Category: Czech Republic

Dentons has advised the CPI Property Group on a EUR 1.852 billion forward start facility to refinance the two-year bridge loans for the acquisitions of Immofinanz and S IMMO, extending their maturity until 2025. Reportedly, Linklaters advised the lenders.

According to Dentons, the new facility was provided by a syndicate of international banks, including Banco Santander as a global coordinator and underwriter, as well as Raiffeisen Bank International, Societe Generale, Komercni Banka, and Erste Group Bank.

CPI Property Group owns income-generating real estate in Europe, focusing primarily on the Czech Republic, Berlin, and the CEE region.

Last year, in 2021, Dentons advised the CPI Property Group on the EUR 2.5 billion Immofinanz takeover financing (as reported by CEE Legal Matters on December 20, 2021) and, earlier this year, on the EUR 1.25 billion S IMMO takeover financing (as reported by CEE Legal Matters on May 2, 2022).

Dentons’ team included Prague-based Partner Jiri Tomola, Counsel Martin Mandulak, and Associate Ondrej Vales, with further team members in Luxembourg.

BNT Attorneys has announced that Tomas Behounek will take on the role of Managing Partner as of August 30, 2022. At the same time, the firm promoted Peter Maysenhoelder to Equity Partner and Lenka Zachardova to Associated Partner.

Focusing on real estate and corporate/M&A, Behounek has been with the firm since 2005. He was appointed to Partner in 2008.

A German attorney, Maysenhoelder focuses on corporate/M&A and is in charge of the Corporate and M&A and Dispute Resolutions practices.

Zachardova, who is in charge of the accounting and tax advisory services, has been with the firm since 2014, having previously worked for LTA Legal Tax Audit between 2011 and 2014, Noerr between 2004 and 2010, and Roedl & Partner between 1995 and 2004.

On July 13, 2022, CEE Legal Matters reported that Onisko & Holesova, Planinic Soljic & Partners, and solo practitioner Klemen Ticar advised Kofola on its refinancing. CEE In-House Matters spoke with Martin Pisklak, Group Chief Financial Officer at Kofola CeskoSlovensko, to learn more about the matter.

CEEIHM: To start, tell us a bit about Kofola.

Pisklak: The Kofola Group is one of the leading producers and distributors of non-alcoholic beverages in Central and Eastern Europe. Besides the traditional Czech and Slovak markets where the group is a leader, it is also present in Slovenia, Croatia, and Poland. The group produces drinks with care and love in eleven main production plants. Key own brands include carbonated beverages Kofola and Vinea, waters Radenska, Studenac, Rajec, Ondrasovka, and Korunní, syrup Jupi, beverages for children Jupik, energy drinks Semtex, and UGO fresh juices and salads. In selected markets, the group distributes among others Rauch, Evian, Badoit, or Vincentka products and, under license, produces RC Cola, Orangina, Rauch, or Pepsi. Our annual consolidated revenues are about EUR 350 million.

CEEIHM: You were recently advised on a new credit line of up to CZK 1 billion. What is the capital intended for?

Pisklak: This new credit line is predominantly intended for production and commercial equipment.

CEEIHM: As reported by CEELM, the credit line “implemented a more efficient and flexible management structure of the currency risk.” Can you elaborate on how that looks in practice?

Pisklak: So far, the Kofola Group was financed in CZK only. However, approximately 60% of our business comes from countries with the euro currency. That is why we decided to change our debt structure from 100% CZK to 60/40% EUR/CZK. We were strongly motivated also by the huge difference between the PRIBOR and EURIBOR rates.

CEEIHM: What was the most complex aspect of the refinancing from a legal perspective?

Pisklak: Definitely the coordination between four jurisdictions: the Czech Republic, Slovakia, Slovenia, and Croatia. The legal requirements and procedures differ from country to country – especially pledges and other security procedures. As we are a listed company, we were also required to receive approval from our shareholders’ meeting. On the other hand, we are financed by a stable club of banks so the update of financing agreements was not difficult.

CEEIHM: And why did you pick Onisko & Holesova as your advisor on the matter?

