential facilities)
  • Reducing capacity or market presence
  • Refraining from certain investments
  • Licensing of assets acquired or developed with the help of foreign subsidies
  • Publication of R&D results
  • Divestment of certain assets
  • Requiring the undertakings to dissolve the concentration
  • Repayment of the foreign subsidy
  • Requiring the undertakings to adapt their governance structure.

The parties have a right to seek judicial review of Commission decisions issued under the Foreign Subsidies Regulation, pursuant to general rules.

If the parties to a concentration fail to notify a notifiable concentration prior to implementation, or implement a notified concentration before obtaining a decision from the Commission or in violation of a decision prohibiting the concentration, the Commission may impose a fine on the undertakings of up to 10% of their aggregate turnover in the preceding financial year. The Commission may also impose fines of up to 1% of aggregate turnover for submitting incorrect or misleading information to the Commission.

Andrzej Madała

Wardyński & Partners

 

[1] In relation to the existing regulations in this area, i.e. the EC Merger Regulation (Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings) and 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.

[2] The existing instruments for protection of trade enabled the Commission to act in the case of importation of subsidised goods into the EU, but not in a situation where foreign subsidies take the form of subsidised investments or involve financial services or financial flows (cf. WTO–GATT Agreement on Subsidies and Countervailing Measures, O.J. L 336 of 23 December 1994, under point 5 of which the EU can launch mechanisms to resolve inter-state disputes over certain foreign subsidies granted by WTO member states, but limited to goods). See also note 1 above.

[3] Under EU law, general rules on state aid are set forth in Art. 107 and 108 of the Treaty on the Functioning of the European Union, Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108, and Commission Regulation (EC) 794/2004 of 21 April 2004 implementing Council Regulation (EU) 2015/1589.

[4] Under Art. 2(15) of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, “financial holding undertakings” are defined as “undertakings the sole object of which is to acquire holdings in other undertakings and to manage such holdings and turn them to profit, without involving themselves directly or indirectly in the management of those undertakings, without prejudice to their rights as shareholders.”

Curia of Hungary put end to debated case-law issue – not meeting administrative deadlines by the competition authority does not prevent undertakings under investigation from being fined

Curia of Hungary put end to debated case-law issue – not meeting administrative deadlines by the competition authority does not prevent undertakings under investigation from being fined

 

In a recent resolution for the uniformity of law, the Curia – the supreme court of Hungary – confirmed the correctness of the position of the Hungarian Competition Authority (the “GVH”) on authority decisions taken after the administrative deadline of the investigation expired.

 The settled case law in administrative procedures

For decades the consistent jurisprudence about decisions made by public authorities after the technical expiry of the statutory time limit was that should the fact that the decision was taken after the expiration date not affect the merit of the case, it had no bearing on the legality of it. Thus, it was the case law that fines could still be imposed, regardless of the procedural violation by the proceeding authority. Generally speaking, this was applicable also in competition law cases.

The lead-acid battery case and its consequences

This case concerned two undertakings – and several related companies not being parties to the proceedings – who were major players in the market of collecting lead-acid batteries in Hungary.

Through its investigation, the GVH revealed that the undertakings had participated in discussions aimed at the creation of a consortium agreement on the collection of lead-acid batteries. GVH found that in the frames of the planned consortium, the undertakings had committed a single, complex and continuous infringement by aiming to restrict the competition from June 2013 to March 2014 by among others fixing prices, segmenting the market and exchanging strategic data.

The GVH imposed a total fine of HUF 112,520,000 (approx. EUR 360,000) on the undertakings for the infringement. The GVH decision was ultimately brought to the final judicial forum of Hungary (the Curia).

In light of the previous Constitutional Court decisions, the acting chamber of the Curia ruled (Judgement no. Kf.II.37.959/2018/14) against the previous jurisprudence: in a competition law procedure involving a criminal law element, applying a sanction or imposing a fine without extending the administrative deadline is to be seen as the violation of the right to a fair administrative procedure protected by the Constitution of Hungary (the “Alaptörvény”).

