In the third episode of the series "Amendment of the Czech Competition Act in a Nutshell", we focus on the new tools that an undertaking can use to mitigate the effects of a fining decision. Given the change in the fine calculation methodology that came with the new 2018 Notice on the imposition of fines, "full" fines are currently reaching staggering heights. This may make alternative procedures that allow such high fines to be avoided or substantially reduced all the more attractive to the undertakings under investigation.
The new developments to be discussed in this episode concern the already established institutes of commitments, leniency and settlement. Their presence in national competition law is explicitly required by the ECN+ Directive. In this respect, however, the provisions in the Czech Competition Act (CCA) were sufficient even before the amendment. However, the Czech legislator, or rather the Office for the Protection of Competition (OPC), took the transposition of the ECN+ Directive as an opportunity to significantly revise them.
Commitments – who can submit them? And who cannot?
The institute of commitments is driven by the interest in correcting the competitively defective situation as quickly as possible. It allows the undertaking to avoid being found to have committed an infringement and fined. In exchange, he undertakes to take measures to remedy the competition. For example, a bus operator which also owns the only bus station in the municipality and which has refused to allow its competitors to use it will commit to allow its competitors to use it for a reasonable fee. In return, the competition authority will not impose a fine for abuse of dominance in the form of refusal of access to key infrastructure.
Until now, commitments could (at least in theory) be submitted by undertakings who have committed a competition law infringement in the form of any prohibited agreement or abuse of dominance. However, the amendment to the CCA has changed the scope of "eligible" entities. It has narrowed it – rather formally – in one respect and broadened it in another.
Participants in cartels, i.e. secret agreements having the restriction of competition as their object, will be explicitly excluded from the possibility of using the institution of commitments. However, this is not a significant change in terms of its practical impact. The termination of administrative proceedings by way of commitments in cartels is also still a rare phenomenon. In its explanatory memorandum, the OPC notes that commitments simply do not seem to be the appropriate solution to the issue of cartels: commitments are primarily forward-looking, whereas secret cartels are usually brought to an end by their uncovering (by the competition authority). At the same time, commitments usually only aim at a certain correction of otherwise acceptable commercial behaviour in order to restore functional competition. In the case of cartels, the only way to restore functioning competition is to terminate them. The competition authority can only achieve this by prohibiting them; commitments are not needed to do so.
On the other hand, the amendment to the CCA also expands (not only formally) the range of entities for which commitments can be used to terminate proceedings. Commitments can now also be proposed by public authorities that have distorted competition by exercising administrative powers. At present, these are typically municipalities issuing lottery regulations that restrict the operation of gaming facilities in their territory in a discriminatory manner. Until now, the only solution to the distortion of competition has been to prohibit it and impose a fine. In effect, this was a transfer of public funds from one pocket to another, and the fine could disrupt the operation of municipalities in other areas. On the other hand, the OPC had no control over the restoration of competition.
The possibility for the OPC to accept commitments instead of fines in the case of actions by public authorities corrects the imbalance in the availability of alternative resolution procedures for "ordinary" undertakings and for public authorities (in the context of the exercise of their powers). At the same time, however, it provides a more effective solution to the problem: from the perspective of competition and (ultimately) taxpayers, it is much more appropriate to remedy the competition problem in cooperation with the OPC than to divert funds from the budget of municipalities that may be lacking elsewhere.
An admittedly minor but important change to the regulation of commitments is the removal of the obligation for the OPC to communicate in writing to the parties the reasons why it found the commitments insufficient to restore functioning competition and therefore did not accept them.
We do not like this change. And not just because it is in the category of "let's make life easier for the OPC". We understand that the parties to the proceedings do not have a claim to the termination of the proceedings by commitments and that the OPC has discretion in this respect, but we also believe that, in view of the principle of good administration, it is appropriate for the OPC to continue to give reasons in writing for its decision not to accept commitments. Such a step will limit arbitrariness, but more importantly, reasoned decisions will serve as a signal of what commitments the OPC considers sufficient. We are therefore curious to see how the OPC will proceed in practice.
Leniency. Who can apply? And who can't?
The Leniency Programme is another institute that allows investigated undertakings to obtain a reduction on the possible fine. Even if a cartel member cannot submit the commitments anymore, this instrument has been tailored to him.
Again, there is a balancing act between the ability of undertakings to avoid adverse consequences of the infringement on them and the public interest in tackling anticompetitive behaviour. Depending on the stage of the investigation at which the leniency application is made, the wrongdoer may be able to avoid a fine or obtain a significant reduction of the fine in exchange for providing evidence of the anticompetitive agreement. So far, in Czech law, leniency has been reserved only for members of cartels, i.e. hidden horizontal anticompetitive agreements.
