Removed tracks write competition history (Overview of competition events for January and February 2023)

We present to you the thirty-sixth instalment of our newsletter on events that occurred in the world of competition law in January and February 2023. Regular readers will not be surprised that this is a purely subjective selection.

The Office for the Protection of Competition (Czech Competition Authority – CCA) has traditionally started the new year with resale price maintenance (RPM). What other competition titbits have we prepared for you? We will introduce you to important case law of the Court of Justice on abuse of dominance, decision-making practice in the field of bid rigging and, as usual, we will look at some procedural issues.

And there's that RPM again

Resale price maintenance is certainly the most frequently prosecuted vertical agreement. CCA is not behind the curve on this, as virtually every month demonstrates – and January was indeed no exception. We therefore recommend those who have not already done so to conduct a proper review of the set-up of sales systems and the way pricing issues are communicated within the distribution chain.

In January itself, the CCA issued two decisions concerning RPM. A fine of CZK 1.1 million was imposed on Šicí technika Brother for imposing fixed and minimum resale prices. Brother monitored compliance with the prices and invited retailers by e-mail to increase prices to the set level. It secured compliance by threatening to apply penalties. It was the enforcement of prices that the CCA considered an aggravating factor. On the other hand, the CCA saw a mitigating circumstance in the termination of the anti-competitive conduct before the proceedings were initiated. Other reasons for the reduction of the fine were the adoption of a compliance programme and the use of the settlement procedure. A compliance programme is of course useful mainly as a preventive measure. Indeed, a functioning compliance programme can detect anticompetitive conduct before the competition authority becomes aware of it. If the competitor then abandons the anticompetitive conduct immediately, this will have a positive effect on its position in the administrative proceedings several times over - the shorter duration will be reflected in the amount of the fine and in addition it will receive a discount for the existing compliance programme. In the event that you do not have a compliance program in place or it has not worked prior to the administrative proceedings, you will not lose the reduction in the fine if you commit to adopt or improve the compliance program. We wrote about the CCA’s policy on compliance programs here.

The second decision of the CCA in January concerned EURONA, which was fined CZK 12.8 million. EURONA imposed an obligation in its terms and conditions for retailers to sell its goods at catalogue prices. EURONA then randomly monitored compliance with this obligation. In the event of a breach, EURONA contacted the retailer and informed it that it would cancel its registration if it did not comply with the set prices. However, according to the CCA, EURONA did not commit only RPM. Its terms and conditions also contained rules for the presentation of the retailer on the internet, with the proviso that its website must not contain an e-shop. On the contrary, it should have contained a link to EURONA's contact form. Failure to comply with this condition led to the cancellation of the dealer's registration. In this case, it is worth noting that this was the first time that the OCC has punished a restriction on online sales. It can be assumed that this area, which the OCC has now "touched", will continue to be monitored. Therefore, attention should be paid not only to the assessment of the contracts themselves, but also to the general terms and conditions.

The Polish Competition Authority has imposed a fine of EUR 26 million. PLN 26 million (approx. EUR 5,5 million) for Kärcher. According to the competition authority's findings, Kärcher had been setting minimum reselling prices for retailers since the late 1990s. The fine would have been significantly higher for Kärcher (also taking into account the duration of the infringement). However, Kärcher has made a successful leniency application and provided the competition authority with information previously unknown to it, in particular in relation to the duration of the conduct and the products concerned. If the amendment to the Czech Competition Act is adopted in its current wording, competitors involved in vertical agreements will also benefit from leniency applications before the CCA.

At the turn of the year, RPM was also addressed by the Spanish competition authority. However, it closed the proceedings not with a fine but with the acceptance of ISDIN's commitments. The commitments contain a number of measures to prevent resale price maintenance in the future. Among other things, they contain an objective, transparent and non-discriminatory rebate system which excludes the linking of rebates to compliance with ISDIN's pricing policy. Furthermore, ISDIN has undertaken to compensate for the harm caused by its anti-competitive behaviour. The resolution of RPM by commitments is an isolated practice which, however, in our view, makes much more sense in many cases than the very high fines imposed by competition authorities (including the Czech and Slovak competition authorities). It should be recalled that this type of conduct tends to fall into the category of less serious anti-competitive offences, as we write about it here.