The GVH has criticized this interpretation of the law multiple times, often citing decision No. 25/2020 (XII. 2.) AB of the Constitutional Court regarding the Constitutional Court’s interpretation of the law relating to procedural time limits.

In the decision, the Constitutional Court held that in the application of the section of the Taxation Act on the reduction of tax fines and setting aside a tax fine, it is a constitutional requirement that in the course of imposing a tax fine the tax authority should consider ex officio the duration of making the decision. If the authority finds that its decision at first instance was taken after an unreasonably long period of time beyond the statutory time limit, it shall reduce the amount of the tax fine in proportion to the damage caused to the taxpayer or, in particularly justified cases, it may refrain from imposing it; this consideration shall be mentioned in the reasoning of the decision. In the decision the Constitutional Court also made the following finding:

With regard to the legal nature and other characteristics of the missed deadline, the Constitutional Court points out that it is an administrative, i.e. procedural deadline. Missing a time limit does not automatically mean that the possibility of obtaining a decision is lost. However, the right to be dealt with within a reasonable period of time limits the right to take action.”

In the light of the above, when fined undertakings took the GVH to court, challenging the decisions, they almost always invoked the precedent of the Curia judgement in the lead-acid battery case, claiming that any fine imposed after the administrative deadline is to be considered unlawful.

In the meantime, the Curia had clarified its position regarding time limits in decision Jpe.I.60.019/2022/9., stating “If the proceeding authority exceeds the time limit, the legal consequences are determined by whether the authority has exceeded a substantive or procedural time limit. If a substantive time limit is exceeded, the possibility of imposing a penalty is lost, unless otherwise provided by law. However, the failure to comply with procedural deadlines does not automatically result in the loss of the possibility to impose a sanction; in such cases, the extent of the failure to comply with the deadline and its impact on the fair administration of justice determine whether the sanction of a fine can be waived, the amount of the fine can be reduced or whether the fine as a legal sanction is not affected. ”

Despite the above, the lead-acid battery case still remained as a crutch for fined companies to rely on as precedent.

The clarification of the new jurisprudence and the X-ray machine cartel case

In the X-ray machine cartel case the GVH established that several undertakings producing and distributing diagnostic imaging products (specifically MRI, CT and X-ray machines) had engaged in unlawful conduct related to an EU tender for the public procurement of diagnostic imaging equipment. The GVH imposed a significant fine amounting to 1,6 billion HUF. The decision was challenged before the court.

In the court procedure the panel of proceeding judges appealed to the Judicial Complaints Council of the Curia claiming that they wished to depart from the former precedent set by the Curia in the lead-acid battery case. In this case, the Prosecutor General also expressed their endorsement of the GVH’s interpretation of the law.

The Judicial Complaints Board upheld the motion, and accordingly established that a competition fine may be imposed even after the time limit for concluding the case has expired. Additionally, the amount of the fine must be determined considering the damage caused by the delay. The Judicial Complaints Council has also ruled that the previous Curia decision in question can no longer be invoked as a precedent in court cases.

Conclusion

The legal form of this decision is a resolution adopted for the uniformity of law – a formal decision that binds Hungarian courts from the day of its publication in the Magyar Közlöny (Hungary’s official journal).

As a consequence of the decision clarity was achieved about how this legal situation should be interpreted in cases of protracted litigation. This ultimately also reinforced the position that the GVH has consistently taken in these cases.

Additionally, also the jurisprudence of the GVH has recently changed: in cases where the GVH found that the procedural time limit requirement was breached, it does not waive the imposition of fines in these cases, but may take the lapse of time into account as a mitigating circumstance when determining the amount of the fine. This is also in line with the above cited case law decision of the Curia.

Máté Borbás

SBGK Attorneys at Law

Recent developments in Lithuanian competition policy and enforcement: Gun Jumping, Interim Protection Measures, Online Marketplace Sector Inquiry and more

Recent developments in Lithuanian competition policy and enforcement: Gun Jumping, Interim Protection Measures, Online Marketplace Sector Inquiry and more

This article outlines the most important developments in Lithuanian competition policy which have taken place over the course of the summer 2023. Contrary to what may have been expected, Lithuanian Competition Council was very active during the hot summer months and many important decisions as well as other developments have taken place over this time. The most important ones are outlined below.