Pisklak: The Kofola Group has been using the Onisko & Holesova law firm for more than 10 years and we are very satisfied with their proactive approach. Their scope of work is wide – reviewing sales/purchase contracts, corporate law agenda, due diligence work, SPA negotiation, litigations, and much more. They are able to cover the Czech Republic and Slovakia. They also coordinated the Klemen Ticar law firm in Slovenia and Planinic, Soljic and Partners law firm in Croatia.

Originally reported by CEE In-House Matters.

Former Noerr Co-Managing Partner Borivoj Libal has joined Eversheds Sutherland’s Prague office together with a team of three lawyers.

According to Eversheds Sutherlands, Libal will take on the role of Co-Managing partner of the Prague office at Eversheds Sutherland and will work together with Bernhard Hager, who has been leading Eversheds Sutherland’s Czech and Slovak practice since last year.

Libal specializes in corporate and M&A and joined Noerr’s Prague office as a Co-Head in 2019 (as reported by CEE Legal Matters on March 6, 2019). Earlier still, he was a Managing Partner at PwC Legal Czech Republic between 2015 and 2018. Libal also worked at Havel, Holasek & Partners as a Counsel between 2011 and 2015. He was a Lawyer at CMS from 2009 to 2011, and at Norton Rose from 2006 to 2008.

“We use all opportunities for our development, and this applies to both clients and our colleagues,” Eversheds Sutherland Managing Partner for the Czech Republic and Slovakia, Bernhard Hager commented. “Borivoj and I will gain rich experience from an international environment, and I personally look forward to new impulses and ideas.”

“I am delighted that Borivoj and his team are joining Eversheds Sutherland,” Eversheds Sutherland Europe Chairman Ian Gray added. “The expansion of the Prague branch is part of our overall plan for significant growth across continental Europe and follows on from our recent opening of new offices in Sofia, Bulgaria, and Frankfurt, Germany.”

It is common for employers and employees to agree on a probationary period in the employment contract. The employee can check whether the type of work, place of work and the wage or other working conditions suit them, while the employer can use the probationary period to assess whether the employee is meeting its expectations. During the probationary period, each party can decide whether they wish to remain in the employment relationship or to terminate it. 

Statutory requirements to arrange probationary period

The Labour Code sets out the conditions under which a probationary period may be agreed. The probationary period may be agreed in writing no later than on the day of commencement of work and may not be extended subsequently. The maximum length is three months, but it can be up to six months for managing employees. However, the probationary period may not be longer than half the agreed duration of the employment relationship. To ensure that the probationary period serves its purpose well, it is extended by law by the period of full-time absence from work and the period of full-time leave. Therefore, it is not practical to agree on a fixed date for the end of the probationary period, because then whole-day obstacles to work or leave (absence) could not extend it.

Cancellation of employment during the probationary period must be in writing, otherwise it will be disregarded. The Labour Code prohibits an employer from terminating an employee’s employment during the probationary period within the first 14 calendar days of the employee’s temporary sick leave (quarantine).

Termination for any reason: is it applicable in any circumstances?

In general, both the employer and the employee may terminate the employment relationship during the probationary period for any reason or for no reason at all. However, in the light of recent Supreme Court case law, this rule has ceased to apply. Although this is a simplified way of terminating an employment relationship, such an act must also be measured from the point of view of non-discrimination and equal treatment, as can be seen from the following case law.

The first time the Supreme Court stated that the termination of employment during the probationary period should be measured in terms of the non-discrimination rules was in a decision issued in 2009 (Case No. 21 Cdo 2195/2008). 

However, last spring the Supreme Court issued a rather surprising decision in the case of a pregnant forestry worker whose employer terminated her employment during the probationary period without giving any reason (21 Cdo 2410/2020). The employer and the employee had agreed on fixed-term employment from 1 March 2018 to 30 November 2018 with the type of work listed as forestry worker, and had also agreed on a three-month probationary period. In April of the same year, the employee informed her manager that she was pregnant and requested to perform alternative work. The employee’s manager informed her that he did not have alternative work for her and referred her to the company doctor, who subsequently issued a medical report stating that the employee was no longer fit to work as a forestry worker because the job involved heavy manual labour and working with chemicals that could endanger the foetus. Based on that medical opinion, the employer terminated her employment during the probationary period “without giving any reason”.   

