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  • Lawyr.it Launches Issue 5

    Our friends at the student-powered legal journal Lawyr.it just launched their 5th issue.

    The issue features a wide-ranging selection of articles tackling problematic issues like liability for lack of conformity with contracts in Consumer Law and the applicability of the ‘responsibility to protect’ doctrine in Syria, as well as reflections over the advantages and drawbacks of referenda.

    For tort law enthusiasts there is a debate on whether responsibility for autonomous drone malfunctions should belong to the engineers or the programmers. 

    Last but not least, the journal premieres the ‘Question of the Issue’ section, where a number of top tier CEE lawyers answer the question ‘What do you consider to be the most valuable quality or skill a lawyer should have to acquire success?’

    The publication also announced an open call for students to join their team.

     

     

  • Squire Sanders Advises on USD 150 Million Investment in Russian E-Commerce Group

    Squire Sanders has advised Ozon Holdings, Russia’s leading e-commerce and on-line retail group, on a USD 150 million fund raising from Sistema, the largest publicly traded diversified holding company in Russia, and Mobile TeleSystems (MTS), the leading telecommunications group in Russia and the CIS. 

    Structured as an issue of new shares to the investors, the transaction sees Sistema and MTS each acquire a 10.8% stake in Ozon Holdings. The group is comprised of five companies each covering different aspects of e-commerce: OZON.ru, the leading online store in Russia; O-Courier; its dedicated parcel delivery service; OZON.travel, the online travel agency; Sapato.ru, the online shoe and apparel retailer; and OZON Solutions, the b2b service supporting other companies with their e-commerce strategies.  Proceeds from the deal will support continued company growth, including expansion of product lines and delivery infrastructure in Russia. 

    The Squire Sanders team was led by Partners David Wack and Chris Rose, supported by Associate Julie-Anne Lucchetti, and involved lawyers from the firm’s Moscow, London and Birmingham offices.  “I am pleased we could support our clients and the varied shareholders of Ozon in this complex deal,” commented David Wack.  “It will see significant investment for growth in Ozon’s multiple businesses,” explained Chris Rose, “and marks a new record in a single investment round in Russian e-commerce.”

     

  • Vegas Lex Names New Partner and Counsel

    The Russian Vegas Lex law firm announced that Yury Bortnikov, the Head of the firm’s International Projects group, has become Partner, and that Nikolai Andrianov, in the firm’s Real Estate, Land & Construction Practice, has become Counsel. 

    Bortnikov focuses on large M&A transactions, joint ventures, international deals, foreign investment, and international commercial disputes. VEGAS LEX Managing Partner Alexaner Sitnikov commented on the promotion: “The firm is gaining more weight in the market of multi-jurisdictional projects. A growing number of the leading international brands and companies from all over the world entrust Vegas Lex to provide legal support for their business in Russia and abroad. Yury Bortnikov is a respected expert of international law, who is trusted by foreign companies. He will continue to represent their legal interests in his new capacity.” 

    Commenting on his appointment, Bortnikov said: “It is an honor to be promoted to the Vegas Lex Board of Partners. It is a new achievement in my career, and I hope that the experience I gather in my new capacity will allow me to continue to promote the firm’s international projects branch and help win the leading position for the firm in this market.”   

    Andrianov has provided legal support for urban developments (including the construction, development, reconstruction, and maintenance of real property) and has represented clients’ interests in court for over 10 years. During his time with Vegas Lex, he published over 100 research papers, articles, and analytical reports. “Nikolai Andrianov is a top professional who is highly respected by market players,” said Igor Chumachenko, a Vegas Lex Partner and Head of its Real Estate, Land & Construction Practice. “He is respected in the market not only for his professionalism, but also as one of the best authors who contribute to the branch media.”   

     

     

     

  • Competition in Austria: Cartel Damage Claims in Austria – A Boost From the Legislator?

    Competition in Austria: Cartel Damage Claims in Austria – A Boost From the Legislator?

