In the fourth and final episode of the "Amendment of the Czech Competition Act in a Nutshell" series, we focus on what the proceedings before the competition authority often end up being, i.e. sanctions and their form. In the previous episodes, we have dealt with novelties based more on the initiative of the Office for the Protection of Competition (OPC). The novelties presented in this article are mainly based on the requirements of the ECN+ Directive. They can be summarised under the requirement of "effective, proportionate and dissuasive fines". Anticompetitive conduct should simply not pay.
The sanctions addressed in the amendment to the Czech Competition Act (CCA) can be divided into two groups: (i) sanctions for anticompetitive conduct (intra-group liability, liability for fines imposed on associations of undertakings, sanctions for bid rigging) and (ii) sanctions for procedural offences and order offences.
Closing the Czech "sausage gap"?
The amendment to the CCA contains an inconspicuous provision that may revolutionise the prosecution of anticompetitive conduct by the Czech OPC. It introduces joint and several liability of entities for the payment of fines imposed. This is in the case of entities that form a single undertaking (belong to the same group) and at the same time are jointly parties to proceedings brought for the same anticompetitive conduct.
What is the purpose of this provision can be read in the explanatory memorandum, where the OPC declares a shift in who will be fined. Until now, the fine was imposed on the entity within the undertaking (group/concern) that actually committed the anticompetitive conduct. However, in the explanatory memorandum, the OPC declares that liability for the anticompetitive conduct will now also be attributed to the parent company that exercised decisive influence over the company that directly committed the offence. These two companies will then both become parties to the proceedings and will be fined jointly and severally.
This is a Czech solution to a problem that has entered into German competition history as the so-called “sausage gap”. The members of the sausage cartel managed to escape the fine entirely. At that time, fines could only be imposed on the subsidiaries that had actually committed the conduct. These were then stripped to the skin and liquidated. There was therefore no one left to pay the fine. The German legislator remedied this by adopting the rule that the influencing person (parent company) is also liable for the anticompetitive conduct, jointly and severally with the influenced person concerned (subsidiary). This rule is also applied at EU level, where, for example, in the Slovak Telekom case, it was not only the Slovak company that was fined, but also its German parent company, Deutsche Telekom, jointly and severally. We are curious to see how this will be implemented in practice by the OPC.
According to the OPC, this regulation will also help victims in recovering damages. Civil courts are bound by the competition authority's decision as to who committed the anticompetitive conduct. By naming the parent company in the decision, the court will be bound also with regard to the (possibly more solvent) parent company.
When the association of undertakings cannot afford to pay the fine
When imposing a fine on an association of undertakings (chambers, sectoral associations, etc.), the OPC may, from 2018, use the turnover of its individual members as the basis for calculating the fine. As a rule, the associations themselves do not achieve any turnover and the fine would not be significant. Even in the case of a fine imposed in a fixed amount (the OPC may impose a fine of up to CZK 10 million), the association itself might not have the means to pay it. The fine is therefore the responsibility of its members.
The amendment to the CCA introduces graduated liability for fines in line with the requirement of the ECN+ Directive. If the association itself is unable to pay the fine, the entities represented on the association's decision-making body are liable for the payment of the fine – up to 10% of their annual turnover. Only if the fine is not paid in this way shall each of the members of the association be liable for its payment. Exceptions to this obligation are members of the association who were not members at the time of the anticompetitive conduct and those who can prove that they did not implement the association's decision and at the same time did not know about it before the administrative proceedings were initiated or refused to do so.
In its practice, the OPC has already in the past exonerated undertakings from liability that have demonstrably disagreed with the decision of the association and reported it to the OPC.
This amendment will further increase the need for an effective compliance programme and its control, especially in situations involving companies whose representatives participate in the decision-making bodies of the association. Their misconduct may expose these companies to direct liability for fines (as opposed to other members).
Who gets blacklisted?
For a "normal" cartel agreement, the wrongdoer may be "only" subject to a hefty fine and an obligation to pay damages in civil proceedings. In addition, the individuals involved may be punished in criminal proceedings. However, if the cartel was committed in the context of public procurement, the range of possible sanctions is wider. In such a case, not only a natural person but also a legal person may be punished in criminal proceedings for an anticompetitive agreement in the context of public procurement. In addition, the entity who was party the agreement may be banned from performing public procurement contracts in the proceedings before the OPC; in other words it may be placed on a blacklist.
This sanction has undergone significant changes in the framework of the amendment to the CCA – not only on the basis of the draft amendment prepared by the OPC, but also thanks to the initiative of some MPs. We wrote about the fact that concluding a settlement with the OPC will not automatically lead to the impossibility of imposing a ban, but only to a reduction of the maximum duration of the ban in our last article. Now we are dealing with the sanction itself, which has been modified only in the Chamber of Deputies of the Czech Republic.
Until now, the prohibition on the performance of public procurement contracts has been defined as a prohibition on participation in a tendering procedure, a prohibition on applying for participation in a dynamic purchasing system and a prohibition on concluding a contract for the performance of small-scale public contracts. After the intervention of MPs, it is defined (in a bit of a circular way) as a prohibition on concluding contracts for the performance of public contracts.
An exception to this prohibition was then also created in the Chamber of Deputies. The prohibition does not apply in cases where the conditions for awarding a public contract through a negotiated procedure without publication (JŘBU) are fulfilled, i.e. in the situation "where the award of the public contract is necessary as a result of an extremely urgent circumstance which the contracting authority could not have foreseen and did not cause, and the time limits for the open procedure, the restricted procedure or the negotiated procedure with publication cannot be met." These are also the conditions for the award of a public contract in the framework of JŘBU, which are also laid down in the Public Procurement Act.