In the case law in question, the Supreme Court expressed the opinion that although an employer may terminate the employment relationship during the probationary period even with a pregnant employee, it may not do so for reasons related to her pregnancy, because in such a case it would constitute impermissible discrimination. Consequently, the termination of the employment would be null and void and the employee could seek protection against discrimination by the legal means provided for in Section 10 of the Anti-Discrimination Act. This includes the right to demand that the discrimination be abandoned and that the consequences of the discriminatory intervention be eliminated, as well as the right to adequate compensation.

This applies not only if the employer explicitly cites the employee’s pregnancy as a reason for terminating the employment during the probationary period, but also if the employer does not state the reason in writing or states another reason contrary to the facts.

Discriminatory reasons

Even when terminating employment during the probationary period without giving a reason, employers must be very careful not to violate the prohibition of discrimination, and the decision to terminate employment must not be linked to any of the discriminatory grounds, namely sex (which includes pregnancy as well as maternity, paternity or gender identification), sexual orientation, racial or ethnic origin, nationality, citizenship, social origin, lineage, language, health, age, religion or belief, property, marital or family status and relationship or obligations to the family, political or other opinion, membership and activity in political parties or political movements, trade unions or employers’ organisations.

By Marie Gremillot, Attorney at Law, Schoenherr

An in-depth look at Vaclav Bily of PRK Partners covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

PRK Partners, Partner, 2013-present

PRK Partners, Attorney at Law, 2001-2013

Nobel & Hug, Trainee, 1999-2000

PRK Partners, Associate, 1996-1999

Gleiss Lutz Hootz Hirsch, Legal Assistant, 1994-1995

Education:

Charles University in Prague, Faculty of Law, PhD, Doctor of Jurisprudence, 2002

Europa Institut at University of Zurich, LLM in European Business Law, 2000

Charles University in Prague, Faculty of Law, Master of laws, 1996

Favorites:

Out of office activity: golf, history, old books

Quote: “Do unto others as you would have them do unto you.”

Book: The Metamorphosis by Franz Kafka; Bloody Novel by Josef Vachal

Movie: The Godfather, Pulp Fiction

Top 5 Projects:

Advising on the acquisition of the Czech real estate portfolio for Austrian real estate investor M&A RealConsult Group (followed by its sale after the client’s sudden death in an accident);

Advising on the acquisition of real estate in Prague and Pilsen for CA IMMO, including representing the client in insolvency proceedings regarding ECM REI;

Advising on the financing of solar power plants by UniCredit – more than 100 transactions within the last 12 years;

Advising UniCredit Bank in 2020 on acquisition financing for the Tekro agricultural group, with the aim to acquire four agribusinesses, one of them located in Slovakia;

Providing legal advice to a major investment group on the sale of the Main Point Pankrac office building in Prague (in the form of a share deal). The buyer was South Korean Hana Financial Investment, represented by the Mint Investments Group.

What would you say was the most challenging project you ever worked on and why?

Bily: Through the decades of working as a lawyer, and particularly working with PRK Partners, I have had a great opportunity to work on a vast number of highly interesting, innovative, and high-profile and high-impact mandates, which have provided plenty of challenges. However, one project that stood out was when my team assisted a Czech state institution with a tender in a public subsidy project. It was challenging mostly because the top representatives of the client had their own ideas on how to tackle the project, including the tender documentation but, unfortunately, these ideas were not really feasible under the laws applicable at that time. The mandate required not only knowledge of public tender legislation and sectorial knowledge, but also a great deal of diplomacy and negotiation skills when dealing with all of the interested parties, including our client’s representatives. In the end, the challenging conditions made us come up with a number of highly innovative and creative, yet legally sound solutions that remain in practice to this day.

And what was your main takeaway from it?

Bily: Apart from the usual – that stress and challenges bring out the best in people – I have validated for myself that it is important to always stay on track and to be tactful and open-minded in any situation. And, also, our firm is very fortunate to have the most talented lawyers in every position, and we can rely upon them.

What is one thing clients likely don’t know about you?

Bily: I love driving my Skoda 1000 MB (1966). Also, not many people know about another hobby of mine – breeding fallow deer. Oh, and I don’t like poppy seed noodles.

Name one mentor who played a big role in your career and how they impacted you.