    Private antitrust litigation in Austria has developed significantly over the past few years. The increase of enforcement decisions by the Austrian cartel courts with sometimes hefty fines against members of cartels also increased the number of damage claims brought before Austrian civil courts. After the Cartel Court “elevators and escalators cartel” decision of 2007 was confirmed by the Supreme Court in 2008, a significant number of public and private customers initiated private antitrust litigation before the Commercial Court in Vienna in 2010 and 2011. No damages have yet been awarded in these cases, as the judges have so far been dealing with a number of legal arguments invoked by the defendants (such as statute of limitations or liability of directors and/or mother companies of the members of a cartel) on which Supreme Court decisions were obtained in the meantime. However, there are also other relevant pending cartel damage claim cases, including one brought by a payment system operator following a Cartel Court infringement decision of 2006 (confirmed by the Supreme Court in 2007) regarding fees charged by the market leader for access to its POS terminals in shops.

    The development of Austrian private antitrust litigation is expected to be further promoted by amendments to the Austrian Cartel Act in March 2013. The new Austrian law anticipates many elements of the EU directive on antitrust damages claims and EU recommendations on collective redress, which should be adopted by the European Parliament in April 2014. 

    The Austrian Cartel Act now stipulates, inter alia, that a damage claim by a cartel victim shall not be dismissed merely because the cartel victim itself passed the cartel overcharge on to its customers (section 37a para 1, second sentence). It is still unclear how this will affect the use of the “passing-on defence” in the future. Hence, this is still to be clarified by the Austrian Supreme Court.

    Austrian civil procedure law empowers the court to determine, at its discretion, the amount to be compensated if the plaintiff’s entitlement to damages is clear but the specific amount cannot be ascertained in the proceedings (or only with disproportionate difficulties). Now the Cartel Act clarifies that in determining the amount of damages any advantage gained by the tortfeasor as a result of the infringement can be taken into account (section 37a para 1, third sentence). 

    Damage claim proceedings based on competition law infringements can be suspended by civil courts for the duration of competition proceedings regarding the alleged  infringement (section 37a para 2).

    Civil courts shall be explicitly bound by the decisions of the Cartel Court, the European Commission, or other national EU competition authorities finding a competition law infringement (section 37a para 3). 

    Furthermore, the three-year limitation period under sec 1489 of the Austrian General Civil Code for “follow-on claims” shall, in cases investigated by a competition authority, be suspended for six months after a competition authority’s decision establishing the violation has become final (section 37a para 4).

    Moreover, the new law aims to promote private enforcement of competition law by establishing that final and binding decisions on, inter alia, the prohibition of competition law infringements or the establishment of past infringements and the imposition of fines shall be published. The names of parties and the essential contents of decisions as well as the sanctions imposed shall be included in this publication. The publication is intended to give potential cartel victims better access to information for damage claims.

    There is no case law yet on the substantive rules summarised above (given their applicability only to competition law infringements as of March 2013). However, there have been some other important decisions in 2013. In a judgment of December 16, 2013 (Case no. 6Ob186/12i), the Austrian Supreme Court confirmed that a claim was not time-barred because the trigger date for the statute of limitations for such damage claims was only the date of publication of the final and binding decision in the cartel proceedings, rather than media reports on the cartel or the announcement of such claims by the plaintiff. 

    In another case of significant importance for cartel damage claims, the ECJ ruled on  June 6, 2013 (case no. C-536/1), that an Austrian statutory provision in the Cartel Act which makes access by prospective damage claimants to the Cartel Court’s case file conditional upon consent by both the authority and the members of the cartels was contrary to Art.101 TFEU, as it violated the so-called “effectiveness principle” of EU competition law. Any refusal of access should therefore be considered document by document. Disclosure should be withheld only for overriding reasons, and in particular when it might undermine the effectiveness of leniency programs by deterring prospective applicants from coming forward. The Cartel Court will have to rule on the request for access to the file on the basis of the ECJ decision, disregarding the Austrian statutory provision.      

