Decorative page background

Is that my competitor or not? (Overview of competition events for October 2023)

Is that my competitor or not? (Overview of competition events for October 2023)

We present you the forty-second instalment of our information service on events that occurred in the world of competition law in October 2023. Again, this is a purely subjective selection of events that might be of interest to you from our point of view.

Do you get bored on long winter evenings, or do you spend them just with a good glass of wine, whiskey or brandy? You don't want to go to discos in the cold? In that case, we have an ideal and hopefully informative filler for your evening. Have you ever heard of potential competition? We will present you two competition cases decided by the EU courts where it played a major role. You'll also learn why it's important to thoroughly read the protocol at the end of an on-site inspection, why it's important to implement competition compliance programmes, and why you should be wary of no-poaching regarding employees clauses in contracts with business partners.

Do (not) take over employees

In our May article, we drew your attention to the fact that the Czech Office for the Protection of Competition (OPC) is planning to prosecute so-called no‑poaching agreements, i.e. agreements not to take over employees. Incidentally, this is a general trend among European competition authorities, but more on that next time. In May, we speculated whether the OPC was investigating any such agreements. We now know that this was the case.

In October, the OPC concluded two investigations of the so-called no-poaching agreements under the so-called competition advocacy (i.e. without initiating formal administrative proceedings), namely of the codes of conduct of the Association of Czech Travel Agencies and the Association of Used Car Dealers and Car Dealers of the Czech Republic. Both codes of conduct required the association members to "use the non-compete clause to the fullest extent possible in corporate and employment contracts." The OPC saw the problem not in the actual entering into non-compete clauses with employees, but in the fact that this was based on a general agreement in the market. Indeed, such a uniform approach on the market may have significantly reduced competition between competitors for employees. On the basis of a request by the OPC, both associations removed the relevant provisions from their codes of conduct, and the OPC saw no reason to initiate administrative proceedings.

So far, these have been cases of decisions of associations and provisions in their codes of conduct, which the OPC usually deals with through competition advocacy. However, it cannot be ruled out that it is already preparing for "normal" commercial contracts or other agreements, e.g. in the context of IT service delivery. It is therefore advisable to review agreements containing direct or indirect restrictions on the taking over of employees, which may take various forms (including mere financial compensation payments, etc.). Not all arrangements need of course be prohibited, especially if they are ancillary to the achievement of the main legitimate aim. However, this must be assessed on a case-by-case basis.

Watch out for information sharing

At the request of a Portuguese court, the Court of Justice is considering whether the extensive monthly exchange of information on commercial terms between competitors constitutes a so-called prohibited by object agreement – that is, an agreement which is already prima facie dangerous to effective competition and therefore prohibited in itself. In October, Advocate General Rantos gave his opinion to the Court on this issue. The case concerns an exchange of information between 14 banks regarding end-customer credit products (in particular mortgages, consumer loans and business loans). According to the Advocate General, the prohibition of anti-competitive agreements does not prevent competitors from exchanging information on the commercial terms applicable to transactions and data on credit offers in the banking sector, if such a practice artificially increases transparency and reduces uncertainty as to the functioning of the market. In fact, the Portuguese legislator itself has required banks to have some market transparency in order to prevent systemic crises such as the one in 2008.

In general, an exchange of information on, for example, terms and conditions (but not prices) is considered to be an agreement that should be examined for its anti-competitive effects (an effect agreement), not a by object agreement. However, in certain circumstances, the exchange may pose such a high risk to competition (as is always the case with price information sharing) that it should be considered a prohibited agreement per se.

In the present case, the information shared (in particular credit spreads) was different and went beyond what was required by the Portuguese legislator; moreover, the information exchanged revealed the future pricing strategy of each bank. According to the Advocate General, this exchange of information should therefore be classified as a prohibited agreement.

Is an agreement between non-competitors prohibited?