One last case: In February, RPM was also dealt with by the French Competition Authority. This is a relatively old case, where the conduct of Electrolux France between 2009 and 2014 was examined. The French Competition Authority opened proceedings in 2013. However, it was not until February 2023 that the competition authority sent a statement of objections to the company. This just goes to show that, in certain circumstances, proceedings before the competition authority can take a very long time even for rather simple types of conduct without ever having a first instance decision.

Bid rigging revisited

The second priority of the CCA is the prosecution of bid rigging, i.e. anti-competitive agreements concerning participation in and manipulation of public procurement or other tenders. As in the case of RPM, the prosecution does not only concern large companies, but also smaller companies.

In February, the CCA imposed a fine of CZK 3.2 million on three companies and a natural person identified as K.K. (Yes, even a natural person is an addressee of competition rules and can be fined!). Specifically, the mysterious person K.K. was fined CZK 197,000, reduced so as not to have a liquidating character. The fine for the individual parties was calculated not on the basis of a general formula, but on the basis of an alternative calculation set out in the CCA's methodology for calculating fines for bid rigging: If the agreement concerned only a specific public tender, the value of which is insignificant in relation to the undertaking’s total turnover, the value of the particular public tender contract is the value of the sales from which the fine is calculated. (In such a case, the fine may also not exceed 10 times the value of the contract.) In the present case, the value of the public tender contract was approximately CZK 11.5 million. For aostav s.r.o., the fine was further increased by the aggravating circumstance of its leading role in the cartel and thus exceeded CZK 1 million.

In February, the Slovak Antimonopoly Office also imposed a fine for bid rigging for coordinating the procedure in three public tenders concerning the inspection and maintenance of low-voltage lines in eastern Slovakia. Here too, in addition to commercial companies, natural persons-entrepreneurs were involved in the cartel. The fine was imposed in the total amount of EUR 8,890 after a 30% reduction following a settlement. Despite the settlement, in addition to the fine, a ban on participation in public procurement for one year (instead of the normal three) was imposed as an additional sanction. This is likely to be the case for some of the parties to the proceedings before the CCA in the near future if the amendment to the Czech Competition Act is adopted in its current wording. The amendment changes the current rule that a ban on participation in public procurement cannot be imposed in the event of a settlement: the CCA will be able to impose a ban, but only for a maximum of one year (instead of the current up to three years).

From the world of dominants

In January, the Court of Justice first dealt with that curious case of the disappeared rail tracks, which we have previously reported on. The tracks were removed by Lithuanian Railways to prevent a major client from using a competing carrier. For this, the European Commission (EC) fined them EUR 27.9 million. The case was seen as a case of refusal of access to an essential facility, but the Court of Justice described it as a specific type of abuse of a dominant position. The special feature is that the removal of the tracks inevitably prevents their use not only by competitors but also by the dominant undertaking itself.

In addition, in a Italian preliminary ruling procedure, the Court of Justice addressed the sale of Unilever impulse ice cream in outlets such as bars, cafés, sports clubs, swimming pools and other leisure venues. Unilever had entered into exclusivity agreements with those outlets in Italy because it wanted them to sell exclusively its ice cream. The subject-matter of the dispute was the ability of the clause in question to restrict competition. The Court of Justice held that a competition authority does not necessarily have to prove that a particular conduct actually had an anticompetitive effect. However, where a party provides evidence that the conduct in question is not capable of excluding equally efficient competitors, the competition authority must prove that the practice was in fact capable of excluding those competitors. The Court of Justice also recalled that, although exclusivity clauses raise legitimate concerns, this does not mean that they will be able to exclude competitors in all cases.

Procedural corner

In January, Advocate General Pitruzzela (AG Pitruzzela) addressed the question of whether, in EU competition law, both the chamber and its members who actively participated in the conduct can be sanctioned for anticompetitive conduct by a trade association. In the present case, the Lithuanian Chamber of Notaries was involved. In his opinion, AG Pitruzzela recommended the Court of Justice to rule that the parallel fining of a chamber/association and its members is compatible with EU law only in certain cases. According to him, this is only possible provided that the competition authority/court is able to identify a very specific participation of the members as undertakings in the anticompetitive conduct of the chamber which is distinct from and complementary to the participation of the other members. The second possibility is that national law allows it.