    By Axel Reidlinger, Partner, Freshfields Bruckhaus Deringer

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in Bosnia & Herzegovina: Competition Issues in the Bosnia and Herzegovina Telecommunication Market

    Competition in Bosnia & Herzegovina: Competition Issues in the Bosnia and Herzegovina Telecommunication Market

    The central government’s power in Bosnia and Herzegovina  (“BiH”) is limited, as the country is largely decentralized and consists of two autonomous entities, the Federation of Bosnia and Herzegovina (“FBiH”) and Republika Srpska, with the Brcko District as a third region. Bosnia and Herzegovina is thus a prime example of an administratively, politically, and legally complex country in transition. Legislation is adopted on the state, entity, and – in FbiH – cantonal level, depending on the allocation of competences. 

    Nonetheless, and despite the complex legislative and political structures, which sometimes represent a challenge for conducting business, BiH has a clear goal: membership in the European Union. The institutions and competent bodies are therefore constantly engaged in an ongoing – albeit slow – process of harmonizing domestic legislation with EU law. This is reflected in the Competition Act of BiH, as well as the Competition Council of BIH (“CC”), established in 2004.

    As BiH has an express obligation to harmonize its legislation with EU law, it is no wonder that the Competition Act is modeled after and is substantively equal to EU competition rules. Moreover, the Competition Act of BiH explicitly states that the CC may in its work use the practice of the Court of Justice of the EU and the decisions of the European Commission as guidance. This suggestion has been adopted by the CC in practice, especially in matters of merger control and abuse of dominant positions. In 2013 the CC adopted eight antitrust decisions and 16 merger decisions and issued 25 official opinions. Eight mergers were dismissed, while the other were authorized unconditionally. The CC imposed fines totaling about EUR 1.8 million on companies that infringed competition rules. 

    Despite this progress, the field of telecommunications has in recent years mostly been ignored by the CC, although competition on the market was generally limited. In 2011 a procedure against one of the three dominant operators in BiH was rejected by the CC in a decision which left more open questions than it provided answers, mainly because it did not state what the alleged abuse had been. However, the BiH Communications Regulatory Agency (“Agency”) has in recent years focused on the implementation of regulation goals, set out by the Council of Ministers of BiH on the Telecommunications Sector Policy of BiH for the period 2008-2012. All the activities undertaken by the Agency are based on a common aim: to create prerequisites for further market liberalization and to improve the level of competition. It seems that this has now led the CC to start looking deeper into the Telecommunication sector.

    Last year the CC found that the Iko Balkan S.R.L media company had abused its dominant position in the market by imposing conditions regarding the minimum number of subscribers in its sale of rights for the distribution of channels that included football contents of high quality, including the transmission of packets of Live English Premier League in BiH, and thereby restricted competition in the market. The CC assessed that football content of high quality is a very differentiated product, which does not have an adequate replacement and is not generally interchangeable, in that – for instance – a consumer who follows the German Bundesliga matches will not consider matches of the English Premier League an adequate substitute, and vice versa. IKO Balkan was fined BAM 125,000 (approximately EUR 64,000) for infringement of the Competition Act. 

    In a more recent decision, the CC found that BH Telecom Sarajevo, one of the incumbent telecommunications operators in BiH, had abused its dominant position in the market by forcing parties who wanted to sign an interconnection agreement to its fixed network to accept additional obligations which, by their nature, have no reasonable connection with that kind of agreement. Operators with significant market power (of which BH Telecom is one) prepare reference interconnection offers (“RIO”) – documents describing conditions and modes of connection to their infrastructure – and the Agency gives consent to the contents and conditions contained therein. Operators with significant market power lay out their infrastructure through RIOs to alternative operators when providing certain telecommunications services. BH Telecom had a dominant position in its market and, as such, a special responsibility and obligation to provide interconnection to its network under the conditions set forth in the RIO documents. The CC fined BH Telecom BAM 150,000 (approximately EUR 76,000) for abuse of dominant position in the market for interconnection.

    While the meaning and impact of these cases is subject to further discussion – for example to determine if the relevant market was appropriately identified – they clearly show that a liberalization of a market will also cause the CC to react accordingly. The  question is if market players in BiH are ready for upcoming competition issues.  