Gun Jumping in Lithuania: Interim Measures Imposed on Estonian Company MM Grupp
 

Lithuanian Competition Council (“Competition Council”) is currently investigating the actions of the Estonian company MM Grupp, which is suspected to have executed a concentration without obtaining the merger clearance decision from the Competition Council.

On March 8, 2021, the Competition Council received a notification regarding a concentration from MM Grupp. The intent of the Estonian company was to acquire 51% of the shares (which, together with its existing shares, would total 100%) of another Estonian company, Forum Cinemas Lithuania. This acquisition was intended to confer indirect control over the Lithuanian branch of Forum Cinemas.

Due to incomplete submission of necessary information by the companies involved in the transaction, the deadline for reviewing the notification was suspended. On October 14, 2021, in accordance with the provisions of the Lithuanian Competition Act, the Competition Council terminated the merger procedure and deemed the concentration notification as not having been submitted. The companies involved in the transaction were unable to proceed with the merger as they had not obtained the required clearance.

However, information available to the Competition Council indicated that despite the lack of merger clearance decision, MM Grupp opted to proceed with the transaction by effectively dividing the assets of Forum Cinemas Lithuania and transferring them in separate portions to related entities of MM Grupp. The Competition Council suspects that such actions are performed in order to avoid previously failed merger clearance procedure.

Consequently, on April 7, 2023 the Competition Council decided to impose the following interim measures on MM Grupp for a duration of one year:

(i)    Mandate that all acquired assets and businesses from Forum Cinemas be operated and managed independently, solely for the benefit of the pertinent business, and not for the benefit of the broader MM Grupp group of companies.

(ii)   Prohibit the transfer of control over the acquired assets and business of Forum Cinemas to any other entity or individual.

(iii)  Refrain from any action that would directly or indirectly result in the acquisition of Forum Cinemas’ assets or business.

(iv)  Enforce an obligation on MM Grupp and Forum Cinemas not to share any confidential business information, except where such disclosure is imperative for legal compliance.

In response to the imposition of interim measures, MM Grupp lodged an appeal within Lithuanian court. However, the court dismissed the appeal from the company, deeming it unfounded. Therefore, the imposed interim measures on MM Grupp remain in effect.

The decision to apply interim protection measures is unprecedented as it is almost never used in practice. Its application demonstrates increased enforcement activities in response to actions by market players, similarly as observed in the actions of the European Commission and other national competition authorities.

 

Lithuanian Competition Council Imposed Fines on Skin Care Manufacturer and its Distributors for RPM practices
 

On July 25, 2023, the Competition Council issued an infringement decision, imposing fines on cosmetics manufacturer and supplier, Oda LT, along with its distributors, for engaging in resale price maintenance (RPM) practices. These practices involved agreements not to sell Oda LT products to consumers at prices lower than those stipulated by the manufacturer.

The Competition Council concluded that the manufacturer collaborated with its distributors to enforce fixed retail prices for skincare products to consumers, as specified in price lists and conveyed through separate emails. Furthermore, distributors were instructed not to apply any discounts without prior negotiation with the manufacturer.

The main aspects of the infringement were the following:

(i)    the manufacturer provided distributors with price lists featuring recommended retail prices using various headings, all of which contained identical retail prices for skincare products during the same period.

(ii)   certain distributors signed agreements explicitly obliging them to adhere to the provided prices.

(iii)  the manufacturer monitored market prices and discounts, issued warnings to distributors, and demanded the removal of unapproved promotions, displaying a clear intent to enforce its pricing policy.

(iv)  distributors complied with the supplier’s pricing instruction. Emails documented instances where the manufacturer communicated with distributors, instructing them not to apply discounts without approval. Distributors acknowledged these instructions and cancelled promotions accordingly.

(v)   some distributors informed the manufacturer about competitors’ price disparities, expressing confusion regarding the pricing policy’s clarity.

The investigation was prompted by a leniency application, granting the applicant full immunity as permitted by Lithuanian competition law. The Competition Council imposed fines totalling 217,280 EUR on the supplier Oda LT and its distributors.

