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New Competition Tool à la tchèque?

New Competition Tool à la tchèque?

Rising food prices in recent years have turned the attention of the general public to the role of the Czech Competition Authority (CCA). While some view it as an accomplice to high inflation, the CCA defends itself against such accusations by pointing out that current legislation does not allow it to intervene more effectively in the markets. A legislative change is now on the way to make the CCA a more powerful institution than ever before. What is being proposed, and can the changes be actually beneficial?

In the Czech Republic, competition policy rarely comes to the fore of the public discourse. However, in recent years, the soaring prices, particularly of groceries, have caught the attention of broader public and spurred politicians to investigate the factors driving high inflation. While some commentators attributed it to the rising energy costs and disrupted supply chains, others argued that dysfunctional market competition was to blame. Against that background, the Czech Competition Authority (CCA) has been put into the spotlight, facing criticism of its prioritization policy and lack of professional capacity, which allegedly contributed to the lack of competition in the food chain. 

As a solution, some analysts have called for a systemic reform of the CCA’s functioning. This was to include a change in its prioritization policy or its division into two specialized agencies. Currently, the CCA deals with two main agendas – enforcement of competition law, and oversight over public tenders. As public tenders attract more attention from the public, politicians, and professionals, the premise went, CCA focuses more on the tenders that the competition policy. The division of the CCA into two agencies would therefore allow the CCA to focus on one task only, which would result in better enforcement. 

The CCA offered a different solution. Inspired by the German New Competition Tool, in January 2024, the CCA published a set of far-reaching proposals for expansion of its powers, maintaining that its current toolbox did not allow it to secure efficient competition for the benefit of consumers. Although the CCA recently backtracked on some of its most daring proposals, such as the power to order divestures without the finding of a breach of competition law or to conduct on-site inspections without suspecting an infringement, the remaining suggestions remain extensive.

Below, we provide for an overview of the CCA’s proposals on which it managed to secure political consensus. The Czech Government is expected to present them as an amendment of the Czech Competition Act to the Czech Parliament in July 2024. With the Parliament’s consent, they could take legal effect as of 1 July 2025.

Imposition of remedies without the finding of an infringement

First and foremost, the CCA wishes to be vested with the power to issue a decision designating a certain market as dysfunctional. It could do so based on a sector inquiry, if it found that a given market is characterized by distorted competition, i.e., without the finding of any infringement of competition law. In such a market, the CCA could impose behavioural remedies for a period of up to three years. For instance, it could require undertakings to provide access to networks, infrastructure, or data. It could also require that they enter into contracts or notify acquisitions even if they do not meet the turnover thresholds. 

Moreover, if it found that information asymmetries cause market distortions, it could order undertakings to make certain information public. At the same time, it could prohibit price signalling on markets characterized by the presence of a price leader.

In essence, these new powers would signify a substantial departure from the current traditional role of the CCA as an enforcement agency and bring it closer to a regulatory body. In our view, the new powers also make the criticism of the CCA concerning the lack of its professional capacity more pertinent, as such far-reaching powers should arguably be only exercised following a robust economic assessment. On the other hand, the CCA claims that it will not interfere with the competencies of other regulatory agencies, such as the Energy Regulatory Office, the Czech Telecommunication Office or the Czech National Bank, which could be interpreted as a sign that the CCA is willing to show restraint exercising these new powers.

Call-in option for merger review

The CCA also proposes a reform of its merger control system, which is currently based exclusively on ex-ante approval of concentrations meeting turnover thresholds. The CCA does no longer consider that system sufficient, referring to high market concentration in the food processing sector, which was achieved by incremental acquisitions of small undertakings by their large competitors. Given the low turnovers of the target undertakings, these transactions took place under the CCA’s radar. 

To prevent repeats of such situations in the future, the CCA considers that the current system should be complemented by a “call-in” option. That would give the CCA the power to require ex-ante and ex-post (for up to six months) notifications of mergers falling short of the turnover thresholds if they concern undertakings with a turnover of at least CZK 100 million (approx. EUR 4 million). 

Moreover, the CCA should also have the power, after the sector inquiry, to designate specific markets where other notification criterions would apply, such as transaction value in case of markets characterized by the presence of start-ups. As a result, more concentrations would be subject to the CCA’s scrutiny, allowing it to hold a tighter grip on the transaction activity on the Czech market.

Imposition of fines on individuals

While the CCA may impose (and imposes) high fines on undertakings for infringing competition law, it currently lacks the power to sanction individuals engaged in such conduct. The CCA would like to change that. According to the proposal, it should be given the power to fine managers engaged in anti-competitive agreements (both horizontal and vertical) of up to CZK 10 million (approx. EUR 0.4 million), and to disqualify them from acting as a statutory body of any company for a period of up to five years. 

The underlying objective is not only to sanction individuals for the wrongdoing, but to also strengthen the CCA’s leniency programme by incentivizing more leniency application (the leniency would also apply to individuals), as the CCA received few leniency applications in recent years. 

It is noteworthy that the CCA proposes that an attempt for illicit agreement would also trigger liability. This would mean that the CCA could fine individuals for anti-competitive conduct even where the conduct lacked any effect, and the agreement was demonstrably not implemented or acted upon. Technically, a manager of a company proposing a price fixing through an email sent erroneously to a non-existing address could still be liable. 

Moreover, the CCA suggests that also aiding, abetting and facilitating conclusions of an illicit agreement should result in liability of the persons concerned. For example, an employee of a public contracting authority facilitating coordination of bids between suppliers could prospectively face substantial fines.

Competition agency with most formal powers in the EU?

If the Czech Government sticks with the CCA’s proposal and succeeds in the Parliament, the CCA will be in position to play an unprecedented role in the Czech economy. What is more, the CCA proposal comes right after the CCA powers were extended. Just to illustrate this, since 2023, the CCA may use evidence gathered in criminal proceedings (such as police wiretaps) in its cartel proceedings; it may fine uncooperative individuals during dawn raids; and it may keep hidden the identity of individual whistleblowers. The CCA claim is that it does not propose any new powers for which there would not be a precedent within the EU. That may be right, but it is doubtful that any country has all the powers the CCA is proposing all at once.

Looking at the CCA proposal from perspective, it is not clear, whether the new powers are warranted. In 2023, the CCA banned its first merger in the past 19 years. The average number of remedy merger cases is between one and two per year. The CCA issues only a small number of fines for serious cartels. While new powers may be needed in some areas, it should be uncontroversial to say that before asking for new ones, the CCA should attempt to make good use of those powers that it already has.

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