Then, in February, elements of competition law enforcement that are not so often challenged were also subject to review. The reason for the scarce review is the fact that they are based on the cooperation of the party to the proceedings with the competition authority.

The Italian competition authority newly fined CNS for its participation in bid rigging by facilities managers, where the value of the most significant rigged tender was EUR 2.7 billion. CNS was the only company to submit a leniency application in the administrative proceedinga, which was also granted. The total fine for the seventeen cartel members was EUR 235 million, while the fine for CNS amounted to EUR 39,79 million. Following an administrative action brought by CNS, the court of first instance ordered the Italian competition authority to reduce the fine, which it did by re-setting the fine at EUR 25,74 million. However, CNS appealed again to the Consiglio di Stato. The main argument was that it was the sole applicant for leniency and had provided the competition authority with key information for its investigation. The Consiglio di Stato accepted this and found that the information and documents provided constituted the most significant evidence used to prove the anti‑competitive intent. It further stated that in such exceptional situations the Italian competition authority has the discretion to impose only a symbolic fine. In recalculating the fine, the competition authority also took into account the fact that CNS had completely changed its management and distanced itself from the behaviour of the previous one. It then imposed a new fine of 'only' EUR 514.856.

The French Conseil Constitutionnel was presented with the case of commitments offered by Sony in the context of an abuse of dominance procedure for excluding the compatibility of third-party controllers with Sony's PlayStation 4 game console. The French competition authority assessed the commitments as insufficient to restore effective competition and continued the fining procedure. Sony then challenged before the administrative courts the fact that the fining procedure was being conducted by the same officials who had previously decided on the (non-)acceptance of the commitments. The Conseil Constitutionnel, before which the question of constitutionality came up, first held that the rejection of the commitments must be regarded as an appealable decision. However, it also stated that the identity of the persons deciding on the commitments with the persons deciding on the sanction was in accordance with the Constitution.

A court was also confronted with an order for an onsite inspection conducted by the Austrian competition authority. In February, the Austrian supreme court examined whether the competition authority had sufficient suspicions to carry out onsite inspections of producers and sellers of wood pellets. The supreme court held that anonymous complaints alone can constitute sufficient suspicion to justify an onsite inspection. In the present case, however, the competition authority based its suspicions additionally on statistical data and several complaints. The supreme court thus concluded that the competition authority's suspicions were not mere speculation.

February as the month of sector inquiries

February saw a burst of sector inquiries (both completed and initiated), both in the Czech Republic and abroad. Here we only present the surveys of the CCA. Interested readers can read about an interesting survey of developers in the Netherlands, a survey of price developments in the non-perishable food sector in Hungary or a survey of the dairy sector in  Greece.

In February, the CCA published the findings of its sector inquiry carried out in the markets for the wholesale and retail distribution of human medicines covered by public health insurance and dispensed on prescription. The sector inquiry did not reveal any indications of anti-competitive behaviour. However, competition in this sector may nevertheless be affected in other ways, and the CCA has therefore issued several recommendations. Regulators should operate monitoring systems in close cooperation with the CCA; new regulation should be consulted with the CCA. The latter also recommended prescribing active substances rather than specific drugs. The CCA supports the online sale of medicines and recommends that the State create incentives for the production of medicines in the Czech Republic. It has recommended that consumers use cheaper versions of freely interchangeable medicines (generics).

No one will have missed the launch of a fast-track sector inquiry by the CCA, the subject of which is to examine the entire supply chain for five basic foodstuffs in terms of price increases. Specifically, the aim is to find out at which stage the largest margin increases occur (who is responsible for the increased prices) and whether there is a problem in the market that the CCA should and could address. There is no doubt that the sector inquiry is the result of media and political pressures (see e.g. here or here (the famous sugar is apparently not on the list of foodstuffs to be investigated after all)). We also doubt whether a sector inquiry that is supposed to last only a few months can ever lead to sufficiently objective and relevant conclusions. Normally, sector inquiries (even in the food sector) last more than one year.