Bily: That was Jan Krulis-Randa, professor at the University of Zurich and the restorer of the Randa Foundation, established in the 19th century by his great grandfather. He had to leave Czechoslovakia and his law studies after the communist coup d’etat in 1948, so he went to Switzerland to study economics and, after spending a number of years working for various large corporations in the US, he returned to Switzerland and pursued an academic career at the University of Zurich. Thanks to a scholarship he got me, I was able to study European Business Law in Zurich, and this was probably the most crucial factor in the development of my legal career. I call him my mentor but he was also a good friend. Until his death, in 2015, we kept in touch and I could always rely on his valuable advice.

Name one mentee you are particularly proud of.

Bily: The existence of a mentee implies the existence of a mentor. If I compare myself to my own, I’m not sure I can call myself a mentor. However, of the younger lawyers I have had the opportunity to work with, I would mention my colleague Tomas Bures, who has been an important member of our team for 15 years and who is one of the best banking specialists in the Czech Republic.

What is the one piece of advice you’d give yourself fresh out of law school?

Bily: Do everything the way you did; don’t change a thing.

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Times They Are a-Changin’ – such a description is more than appropriate for the municipality-developer relationship in recent months in the Czech Republic. The adoption of a new construction code promises to bring fresh wind into development projects and improve the relationships between these two major players. This is most likely to happen thanks to the re-introduction of the so-called planning agreements into the Czech legal environment. Although already recognized and used in the past, this new instrument is getting more and more noticed by Czech municipalities, most of all by the City of Prague, which, on January 27, 2022, adopted the brand-new Guidelines on the Investor Participation in Urban Development, the application of which is done through planning agreements.

Planning Agreements in a Nutshell

In general, planning agreements are going to be a mixture of private- and public-law contracts which would have to be taken over by a building authority issuing the building permit. Their purpose is to give effect to the conditions negotiated between the municipality and the developer with respect to a new construction project on its territory. The municipality, which should play the key role in the conception of its territory, agrees to permit the execution of a specific construction project and to provide all cooperation in the extent of the agreed terms and conditions of the planning agreement (including, for example, changes of the zoning plan if needed). As long as the planning agreement is in place and fulfilled, the municipality should refrain from obstructing the project, lodging appeals, or asking for reviews, as has often been the case.

The developer, on the other hand, is forced to take into account the municipality’s legitimate requirements in order to mitigate the negative impacts of the project and contribute to the overall improvement of the affected territory, i.e., not to focus on its own project only. As a result, a properly negotiated and drafted planning agreement contributes a great deal to the overall stability and predictability of construction projects.

Guidelines and Their Benefits

So far, there has been a great diversity in the forms and content of planning agreements. Their status has not been clear, municipalities were not properly trained, and, for example, financial contributions were challenged in court. That brings us back to the guidelines, which, although not binding, would most likely serve as a benchmark and inspiration for other municipalities in the Czech Republic.

The guidelines are the first document of its kind drafted in such detail, created in cooperation with developers. Therefore, they are balanced and acceptable to both parties. You can see this particularly clearly in how the guidelines deal with the developers’ contributions to the municipality.

First of all, the guidelines introduce a comprehensible formula for calculating the financial contribution, which is based on the gross floor area of the project. If the performance of the project is made subject to a prior change of the zoning plan, the formula contains factors that favor constructions in brownfields over constructions in sub-urban greenfield areas – this is also fully in line with the goal of the Municipality of Prague to prioritize ESG-compliant projects.

Secondly, the guidelines present a broad range of non-financial contributions which should be acceptable to municipalities in lieu of or in addition to financial contributions. It contains, in particular: (1) community constructions, that can be used in order to improve/refurbish public infrastructure as well as to construct municipal flats, and (2) subsidized housing, in which case the developer undertakes to give a discount on rent for a specified period of time. It is worth mentioning that there was a great shortage of subsidized housing in Prague as well as in other large cities in the Czech Republic, and these contributions might be of great help.

Last but not least, the financial contributions, as well as non-financial ones, are to be used only for the intended purpose (i.e., community welfare) and in the area affected by the particular project. This will contribute to the mitigation of any potential negative impacts of the construction project.

To conclude, we believe that the guidelines are a good step ahead in creating a stable and foreseeable business environment in the development market. Planning agreements made under the guidelines have a huge potential to unplug the so-much-expected construction activity and make the cities better places to live.