The amendment to the CCA introduced a novelty in this respect: The possibility to apply for leniency is no longer limited to cartels. It has been explicitly extended to all secret agreements aimed at distorting competition.
At first glance, this is not a major expansion, but the devil – perhaps more of an angel to some – is hidden in the detail. In fact, the new provision lacks a restriction on horizontal agreements. In future, the OPC will be able to grant leniency not only to a cartel member, but also to a supplier who has entered into anticompetitive agreements with its buyers (resellers) – for example, on the prices at which they shall sell products to consumers. This is a change that the OPC has recently implemented on an informal basis. Several cases have already been concluded in this way (e.g. this one or this one). Rather, the amendment provides certainty that the OPC will continue to do so in the future.
This is not an entirely new development in the wider competition world. It is an instrument that has been in place for a long time, for example in Poland. In Poland, the introduction of leniency also for vertical agreements led to overflowing the competition authority – we shall see whether the amendment of the CCA will lead to the same development. In addition, according to the OPC’s statements, the conditions for full immunity from the fine will probably be set in such a way that the supplier will not be able to reach this option. This may be problematic in those cases where resale price maintenance is initiated by the buyers (i.e. resellers) of the contract goods.
To enter into a settlement or not to enter? That's the question...
Another tool to mitigate the negative effects of a decision to impose a fine is the institution of settlement. The undertakings acknowledges that it has committed the act as defined by the competition authority and at the same time accepts its legal qualification. This saves the (personal and financial) resources that the competition authority would otherwise have had to expend in conducting further proceedings (at second instance and before the administrative courts). In exchange, the fine is reduced.
Until now, the CCA has “rewarded” settlements by reducing the fine by a fixed amount of 20%. The amendment to the CCA provides that the OPC will reduce the fine by 10 to 20%. This gives the OPC considerable discretion in deciding the amount of the “reduction” of the fine. It should be guided by the degree of procedural savings achieved, taking into account the complexity of the proceedings, their duration and the cooperation of the undertaking in the settlement procedure.
Under the settlement procedure, the European Commission only reduces the fine by 10%, so any percentage above this figure could be considered an advantage. However, this puts an undertaking considering a settlement in a problematic position. The aim is always to achieve the highest possible reduction of the fine. It could easily happen that – for fear that the OPC might consider this to be non-cooperation or prolonging the proceedings – he will not contest the OPC’s conclusions on the conduct under investigation, even if they are contrary to the reality of the case or the facts as established by the evidence in the file. Similarly, the discretion on the part of the OPC may be used to coerce cooperation. Such a situation may, in the long run, lead to incorrect precedents regarding the qualification of conduct, the definition of relevant markets, etc. We therefore consider the solution chosen by the legislator to be unfortunate.
In addition to the reduction of the fine, the settlement in the case of bid rigging cartels had another advantage. The sanction for bid rigging is not only a fine, but also the placement of the undertaking on a black list, i.e. a list of undertakings who are prohibited from performing on public procurement contracts. So far, this sanction has almost not been imposed at all, because the undertakings could avoid it by settlement. In such a case, the CCA previously prevented the imposition of a ban on the performance of public procurement contracts.
It is now fully within the discretion of the OPC whether it imposes a ban on the undertaking who has settled and for how long. The only advantage for the undertaking is that while in the normal course of proceedings the maximum duration of the ban may be three years, in the case of a settlement the limit is set at one year. In its explanatory memorandum, the OPC justifies this change on the grounds that the parties to the proceedings have so far only used the institute of settlement to remove the threat of a ban on the performance of public procurement contracts, without bringing any procedural savings. According to the OPC, they submitted the settlement proposal only at the very end of the proceedings.
We believe that there is another reason for this change, which is the current low attractiveness of the leniency programme. In the future, only the use of the leniency programme will guarantee that an undertaking will not be banned from performing public procurement contracts. Certain sectors are dependent on public procurement and a ban would put an end to the undertaking’s operations. Thus, the desire to avoid the risk of being banned from public procurement will force them to apply for leniency even if they would not otherwise consider it.
In general, the amendment to the CCZ has made the settlement institute a rather unattractive procedural tool on paper. However, it is possible that the practice of the OPC will maintain its attractiveness. We will find out in the coming months.
In conclusion, we cannot but conclude that the amendment to the CCA significantly strengthens the position of the OPC in investigating anticompetitive conduct. It puts tools in its hands that will enable it to bring administrative proceedings to a close more quickly and efficiently and restore functional competition to the market. Only the practice of the OPC will show whether the parties to the proceedings/undertakings will be able to get their "fair share" from this. We will be watching this very closely.