No later than since the judgment of the Court of Justice in AC-Treuhand, we know that an undertaking does not have to operate in the same market as the members of a cartel to be sanctioned for participation in it. It is sufficient that he assisted in its implementation, for example, by providing consultancy services under a contract. AC-Treuhand not only provided consultancy services but also provided meeting facilities for the cartel members and supplied them with detailed data on the relevant markets. We now know that even where only two competitors enter into an agreement, they do not have to operate in the same markets to be penalised for cartel conduct.

In October, the Court of Justice ruled on a cartel case where the only two participants were operating in different markets. This was in response to a preliminary question from a Portuguese court on an agreement concluded in 2012 between an electricity supplier Energias de Portugal (EDP) and the grocery chain MC Retail (Sonae) for the provision of discounts to mutual customers. The agreement also included a stipulation not to enter into similar agreements with each other's competitors. First of all, the Court held that the mere existence of such an arrangement is a strong indication of potential competition. It further stated that, between 2002 and 2008, the Sonae group was active in the Portuguese electricity supply market through a joint venture with the Spanish electricity producer, Endesa. At the same time, the Sonae group acquired through one of its subsidiaries a company that owns and operates a CHP unit. The Court concluded from this that Sonae is a potential competitor of EDP. The agreement concluded between EDP and Sonae thus constitutes a prohibited non-compete cartel agreement. It even cannot be regarded as a legitimate 'ancillary restraint' that would facilitate the main legitimate cooperation in the context of mutual discounting of customers. 

The lesson here is for entering into similar non-compete agreements with trading partners: Before entering into such an agreement, check whether you have been active in the same markets in the past and whether any of your subsidiaries are active in related markets.

In October, the Danish Competition Authority returned to the AC-Treuhand case in the case of the consultancy Ecit Account, which helped to establish and maintain an anti-competitive market sharing agreement between more than 20 discos. Specifically, it contracted and ensured compliance with the rule that discos could not open a branch in a city where another discotheque was already operating. She has also been actively involved in discussions on the rule. The Danish Competition Authority has thus submitted a proposal to the court to impose a fine on Ecit Account for participating in the cartel agreement.

To provide or not to provide access to one´s pipeline

Following the spectacular annulments of the European Commission (EC) decisions in the Intel and Qualcomm cases in 2022, the EC faced another loss before the General Court in October this year in a case alleging abuse of dominance. And that's in the case of Bulgarian Energy Holding (BEH), which both operates in the gas supply market and in the infrastructure market. At the end of 2018, the EC imposed a fine of EUR 77 million on BEH for denying third parties access to the transmission network, gas storage facilities and the only transit pipeline that brought gas from Russia to Bulgaria. This restricted competition in the downstream market for wholesale gas supplies. According to the EC, BEH applied delaying tactics in relation to responses to requests for access to infrastructure, the conditions for access were restrictive and non-transparent and much less favourable than for gas supplies to BEH itself. BEH reserved the entire infrastructure capacity for itself, even though it didn't need it all. BEH also did not publish information about vacant capacities. So much for the EC decision.

However, according to the General Court, in order to prove an abuse of a dominant position in the form of a refusal of access to infrastructure, it must be established that the conduct had the capacity to foreclose all competition in the downstream market on the part of the access seeker. To do so, it must be shown that the potential competitor has at least a sufficiently advanced project to enter the market in question within a time period that would create competitive pressure on the incumbents, since otherwise the alleged effects of the refusal would be purely hypothetical. However, in the present case, the EC has failed to do so, according to the General Court. In view of the fact that abuse of a dominant position in the form of a refusal of access to infrastructure constitutes a serious interference with the principles of contractual autonomy and freedom of property, the General Court considers that the owner/operator must be able to assess whether it has an obligation to grant access to a third party on request. However, in the present case, this was a "purely exploratory approach by a third party to a dominant undertaking controlling access to the infrastructure in question" which "cannot constitute a request for access to which the dominant undertaking would be obliged to respond."