By Roman Pecenka, Partner, PRK Partners

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Even if your main focus is on developing your business and you think that the keys to HR are solid wages and an interesting benefits package, there are still some important issues in Czech employment law you should be aware of.

Criminal Liability of Your Business

According to the Act on Criminal Liability of Legal Entities, a legal person – a limited liability company – can itself be directly subject to criminal prosecution and convicted of a crime. Naturally, as a legal fiction, the company cannot act itself, but acts of the persons who represent the company, including its employees, are attributed to it.

One of the conditions is that the crime is committed in the interest of the company or within its business activities. The second is that the crime is committed by a person that controls it or has significant influence over it (this may even be its employees).

Employees could trigger the criminal liability of their employer if they acted either based on the instruction of a person controlling the company (e.g., the owner, director, etc.) or independently of any of their superiors because those superiors did not take reasonable preventive measures or failed to sufficiently monitor employees. In other words, if you as a company owner or director fail to monitor your subordinates, your company will bear the consequences and may end up facing a criminal conviction together with your employees.

Therefore, you should protect your company by implementing and enforcing reasonable measures, such as employee monitoring, strict rules on budgeting and gifts, a whistleblowing system, internal regulations such as a code of ethics, etc.

Transfer of IP Rights Only with Employees’ Consent

The Czech Copyright Act regulates products created by employees within employment as so-called “employee work.” As a rule, all proprietary rights pertaining to the work remain with the employer. However, the employer may not assign these rights without the employee’s consent – the only exception being the sale of the enterprise.

Therefore, if your employees created a computer program for your company you may not be able to sell it if those employees refuse to grant consent. In such a case, the employer may only grant a license to the work, but this might not be sufficient for the buyer. This opens a unique opportunity for the employees to negotiate employment terms or additional compensation.

We advise entering into a reasonably extensive IP arrangement with employees. Although discussions are ongoing about whether an employee’s advance consent is valid, it is still highly advisable to secure it.

Pseudo Self-Employment: Tax Optimization or Tax Fraud?

Pseudo self-employment has a long history in the Czech Republic. This is where an individual acts based on the contract of a self-employed contractor while actually working as a regular employee. Generally, this practice is not permissible under Czech law and is regarded as illegal work.

The main reasons why businesses tend to engage freelancers are the rigid employment regulations and high mandatory costs of labor.

When assessing whether someone is acting as a freelancer or as an employee it is not the documentation but the factual cooperation that counts. The key element is the level of independence of the freelancer from the company. Paying fixed monthly remuneration, giving clear instructions, or having the freelancer work full-time at the workplace would usually be assessed as indicating that the freelancer should be requalified as an employee.

Requalification may have various consequences, from Labor Inspectorate fines (up to EUR 400,000) to due payments towards tax authorities. The tax authorities interpreted the amounts invoiced by freelancers as net wages, and all mandatory surcharges were added to those amounts.

We have also been seeing increased pressure in tax matters to swap to criminal proceedings. Saving costs on mandatory payments may be understood as a criminal offense. As a result, a company engaging many freelancers on a long-term basis may also be risking criminal prosecution.

A proper assessment of whether an individual may act as a freelancer or should instead be engaged as an employee has gained increased practical significance.

By Helena Hangler, Head of Employment, Schoenherr Czech Republic

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Russia’s military aggression in Ukraine and the subsequent wave of refugees has been a new challenge for all European countries – and the Czech Republic is no different. A very low unemployment rate and a shortage of workers is a long-standing problem in Czechia and, thus, this new situation brings not only challenges but also opportunities. There have been more job openings than workers in the Czech economy since 2018 and, in 2021, the Labour Office recorded about 350,000 job openings. This situation slowed growth in the Czech economy and, thus, accepting Ukrainian refugees happens to be not only a moral obligation but also in the country’s best interest and an opportunity for future growth.