    By Nedzida Salihovic-Whalen, Partner, Robert Kordic, Managing Associate, and Zlatan Balta, Associate, CMS Reich-Rohrwig Hainz

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in Bulgaria: Bulgaria Proposes to Introduce Rules on Significant Market Power

    Competition in Bulgaria: Bulgaria Proposes to Introduce Rules on Significant Market Power

    In March 2014 MPs from the parliamentary majority in Bulgaria proposed a bill for amendments to the Bulgarian Law on Protection of Competition (“LPC”). The stated purpose of the bill is to introduce rules to combat unfair practices in the retail sector.

    Background

    The legislative proposal, which received an endorsement from the Government, is the most recent development in a long standoff between large (mostly international) retailers and smaller (mostly local) suppliers. In recent years suppliers have repeatedly complained that large retailers have used their superior bargaining position to impose unfair commercial terms in supply contracts. Based on these complaints, in 2009 the Commission on Protection of Competition (“CPC”) started a full-fledged investigation against six large retailers for alleged abuse of dominance and horizontal coordination through the application of similar and allegedly unfair commercial terms in vertical agreements with suppliers. However, since the concentration of retail in Bulgaria is low (as of 2013 the market share of “modern trade” was below 45% and the market share of the largest retailer was about 10%), the abuse of dominance investigation was terminated. The cartel investigation was concluded in 2012 with a settlement decision pursuant to which the retailers agreed not to use in supply agreements:  (i) clauses obliging suppliers to extend any reduction in the supply price that had been offered to another retailer, or (ii) clauses preventing suppliers from launching simultaneous promotions of one and the same product in different retailers. However, other practices and clauses that were commonly used by some retailers and viewed by suppliers as unfair were not addressed. Therefore, over the past couple of years there has been mounting pressure for adoption of legislation that would balance interests in the retail sector. Since 2010 the Government has submitted a couple of proposals for amendments to the LPC but legislation has not been passed, partly due to the absence of  sufficient consensus on the nature and scope of legislative intervention that is needed.   

    The Proposed Amendments to the LPC

    Against this backdrop, the new bill provides for three main legislative changes:

    • First, it introduces the concept of Significant Market Power (“SMP”) in the LPC, which is defined as a position held by an undertaking which is not dominant, but due to its market share, financial resources, access to markets, technological development, and established relations with other undertakings, may nevertheless distort competition on the market because its suppliers or customers are dependent on it. 
    • Second, and without clear relation or relevance to the concept of SMP, the bill introduces into  the LPC a requirement that retailers with annual turnover in excess of BGN 50 million (approximately USD 36.2 million) submit their general terms for supply contracts to the CPC yearly for review and approval. Once approved the terms would be published on the Internet and applied to all agreements with suppliers.
    • Third, the bill introduces changes in the Law on Foods pursuant to which retailers with annual turnover in excess of BGN 50 million would be prohibited from applying certain blacklisted clauses and practices in agreements and dealings with suppliers. 

    Issues of Concern

    Competition law practitioners and interested parties have raised concerns with the proposed legislation, including, among others, concerns about the scope and nature of the blacklisted practices and clauses (some of those are not identified as unfair in the recent Green Paper of the European Commission on Unfair Trading Practices in the Business-to-Business Food and Non-food Supply Chain in Europe); and due process concerns regarding the procedure for approval of general terms of supply agreements by the CPC and the level of penalties for abuse of SMP, etc. However, the issue which appears to stand out is whether unequal bargaining position and alleged unfair trading practices in the retail sector would be addressed through the introduction of new provisions on unilateral conduct in competition legislation. The bill does not consider issues of abuse of SMP in the context of specific bilateral relationships between entities with unequal bargaining position where the weaker party may be forced to accept certain unfavorable conditions because it does not have any other viable economic alternative. Rather, it introduces SMP in the provisions of LPC dealing with unilateral conduct and as a result the new institute would have universal applicability to all business dealings of certain category of undertakings without regard to the nature of their respective bilateral relationships. 

    Another effect of the legislative approach is that the established rules on dominance may be undermined by the new institute of SMP. The distinction between the two concepts may easily be blurred and dominance may lose its practical significance. Although Regulation 1/2003 permits member states to introduce stricter national rules on dominance, it is unclear how the introduction of this stricter test corresponds to the stated purpose of the bill. Surely, the introduction of SMP in the rules on unilateral conduct has much broader policy implications. Its effects spread far beyond the retail sector and those effects have not yet been fully assessed by the proponents of the bill.