And then there was RPM

We cannot deprive you of yet another episode in the endless series of the OPC's fight against the allegedly highly damaging resale price maintenance (RPM). We have long criticised this constant strict struggle of the OPC (recently, e.g. here), as we believe it can have counterproductive effects on competition. But so far in vain. We will see whether the OPC will at least will it relax its policy.

In October, the Office of Competition and Consumer Protection fined a supplier of backpacks TOPGAL in the amount of CZK 10.7 million for setting minimum prices for retailers to sell their products. It reportedly monitored price compliance and, in the event of non-compliance, called on the sellers to increase prices to the level set by him – if necessary even under threat of sanctions (stopping deliveries/terminating cooperation), which he applied in several cases. The original fine was first reduced by 35% for voluntary termination of negotiations, informing retailers of the non-binding nature of the recommended prices and introducing a competitive compliance programme. The OPC then reduced the fine by a further 20% for concluding a settlement agreement.

The procedural corner

We will also not deprive you of any snippets from the competition world concerning procedural issues – this time from the Czech meadows and groves.

The Regional Court in Brno annulled the fine imposed on the company EGEM imposed on it by the OPC for failure to provide cooperation during an on-site inspection. This allegedly consisted of EGEM first promising the inspectors that its managing director would appear with his electronic devices for inspection. However, this did not happen. In assessing the legality of the fine imposed, the Regional Court focused in particular on the record of the on-site inspection in the protocol of the on-site inspection. (This is why it is so important for the undertaking under investigation to check the protocol thoroughly at the end of the on-site inspection to ensure that everything is recorded in the protocol as it actually was, and to file any objections to the protocol.) 

An EGEM employee first promised the inspectors of the OPC that the managing director would appear in about two hours. At this point, nothing has been said about his electronic devices. The inspectors did not mention the need for electronic devices until a quarter of an hour later. In neither of the conversations did the inspectors instruct the staff on the consequences of failure to appear/provide the required equipment. After an hour and a half, the inspectors were informed that the managing director would not be present and would not bring the electronic devices; however, he instructed the email account to be blocked and exported. This gave the inspectors of the OPC full opportunity to examine his email communication, which was their concern. The protocol does not indicate that they wanted to check other files on the electronic devices. This was only stated by the OPC in its reply to EGEM’s action. The Regional Court held that the presence of the managing director was not a necessary cooperation and the OPC cannot rely on the presence of a "person of interest" during the on-site inspection.

In late October, the OPC announced that it intends to deepen its cooperation with criminals (especially in the area of cartel agreements between bidders for public contracts). The cooperation consists primarily in the exchange of relevant information, mutual provision of expert consultations and the transfer of records from wire-tapping of telecommunications traffic, which the OPC can use as evidence in cartel proceedings since the end of July. 

We believe that this cooperation will not only have implications for the course of administrative proceedings before the OPC, but also that it significantly increases the risk of criminal prosecution of the undertakings’ employees involved in negotiating the prohibited agreements. In addition, in the case of agreements between bidders for public contracts, the companies concerned may also be prosecuted. For this reason, even greater emphasis should be placed on the introduction of preventive measures to reduce the risk of prosecution. Here we are referring in particular to the introduction of effective compliance programmes.

We would also like to draw your attention to the unusual procedure adopted by the President of the OPC in the matter of the food stamp cartel. In view of the fact that it substantively agreed with the merits of the conclusions of the OPC in the first instance decision and with the remedial measures imposed, and did not even question the method of calculation and the amount of the fines, but only found errors in the statements on fines, it confirmed the first instance decision, which became final and the time limit for filing an administrative action started to run. However, the President of the OPC revoked the statements on the fine. In this part, the decision is not final in this part and the OPC will decide on it again in the first instance. 

Limiting the number of meal vouchers that an employee can redeem at a retail grocery store is a new type of cartel that has not yet been prosecuted. The OPC is now waiting to see whether the administrative courts will uphold it or not. By splitting his decision in this way (upholding the offence and setting aside the fine), the President will achieve the objective of receiving the court's opinion on the practice earlier. Otherwise, he would have to wait again for the first instance decision and then decide on it.

Related articles