Following the decision of the EU Council reflecting the mass influx of displaced persons from Ukraine, a new migration regime for Ukrainians was adopted as a part of the Lex Ukraine legislation in Czechia. Under this temporary protection regime, refugees from Ukraine are entitled to obtain Czech residence and, more importantly, a work permit in a very short period of time, along with social security protections like health and social insurance. This immensely speeds up the process of integrating Ukrainians into the workforce – especially in comparison with the existing regime and migration law practice in general – which usually involves several months of waiting for a mere application submission, the need for the employer’s involvement throughout the application process, and quotas imposed on the number of admissible applications. At the same time, it is obvious that the current migration relief regime applicable to Ukrainian citizens does not necessarily solve other long-lasting practical issues existing in the Czech Republic with respect to foreigners.

Although the new migration policies are very helpful and flexible for those refugees seeking employment in the Czech Republic, it does not yet support those Ukrainians who may wish to start or relocate their businesses from Ukraine on a corporate basis. Problems arise especially in connection to the Czech interpretation and application of anti-money laundering (AML) legislation. While incorporating a legal entity for business purposes itself remains generally quite simple, quick, and cheap, the consequences and challenges for those Ukrainians (and other foreigners) wanting to start or relocate their businesses to Czechia are more complex. These entrepreneurs may likely run into obstacles with essentials like opening a bank account for their new Czech corporate setup. Under Czech AML practice, banks usually require a plethora of information from their new corporate clients, especially those from non-EU jurisdictions, including Ukraine, like an overview of potential customers or existing economic links to Czechia. The latter can particularly create a sort of catch-22 situation – where it may not always be possible to establish these economic links without having a corporate bank account – but creating one is impossible without declaring such relationships in the first place.

Czech AML interpretations also strictly insist on personal/face-to-face identification as the primary method and provide only a few rather inflexible alternatives for remote or electronic identification that, moreover, are practically applicable for Czechs or Czech residents only.

Most Ukrainian men are significantly restricted in traveling during times of war, and personal meetings abroad are not possible for many of them. Ukrainian businesses with solely male executives or founders are thus factually excluded from enjoying the benefits of the liberal and rather flexible Czech corporate laws, and their businesses cannot easily incorporate a new setup in the Czech Republic unless using a rather complicated JV structure with a reliable local business partner.

While the general sentiment of the rapid and flexible changes to migration policies resulting in a faster and less complicated process is very helpful in solving labor shortage problems in the Czech Republic, the corporate practice continues to be strongly affected by rather rigid AML regulations, with many challenges to making Czechia more attractive to Ukrainian businesses with their current need for (temporary) relocation.

By Jan Kohout, Partner, and Illia Antonov, Attorney at Law, PRK Partners

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On May 10, 2022, the European Commission adopted the new Vertical Block Exemption Regulation (VBER) accompanied by the new Vertical Guidelines (Guidelines), which entered into force on June 1, 2022. We spoke with several Czech competition experts to understand how these updates will influence the day-to-day business activities in the vertical agreements area.

Familiar Yet Different

“The basic structure and the main principles of VBER remain preserved,” Kocian Solc Balastik Partner Sylvie Sobolova explains, noting that the most significant change consists in the readjustment of the so-called “safe harbor,” i.e., vertical agreements and restrictions which fall under the exemption. “The safe harbor was narrowed in two areas – dual distribution and parity obligations – and enlarged in the other two areas – active sales restrictions and restrictions of online sales,” she says.

For Havel & Partners Partner Robert Neruda, the major amendments and clarifications are related to online marketplaces or price comparison tools and reflect recent developments in online sales. “The European Commission rightly believes that e-commerce has evolved during the last ten years, to a level where it no longer needs as much protection from being restricted as in the previous decade,” he notes.

Allen & Overy Senior Associate Ivana Halamova Dobiskova and White & Case Partner Ivo Janda, on the other hand, believe that the most important change relates to dual distribution. “The VBER and the Guidelines extend dual distribution exemption to also cover agreements where the parties’ activities overlap at the wholesaler or importer level,” Halamova Dobiskova says. “The frequent occurrence of a dual distribution system also triggered new rules on the exchange of information between the parties to the vertical agreement.” The new vertical package “introduces several important changes to the assessment of distribution agreements that will have an impact on a number of our clients,” Janda explains.

Impacting Online Platforms and Beyond

Sobolova and Janda say that the VBER will have an immediate impact on online platforms and e-commerce companies. “Taking into account the particular focus of the new VBER on the digital/platform economy as an increasingly important distribution channel, we believe that the new VBER will be particularly relevant for online intermediation services (OIS) providers,” Sobolova explains.