    By Nikolai Gouginski, Partner, Djingov, Gouginski, Kyutchukov & Velichkov

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in Hungary: Introducing a Suspension Obligation into Hungarian Merger-Control Law

    Nowadays important business opportunities often require immediate decisions. Such opportunities may arise at companies to be acquired, during, for example, the few months between the signing of an acquisition agreement concerning the company and the closing of the transaction envisaged by said agreement.

    Acquirers are, for a few months, still in a comfortable position in Hungary when they intend to ensure that target companies operate properly and do not miss opportunities during the interim period between the signing of the acquisition agreement and the closing of the transaction. For example, they can replace the target’s management with their own people, can get involved in strategic decision-making, and can even integrate the target into their own group. There is no suspension obligation or mandatory waiting period under Hungarian merger-control law, so the parties are allowed to implement the transaction prior to the receipt of approval from the Hungarian competition authority (the “Gazdasagi Versenyhivatal”, or  “GVH”). Obviously, acquirers run the risk that the GVH will eventually decide to prohibit the transaction, but in most cases where the concentration does not raise significant competition-law concerns, the risks are minimal in practice. 

    However, a recent amendment introduced a suspension obligation into Act LVII of 1996 on the Prohibition of Unfair Market Practices and the Restriction on Competition (the “Competition Act”), setting out Hungarian merger-control law, to take effect July 1, 2014. Transactions concluded after this date must not be implemented in the absence of (i.e., prior to the receipt of) the GVH’s approval. In this context, for example, acquirers must not exercise any voting rights attached to the ownership interests to be acquired, and they must not exercise their right to appoint or elect the target’s executive officers. Further, the target’s business decisions must be adopted and the business relations between the parties must be operated on the basis of the pre-transaction situation – i.e., the acquirer and the target must remain independent. This prohibition remains in force until the completion of any condition possibly attached to the GVH’s approval. The GVH may impose a fine for early implementation (for ‘jumping the gun’ as it is called in EC practice) by the acquirer.

    There are certain exceptions to this general prohibition: 

    • public bids, or 
    • the conclusion of the transaction agreement, or
    • other agreements and statements on the basis of the above, provided that the actions do not result in the exercise of the acquirer’s controlling rights, or
    • transactions classified as strategically significant by the Government.

    Further, consent can be sought from the GVH for the pre-clearance exercise of controlling rights, e.g., to preserve the value of the investment, and the GVH may set conditions to, or may impose conditions for, its consent.

    To be fair, this change merely brings Hungarian merger-control law in line with EC Merger Regulations and most EU member states’ merger-control laws, which all contain a suspension obligation. However, companies should keep this change in mind when planning and structuring their deals. There are many practical solutions by which unintended violations can be avoided and the target’s proper operation during the interim period can be ensured. For example, an observer can be appointed, the transaction agreement may prescribe how the target should operate during the interim period, or a consent can be requested from the GVH for the pre-clearance exercise of controlling rights. The GVH will presumably only rarely grant its consent, and only for certain actions, and the conditions of such consent are yet to be developed in practice.

    Therefore, parties may prepare for such suspension obligations and for the interim period between signing and closing if the transaction lawyers adopt international practice. 

    However, target companies’ business partners face significant legal risk, often without even being aware of it, during the interim period. The Competition Act’s Section 29/A (4) expressly provides that deals and statements violating the suspension obligation and/or the terms of the GVH’s consent are null and void if the GVH prohibits the concentration. This means that the target company’s business agreements concluded during the interim period on the basis of the acquirer’s illegal control over its business decisions are null and void, even if they are lawful in all other aspects. Although the acquirer can not refer to the nullity, the target company, for example, may do so vis-á-vis its business partners. Such business partners can then only sue the acquirer for damages.

    In summary, the introduction of the suspension obligation into Hungarian merger-control law will not materially alter day-to-day M&A practice, but parties should prepare for the interim period by including provisions on the supervision of the target’s business into the transaction agreement. The amendment also increases the legal risks for target companies’ business partners. Such legal risk can be mitigated by inquiring about any possible concentrations involving business partners and by seeking expert legal advice in order to assess the legal risks resulting from the merger-control process.     