In conclusion, the enforcement decision comes as no surprise, given that resale price maintenance (RPM) is widely acknowledged as one of the most serious violations of competition law. This case comes as a reminder and underscores the significance of adhering to competition regulations and the decisive actions taken by the competition authorities to safeguard a level playing field in the marketplace.

More information about described case can be found here.

 

Lithuanian Competition Council’s Findings on Online Marketplace Monitoring
 

During 2022, the Competition Council conducted monitoring on the operations of online marketplaces within Lithuania. This initiative involved the examination of 16 online marketplaces, with responses received from 90 traders.

The rationale behind initiating this monitoring was the escalating prominence of electronic commerce in Lithuania and its pertinence within the realm of competition law. Within online marketplaces, companies offering competing services might encounter competition, as certain operators of online marketplaces also engage in selling through their respective platforms, thereby competing with other suppliers present on these marketplaces.

The Competition Council has published its findings on 19 July 2023 arrived at the subsequent conclusions:

(i)    Certain online marketplaces enforce price parity obligations upon traders, essentially dictating the terms under which traders can distribute goods and services through alternate channels. These parity clauses could potentially curtail the entry or expansion prospects for new or smaller providers of online intermediation services. This restriction might hinder their capacity to offer distinct price-service combinations to buyers, concurrently limiting traders’ ability to conduct trade via direct sales channels.

(ii)   Multiple online marketplaces impose limitations on merchant pricing by establishing maximum resale prices for specific merchant products. These price caps may curb distributors’ incentives to reduce prices by rendering them fixed. This rigidity could result in consumers being deprived of the opportunity to avail themselves of lower prices.

(iii)  Certain online marketplaces implement restrictions intertwined with independent actions by the marketplaces themselves. Hybrid platforms can take advantage of their dual status (by both distributing goods or services themselves and allowing other distributors to trade on their platforms). In their pursuit of boosting the sales of their own offerings, hybrid platforms might confer superior positioning, visibility, or more favorable rankings to their products/services. They might also utilize data generated by distributors employing their platforms. Such scenarios could engender competition concerns, as hybrid platforms might erode competitors’ capacity to vie in presenting their own goods/services. This could consequently fortify the hybrid platform’s market standing, potentially leading to diminished consumer choice, elevated prices, and compromised product quality.

In conclusion, the data collected during the monitoring exercise shows that the number of businesses trading on online marketplaces is increasing year by year. This implies that the relevance of competition rules for marketplaces will increase in the future.

The monitoring process revealed the existence of price parity obligations and maximum resale prices within agreements between certain online marketplaces and traders. Moreover, it surfaced that specific online marketplaces might be imposing limitations linked to their independent actions. While all these practices aren’t inherently prohibited under competition law, they might still harbor the potential to stifle competition contingent on the circumstances of each distinct situation. The compatibility of such restrictions with competition regulations must be gauged on a case-by-case basis, following a full analysis of the individual cases.

 

Enforcement of Investigation Obstruction: Maxima LT Case Highlights Serious Consequences and Implications
 

On August 17, 2023, the Competition Council imposed a fine on Maxima LT for obstructing a document search during a dawn raid as part of an investigation into unfair commercial practices. The Competition Council discovered that in October 2022, during the dawn raid at MAXIMA LT’s premises, an employee of the company, despite being warned about the obligation to cooperate with officials authorized by the Competition Council, instructed another employee to delete a folder of documents. This instruction was carried out, resulting in the actual deletion of the folder.

Although the Investigation concluded on April 20, 2023, the Competition Council decided on the same day to initiate another investigation specifically related to the obstruction incident. As a result of their findings, the Competition Council determined that MAXIMA LT had not complied with the requirements set by the officials authorized by the Competition Council. These requirements were in place to facilitate the review and acquisition of necessary information for the investigation of the alleged violation. Consequently, the Competition Council opted to impose a penalty of EUR 10,000 on MAXIMA LT for their failure to comply.