Beyond that, “the VBER is applicable no matter in which sector you do business,” Halamova Dobiskova argues. “Any company in various levels of the distribution chain will be impacted by the amended rules.” This, according to her, might lead to “pressure from the suppliers to alter the way in which their distribution channels are structured. In particular, the amendments to active and passive sales restrictions will allow the suppliers to design their distribution systems more flexibly.”

Further still, Janda adds that “the impact of the new vertical package will be notable.” According to him, “the Czech competition authority (CCA) applies EU block exemptions also to purely national commercial agreements, based on authorization anchored in the Czech Competition Act. Consequently, the new vertical package will be equally applicable also to local commercial agreements lacking appreciable effect on the trade between member states.”

New Rules of the Game

“For companies that are currently relying on the VBER, it is important to review their relationships with business partners and make amendments, if needed, until the end of the transition period,” Halamova Dobiskova points out. “It is also essential for companies to train those people responsible for interactions with vertical business partners to ensure compliance with the new rules.”

“The rules governing the relationship between manufacturers and distributors of goods fundamentally changed,” Neruda agrees, noting that the changes create both potential risks and opportunities. “Companies should pay attention to the obligations imposed by competition law in connection with the distribution of goods and services, such as whether they are allowed to tell their distributors what prices to charge for their products, or to restrict retail sales of their products via online sales channels.” According to him, “the correct setting of distribution systems should eliminate the risk of competition law infringements and the related high fines.”

Sobolova adds that “the new VBER defines OIS and clarifies that OIS providers qualify as suppliers under VBER.” According to her, “OIS providers should take into account that OIS-related agreements do not benefit from the safe harbor exemption in situations where the provider has a hybrid function – i.e., also competes as a seller in the relevant market.”

“A provider of OIS must refrain from imposing hardcore restrictions on its customers purchasing these OIS,” Janda notes. “Furthermore, in the case of dual distribution where the supplier is active both in the upstream and downstream market, companies will have to pay proper attention to information exchanges.”

Shaping the CCA’s Behavior

Lawyers believe that the new VBER and Guidelines will have an impact on the CCA’s work and its focus when it comes to investigating vertical restrictions.

In general, Neruda notes that “in the eyes of many companies, competition law is often reduced to the topic of huge fines, which ‘clearly affect only the biggest companies, not us.’” However, he adds, “in the last year, the CCA has initiated an unprecedentedly large number of new cases in the area of verticals in many industries.” Consequently, he says, both large multi-national companies as well as purely local entrepreneurs end up caught by the watchdog and face the threat of fines running into millions of euros.

Up to this date, the CCA “has focused more on horizontal agreements,” Janda notes. “In the Czech Republic, the CCA issued fourteen first-instance decisions with finding vertical agreements as anti-competitive in the last ten years” and, “by far, the most common infringement addressed was that of resale price maintenance (RPM), which was investigated and addressed in the vast majority,” Halamova Dobiskova says. Janda adds that, after RPM, exclusive distribution and parity obligations were closely observed by the CCA.

However, there seem to be some indications that the landscape might change. “Currently, the CCA is conducting several investigations into RPM practice imposing record fines in the ensuing administrative proceedings, reaching the statutory cap of 10% of the total turnover of the fined undertaking,” Neruda notes. In addition to that, “in 2021, the CCA imposed the highest penalty so far in the area of vertical agreements, CZK 96.751 million for an RPM violation,” Sobolova points out. “These statistics seem to reflect the increasing attention of the Office for the Protection of Competition concerning the enforcement of vertical agreement regulations.”

Consequently, “we expect that the RPM will continue to be an important focus of the CCA in vertical restraints,” Janda concludes. “With the further rise of e-commerce and online platforms, we expect that the Authority may start looking more thoroughly into the contractual terms and pricing conditions of online platforms, as well as dual distribution.”

A Bit of Breathing Space

At this point, Janda notes that “as the new VBER provides for a transition period until May 31, 2023,” he does not expect “any major enforcement changes immediately after June 1, 2022. However, the Czech Office for the Protection of Competition might take a closer look at vertical agreements after the lapse of the transition period.”

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.