We are curious to see how this exception will be applied in practice and whether there is a risk of contracting authorities overusing the institute of JŘBU for purposes other than those intended.
In addition, the MPs also extended the impact of the prohibition beyond public procurement to cartel agreements in connection with the conclusion of public passenger transport service contracts, with the proviso that the prohibition may also be imposed on the performance of such services. The reason is that the subject matter of these contracts, in spite of not being a public procurement contract, their performance is nevertheless directly linked to the funds allocated from public budgets.
It does not pay to obstruct the investigation
As part of the amendment to the CCA, the provisions on fines for procedural offences and order fines have also been substantially amended - following the ECN+ Directive. The aim is to ensure that these fines are not significantly lower than the fines for the anticompetitive conduct itself. It may then be more profitable for competitors to obstruct the investigation and have these fines imposed.
Something similar happened to the Lithuanian Competition Authority: The companies suspected of having entered into a cartel prevented the competition authority's staff from accessing their servers for two hours during an onsite inspection. When the competition authority finally got access, it found that some information had been deleted from the servers in the meantime. The Lithuanian Competition Authority then fined the companies a total of EUR 1.1 million for obstructing the onsite inspection. However, the fines the companies would have faced for the cartel were significantly higher.
The CCA generally distinguishes between "procedural" offences of undertakings – both natural and legal persons – (in particular failure to provide cooperation in the onsite inspection and failure to provide information, or provision of false or incomplete information) and order offences of anyone (so far only failure to provide information to the OPC request for information and documents, or provision of false or incomplete information). For "procedural" offences, an undertaking can be fined up to 1% of annual turnover or up to CZK 300,000 (whichever is higher). A fine of up to 1% or CZK 100,000 may be imposed for an order offence. This can also be done repeatedly up to a total of 10% of the annual turnover or CZK 1 million. In addition, according to the Administrative Code, a fine of CZK 50,000 can be imposed on anyone who fails to appear without a proper excuse at a summons issued by the OPC (which rarely conducts oral hearings) or disobeys the instructions of an OPC officer (e.g. during an onsite inspection).
Newly, natural persons who are not undertakings may also commit "procedural" offences. These include breaches of the obligation to provide complete, correct and truthful information in response to a request for information and supporting documents from the OPC and the obligation to sustain a onsite inspection at the premises of the undertaking under investigation. In the second case, it concerns situations where the owner of the business premises of the investigated undertaking is a natural person who is not an undertaking and this person would in some way want to prevent the onsite inspection.
Further, in addition to the failure to provide information, a fine of CZK 300,000 or 10% of the undertaking’s average daily turnover (whichever is higher) may be imposed, for an order offence, on anyone for failure to appear before the OPC. The limit expressed as a fixed amount for repeated imposition of a fine has also been increased from CZK 1 million to CZK 10 million.
There can be no doubt that the OPC is prepared to impose such newly modified fines. This is evident, for example, from its activities in the last year, when it repeatedly imposed fines for obstructing onsite inspection at the very legal limit (we wrote, for example, here).
In the context of the ECN+ Directive, the amendment to the CCA also newly introduces a periodic penalty for non-compliance with a so-called non-monetary obligation, i.e. an obligation resulting from a decision (typically, for example, a measure imposed to remedy an anticompetitive situation) or commitments entered into (whether in the context of anticompetitive agreements, abuse of dominance or merger clearance proceedings). Until now, the OPC has only had at its disposal an enforcement fine in the Administrative Code (periodic imposition of fines up to CZK 100,000). Alternatively, it has used the possibility of imposing a fine for the misdemeanour of non-compliance with an obligation (e.g. in the REWE case or more recently in the XXXLutz case), but in these cases the punishment did not take place until several years later. However, it is much more effective if the undertaking knows that the sooner it complies with the commitment, the less severe the fine will be.
According to the amendment to the CCA, for each day of non-compliance with the imposed obligation, the OPC will be able to impose a fine of CZK 300,000 or 10% of the competitor's average daily turnover (whichever is higher). The limit for the total amount of fines imposed is CZK 10 million or 10 % of the undertaking’s annual turnover, whichever is higher.
Do you have no assets in the State of jurisdiction of the competition authority? Never mind!
If the competition authority has imposed a fine for anticompetitive conduct on a foreign entity that had no assets in the Czech Republic, it did not have much chance of recovering the fine abroad until now. With the amendment to the CCA transposing the ECN+ Directive, the OPC will be able to request the competition authority in another EU Member State where the foreign entity has assets to enforce the fine. It does not matter whether the fine is for anticompetitive conduct, a "procedural" offence or a periodic penalty.
Similarly, the Customs Office for the South Moravian Region may (not the OPC) can enforce a fine imposed by a competition authority in another Member State against an entity with assets in the Czech Republic.
The basic criterion for both cases (apart from the absence of assets of the competitor in the territory of the “requesting State”) is that the fine is imposed in application of Articles 101 or 102 TFEU.
So, we ask, will the OPC now apply these EU provisions more “just to be sure”?
Conclusions
Even at the end of the last episode of the series on the amendment to the CCA, we can safely conclude that the position of the OPC vis-à-vis undertakings has been significantly strengthened and tilted in its favour. Overall, the OPC has been given strong weapons, well beyond what is required by the ECN+ Directive, which aims precisely at strengthening the position of national competition authorities. It will soon be clear what the OPC will do with these weapons, as the amendment to the CCA actually comes into force in a few days – on 29 July 2023. Therefore, we would like to offer a friendly reminder: sanctions should not only be effective and dissuasive, but also proportionate.