    By Peter Voros, Partner, Kajtar Takacs Hegymegi-Barakonyi Baker & McKenzie

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in the Czech Republic: Is Prior Judicial Consent Required for a Dawn Raid? Czech Legal Battle Now Pending Before European Court of Human Rights

    Competition in the Czech Republic: Is Prior Judicial Consent Required for a Dawn Raid? Czech Legal Battle Now Pending Before European Court of Human Rights

    It has been a long and arduous road for Delta Pekarny, one of the largest companies on the Czech bakery market. For more than ten years the company has sought to have its right to privacy protected as guaranteed by Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“Convention”). Now, after all domestic instances have been unsatisfactorily exhausted, Delta Pekarny’s last hope lies in the hands of the European Court of Human Rights in Strasbourg (“European Court”), which admitted Delta’s application and began to deal with the case in 2013. In turning to the European Court, Delta Pekarny seeks a declaration that its right to privacy in its place of residence was violated by the Czech state, or more precisely by the Czech Antimonopoly Office (“Office”). 

    It all started with a dawn raid carried out by the Office at Delta Pekarny’s business premises on November 19, 2003. Without informing the company of any particular reasons for the inspection or presenting any evidence to justify the raid, the Office’s inspectors entered the premises based only on a notice of administrative proceedings. In the notice, the Office only pointed to Delta’s “possible violation” of Section 3 (1) of the Czech Competition Act (an equivalent of Article 101 (1) of the Treaty on the Functioning of the EU), represented by alleged “conduct of the participants to the proceedings in mutual concert in determining the sales prices of bakery goods”. 

    The notice, however, was not in the form of a formal decision and was not preceded by any other decision that could have been reviewed any time before or after by independent judicial authorities. Consequently, the inspection was initiated and carried out exclusively on the basis of the Office’s notice, which only included a general reference to the statutory provision that Delta had allegedly violated. 

    Nevertheless, the inspectors demanded access to all Delta Pekarny’s business records and e-mail correspondence, which they copied and most of which they took with them even though – as it later turned out – the documents were unrelated to the subject matter of the raid. As Delta Pekarny refused to grant the Office access to all of its employees’ correspondence, including private correspondence, the Office imposed a penalty on Delta in the maximum amount permitted by Czech legal regulations at that time. 

    Following the inspection, Delta Pekarny actively sought redress against the Office’s conduct. Eventually, the case was dealt with by Czech courts, including the Czech Supreme Administrative Court and the Czech Constitutional Court. During the proceedings, Delta claimed its rights had been violated, in particular, by referring to a previous decision of the European Court from April 12, 2002, Société Colas Est and Others v. France, in which the European Court concluded that prior judicial consent for the dawn raid on that company was necessary. 

    Delta Pekarny failed to gain the support of the Czech courts, which denied its claim for protection of privacy as guaranteed by Article 8 of the Convention and refused to apply the Societe Colas judgment to the case. Delta Pekarny is now seeking redress before the European Court, maintaining that the Office had no right to enter Delta Pekarny’s premises and to demand, with the threat of a penalty, to inspect all its documents and correspondence without any justification and without prior review by an independent court that would have acted as an effective guarantee of Delta Pekarny’s rights as prescribed by the Convention.  

    It is now up to the European Court to decide whether the Office’s inspection, which did not have prior approval of an independent court but was formally carried out in compliance with Czech national laws, can be considered proper from the perspective of internationally protected human rights and thus necessary in a democratic society within the meaning of Article 8 (2) of the Convention.   

    The European Court’s final decision in this matter might thus be of considerable importance to all business competitors from states that signed the Convention and whose national law does not require prior judicial consent for an inspection by the national competition authority, since victory for Delta Pekarny could be a significant precedent they can refer to if they happen to find themselves in a similar situation in the future.     