Factual situation

During the dawn raid at Maxima’s premises, officials from the Competition Council opted to examine the data stored on devices belonging to Maxima’s employees, including computers and phones. During this inspection, the officials came across evidence indicating that one of Maxima’s employees had sent a message to other employee via Messenger. This message explicitly requested the deletion of files from the shared drive.

Subsequently, the mentioned employee proceeded to delete an entire folder of documents from Maxima’s shared drive upon receiving the aforementioned message.

Following this discovery, the officials inquired with the employees about the rationale behind their actions of deleting the folder. However, the employees were unable to provide specific reasons for their actions. Subsequently, one of the employees clarified that the folder primarily contained records of price templates, which they believed were irrelevant to the ongoing Investigation. The employee further explained that the information contained in the folder was dated and deemed unnecessary for the purposes of the officers conducting the investigation.

Competition Council’s evaluation

Even though the deleted folder of documents was subsequently restored, the Competition Council proceeded to initiate an Investigation into obstruction after closing the main investigation. Had the main investigation not been terminated, the Competition Council would likely have regarded the obstruction as an aggravating factor when determining any potential fines in the main infringement decision.

Maxima attempted to justify the actions of the employee by asserting that the deletion had occurred independently, contrary to Maxima’s internal protocols and employee obligations. As a result, Maxima argued that any consequences should be directed at the employee rather than the company. However, the Competition Council maintained the position, in accordance with both Lithuanian and EU case law, that the obstruction was executed by a Maxima employee, thereby making Maxima accountable for her actions.

Regarding the nature of the infringement committed by Maxima, the Competition Council deemed the violation to be more severe, a factor that influenced the fine calculation. This assessment was grounded in the following considerations:

(i)    Maxima had deleted a folder of documents during the inspection;

(ii)   The actions were not only attempted but successfully carried out, achieving the intended objective;

(iii)  By deleting the folder, Maxima failed to adhere to the requirements and requests of the Competition Council’s officers during the dawn raid.

The Competition Council maintained that its evaluation of the infringement remained unaffected by Maxima’s arguments. Maxima’s attempt to distance itself from the employee’s actions and its subsequent efforts to restore the deleted folder and its contents were not seen as significant mitigating factors. This stance was rooted in the understanding that Maxima holds a statutory obligation to cooperate with the Competition Council under all circumstances. Consequently, the fact that Maxima adhered to other instructions from the Competition Council, such as the instruction to restore the deleted folder of documents, did not qualify as a reason to view these actions as mitigating circumstances. These actions were regarded as nothing more than compliance with mandatory instructions issued by the Competition Council officials.

Imposed fine

The Competition Council concluded that Maxima’s deletion of the folder constituted a failure to adhere to the requirements established by the officials authorized by the Competition Council. These requirements were crucial for the review and acquisition of essential information pertinent to the investigation. Consequently, Maxima was found to be in violation of the Lithuanian law on Unfair Commercial Practices in Retail.

In accordance with this law, a failure to comply with the directives issued by the officers can result in a fine of up to EUR 10,000. In light of the aggravating circumstances previously outlined and taking into consideration Maxima’s financial situation, the maximum possible fine was imposed. It’s worth noting that the initial fine, calculated using the stipulated formula for fine calculation, amounted to EUR 1,488,708. However, this sum was subsequently reduced to the highest allowable fine of EUR 10,000.

Outcome

This situation underscores the seriousness with which the Competition Council treats instances of obstructing investigations. Despite the fact that the deleted documents in Maxima’s case were ultimately recovered, the Competition Council chose to levy the maximum fine permissible. Moreover, even if the involved company demonstrates compliance with other instructions from the Competition Council and actively engages in restoring the deleted materials, these actions do not impact the assessment of the obstruction violation.

The dawn raid and subsequent obstruction investigation were conducted under the framework of the Law on Unfair Commercial Practices in the Retail Sector. However, the arguments and interpretations put forth by the Competition Council in this case could hold relevance for other investigations that pertain to the Lithuanian Law on Competition. This law essentially incorporates provisions from the Treaty on the Functioning of the European Union.

More information about Maxima LT case can also be found here.

 

Dr. Darius Miniotas and Paulina Ambrasaitė