    By Pavel Dejl, Partner, and Martin Krcmar, Associate, Kocian Solc Balastik

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in Croatia: Croatian High Administrative Court Officially Lays 2003 Competition Act to Rest

    Competition in Croatia: Croatian High Administrative Court Officially Lays 2003 Competition Act to Rest

    Croatian Competition Law is based on the third version of the Croatian Competition Act (the “Act”). The current statute was adopted in 2009 and entered into force on October 1, 2010, superseding the long-standing (at least by Croatian standards) 2003 version of the Act. While the 2009 Act is certainly not perfect and contains a number of suspicious legislative solutions, it was praised almost universally for one important feature: It finally provided weapons to the Competition Agency (the “Agency”).

    The first 14 years of antitrust enforcement in Croatia (1997-2011) were characterized, more often than not, by the Agency’s fruitless endeavors to steer market behavior of non-compliant undertakings in the right direction. One of the main reasons for the relative ineffectiveness of Croatian antitrust enforcement during that period was the Agency’s inability to levy fines for antitrust violations. While the 2003 Act provided that violations should be sanctioned with monetary fines of up to 10% of the undertaking’s annual turnover, and while the Agency successfully established violations of Croatian Competition Law in particular cases, determining the actual punishment remained in the hands of the misdemeanor courts, which were forced to analyze and consider complex antitrust issues in-between multiple hearings involving allegations of speeding or other common forms of public misbehavior. Obviously, the system was ill-equipped to support effective enforcement of the competition laws, and it was thus no surprise that only occasionally would cases end with actual monetary fines – and even fewer with fines of more than nominal significance (the highest reported fine being in the range of about EUR 240,000).

    Unfortunately, although the 2009 Act and its provisions for fines for antitrust violations (generally modelled on EU solutions) have been welcomed by the interested public hoping for new vigour in the Agency’s enforcement activities, problems have arisen as well. The vigour indeed came, but to great surprise, it was inter alia directed towards undertakings found to be in breach of the Competition Law rules under the previous regime. Apparently, after several decisions of the misdemeanor courts concluding that the 2009 Act had revoked their authority to deal with Competition Law and remanding the cases under the 2003 Act back to the Agency, the Agency decided to exercise its newly-granted authority by imposing fines in these “old” cases.

    Besides legal and factual concerns related to the simple passage of time (some of the reopened cases refer to the Agency’s decisions dating back to 2006 and relate to events as far back as 2003), reopening of these proceedings posed serious challenges to the core principles of the Croatian legal system. Even conceding that legislators may have done a less-than-perfect job in “forgetting” to address issues of the cases pending before the misdemeanor courts under the 2003 Act, and appreciating the Agency’s reluctance to let violators go unscathed, the Agency’s decision to independently fill in the statutory gap by reopening cases closed under the “old” law necessitated all sorts of daring (to say the least) legal constructions. And in addition to struggling with substantive and procedural technicalities (e.g. by “creating” procedural steps for initiation of these special proceedings or by claiming that the relevant legal provisions in the 2009 Act read the same as in the 2003 Act so that the new fines could be applied equally), the Agency also disregarded fundamental legal principles such as double jeopardy and the prohibition of retroactive application of punitive measures.

    Fortunately, the Agency’s approach was not endorsed by the controlling court. In its recent judgment, the Croatian High Administrative Court expressly confirmed that the Agency had overstepped its boundaries and annulled its decisions imposing fines for violations that had happened during the validity of the 2003 Act. The High Administrative Court’s succinct and straightforward statement of reasons not only expressly confirmed that the Agency “overstretched” on several basic legal principles, but also  serves to highlight the blatant nature of the Agency’s error. Simply put, even an obvious legislative omission cannot be easily filled in by a competent public authority (such as the Competition Agency).

    This judicial intervention comes too late to prevent major costs both on the public (the Agency had to commit significant resources and time to purse these old cases) and on the entities directly involved in the reopened cases (including unrecoverable procedural costs and related fees, management time, etc.). However, we may hope that the judgment of the High Administrative Court will finally retire the 2003 Act and allow the Agency and the Agency’s new management to pursue more effective enforcement under the new competition law regime.     

    By Boris Andrejas, Partner, Babic & Partners

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Competition in Ukraine: Fair Business in Ukraine From a Competition Perspective?

    Competition in Ukraine: Fair Business in Ukraine From a Competition Perspective?

    While in many jurisdictions fair competition is safeguarded by consumer protection agencies, in Ukraine significant powers are allocated to the competition authority – the Antimonopoly Committee of Ukraine (the “AMC”). Investigations of any dishonest or fraudulent practices that may unfairly distort competition constitute about 16% of all cases handled by the AMC. In 2013, 1,259 violations of unfair competition laws were investigated by the AMC.

    The Law of Ukraine “On Protection Against Unfair Competition” (the “Competition Law”), adopted in 1996, distinguishes among the following main types of violations: (i) actions that are contrary to honest practices and involve illegal use of intellectual property or business reputation of another undertaking, e.g., parasitic copying; (ii) restrictive and discriminatory practices, e.g., dissemination of false or misleading information; and (iii) unlawful collection, disclosure, and use of trade secrets.

    Traditionally, the AMC pays primary attention to restrictive and discriminatory practices. According to the Annual Report of the AMC for 2013, 85% of all unfair-competition cases reviewed by the AMC last year were related to dissemination of misleading information by  market players, primarily in the course of advertising and promotional campaigns. The authority is convinced that dissemination of misleading information is one of the most destructive types of unfair competition, and fraudulently influences the end choice of consumers to purchase a particular product.

    For example, in 2013 the regulator prosecuted Nestle Ukraine LLC for failing to indicate the duration of a sales promotion offered on one of its product lines. The AMC also applied sanctions on several other global market players for indicating the dates of a promotion only on the internal side of the label and for having products available in stores after the promotion period had expired. 

    The maximum fine in the unfair competition area was imposed by the AMC on a local pharmaceutical company which indicated in its advertising campaign that 9 out of 10 Ukrainians chose its drug. No market studies could confirm the accurateness of this statement.

    Last year, the AMC concentrated its efforts on the foods and consumer goods markets. These socially important markets will likely continue to be the AMC’s focus in 2014 and beyond.

    In addition, a new trend in the prosecution of unfair-competition violations by the AMC has emerged: The AMC has started paying more attention to parasitic copying, which includes using a name, trademark, advertising materials, product-packaging design, or any other unique identifier of another undertaking. Along with restrictive and discriminatory practices, parasitic copying allows an undertaking to gain unlawful advantage over competitors, resulting in significant losses for good-faith market players. In the modern world, intellectual property is one of the key assets that ensure success in a competitive market. Its protection requires coordinated efforts from both from consumer protection agencies and from competition authorities. Despite the fact that the AMC has limited experience in investigating parasitic copying, it has proven to be an effective instrument to fight off the abusers.

    As far as the sanction list is concerned, the AMC is empowered to apply a broad spectrum of penalties for unfair business practices, including seizing infringing products or recalling them from the market. Yet fines remain the most common sanction applied by the AMC. In principle, they may reach up to 5% of the violator’s gross worldwide income (sales) for the fiscal year preceding the year in which the fine is imposed. As a practical matter, the highest fine imposed by the AMC for unfair competition so far approached USD 1 million (it was imposed in 2012). Since then, the AMC has expressed its intention to increase the amount of fines for any competition-law violations. However, the maximum fine imposed for unfair competition in 2013 was only about USD 115,000.

    In the context of the AMC’s declared intention to make its fines-policy stricter, it is of key importance for businesses to understand the procedure of fine calculation, which has not been made public. This is one of the main issues raised by the business and legal communities before the AMC to date. Following numerous requests and pleas, the AMC has prepared and internally adopted a methodology. The document is expected to shed some light on how the fines are being calculated and eliminate uncertainties within the business and legal communities, making the procedure more transparent. Due to some internal resistance, it is very difficult to predict when the AMC will publicly release this methodology.

    In light of the current political situation in Ukraine, the leadership of the AMC is undergoing substantial changes. The majority of the commissioners of the AMC are likely to be replaced. Yet one can hope that the new appointees will continue the AMC’s efforts in combating unfair competition and will apply the best practices available from other jurisdictions. 

    By Vladimir Sayenko. Partner, and Valentyna Hvozd, Senior Associate, Sayenko Kharenko

    This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.