Category: Hungary

The current backbone of the EU’s e-Commerce Directive was adopted 20 years ago. Since then, the landscape of the digital economy has changed significantly, as most online platforms in use today did not exist in 2000. As a result, many digital experts claim that competition enforcers have failed to tackle some of the specific challenges created by the new digital platforms.

Margrethe Vestager, Executive Vice President of the EU Commission responsible for Digital Age projects and Commissioner for Competition, said that, “we need to make rules that put order into chaos.” The long list of Ms. Vestager’s titles is not only a polite introduction but also reflects the 2019 merger by the EU Commission of two of its major powers: digital regulation and competition law. Several questions arise: Was this combination intentional? Which power is more effective? Are these tools substitutes or can they supplement each other? Let’s go through the pros and cons that have revealed themselves after two years.

First, we can be fairly sure that centralizing these powers was not a simple coincidence. The Directorate General for Competition – the “DG Comp” – has always been referred to as one of the EU Commission’s most effective enforcers. Although this privileged position is still valid, we can also see that the national competition authorities in various EU Member States are even more active regarding digital platforms (see our article on the subject in the September 2020 issue of the CEE Legal Matters magazine), while the DG Comp has taken a more accommodating stance, for example, by approving the Facebook/WhatsApp acquisition, which the US antitrust agencies are now challenging. Meanwhile, in December 2020, the EU Commission introduced an ambitious new set of proposals for regulating digital space.

Both the Digital Services Act (DSA) and the Digital Markets Act (DMA) proposals aim to modernize the current regulation of intermediaries and online platforms. For our current review, the latter is even more interesting, as the DMA aims to establish “a set of narrowly defined objective criteria for qualifying a large online platform as ‘gatekeeper.’” This sounds like the definition of a dominant company, the behavior of which was originally regulated by the competition law principles in the Treaty on the Functioning of the European Union, which prohibit the abuse of dominance. If so, should we regard this as confirmation by the Commissioner of DG Comp that she suggests additional regulation to the traditional means of competition law?

The Commission bypassed this issue in its Q&As by stating that the DMA “complements the enforcement of competition law,” which is normal, as “regulation and competition enforcement already coexist in other sectors, such as energy, telecoms or financial services,” so the DMA “will thus minimize the harmful structural effects of these unfair practices ex-ante, without limiting the EU’s ability to intervene ex-post via the enforcement of existing EU competition rules.” What does that mean in practice? In other regulated sectors – such as telecoms or energy – the “gatekeepers” are usually the network owners, and the idea of such infrastructure-based competition is under reconsideration in several ways. Although we have to admit that the DMA and DSA are only regulatory proposals for now, many interesting questions immediately present themselves.

It seems that the EU Commission is not alone in combining competition law with regulatory elements in the digital sector. As a recent example from CEE, the Hungarian Competition Authority launched a market analysis in December 2020 focusing on the large “data assets” created in the online retail sector to evaluate their potential restrictive effects on the market for further legislative proposals. This market analysis is also a sign that a competition authority prefers to support regulatory steps with its general findings instead of investigating potential individual infringements entitled under the TFEU.

The question remains: Should we expect a greater role for regulation and dedicated government agencies in our digital life, with competition law becoming secondary for these markets? Unfortunately, we will have to wait for the precise answers, but we can be sure that the outcome will affect not only the gatekeepers and their partners, but also our everyday life. It is worth following.

By Dora Petranyi, Partner, and Szabolcs Szendro, Senior Counsel, CMS Budapest

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Interview with Irisz Szel, Legal Director of CEU about her background and best practices.

CEELM: Can you walk us through your career?

Irisz: From the very start I was eager to learn about all the different aspects of legal work. As a university student I was a trainee in the Ministry for Foreign Affairs and in the Ministry of Justice of Hungary. In the first years of my career I worked as a tax advisor at PricewaterhouseCoopers, which provided me with insight into the world of multinational companies. Later, I joined the Tax team at CMS Cameron McKenna and continued my career specializing in tax, banking & finance, and corporate law. After some years I was offered a position as Head of Legal at EDF DEMASZ Zrt. (now: MVM Next Energiakereskedelmi Zrt.), a company operating in the energy sector. Becoming an in-house lawyer was a turning point in my career. Today I work as the Legal Director of Central European University.

CEELM: Why did you decide to join CEU?

Irisz: CEU found me when I was not actually considering a move. I was a freshly-hired in-house lawyer in a multinational company when their call came. I kept politely refusing an interview until I heard the name of my alma mater. A few days later, when I entered the building of CEU after so many years, all the memories came back. CEU was not a question for me anymore. 

CEELM: Tell us about CEU, and about its legal department. How big is your team, and how is it structured?

Irisz: CEU as an institution has many faces: it is a university, a research center, a place-to-meet, a place that is simply good to be at. We have been through a lot, which made this institution an even more unique place. As one of our professors once said: “This place has a soul.”

Under the current setup, the legal department has four lawyers in Budapest and two in Vienna, and we have legal counsels in the US, too.

CEELM: Was it always your plan to go in-house?

Irisz: Not at all. I have seen both sides of the coin: as an attorney and a tax consultant I have been an external advisor, and as an in-house counsel, I have worked with external advisors. It was when I experienced the real role of an in-house lawyer in the life of a company that I felt I had arrived where I wanted to be.

CEELM: What was your biggest single success or greatest achievement with CEU in terms of particular projects or challenges? What one thing are you proudest of?

Irisz: After Lex CEU, the management decided to move the university to Vienna. This meant reorganizing our current operation and building up a new corporate and institutional structure while moving hundreds of employees abroad. In the midst of executing complex tasks under enormous time pressure, the biggest challenge was to familiarize ourselves with a new legal system and harmonize our operations under all three – Hungarian, Austrian, and US – jurisdictions, in a way that the concept of “One CEU” remained intact.

CEELM: How would you describe your management style? Can you give a practical example of how that manifested itself in the legal department or helped you succeed in your position?

Irisz: I believe in teamwork. To us, lawyers, discussing different ideas and confronting views is of utmost importance. I like to be challenged by my colleagues, and sometimes our office is like a loud courtroom (laughs). On the other hand, I believe respect and trust do not come automatically from one’s position; they are earned.

CEELM: Do you have any personal habits or strategies you employ that may not be common but that really help you succeed in your role? Things you’ve developed yourself over the years that might not be obvious?

Irisz: When I don’t have a solution to a problem, I go for a run. It is amazing how each mile can bring a new perspective.

CEELM: What one person would you identify as being most important in mentoring you in your career – and what in particular did you learn from that person?

Irisz: My brother, Ervin Szel. He is a diplomat and has a very good sense of human nature. His words of wisdom and encouragement are deeply engraved in my heart and have helped me through the most important crossroads of my life.

CEELM: On the lighter side, what is your favorite book or movie about lawyers or lawyering – and why?

Irisz: High Performance with High Integrity from Ben W. Heineman, which can also serve as a personal motto for my working style.

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Recently published case law from Hungary’s National Institute of Pharmacy and Nutrition – the Hungarian acronym is OGYEI – deals with various aspects of pharmaceutical promotional activities and interactions with health care providers. The OGYEI investigated the commercial practices of Aramis Pharma Kft., Lilly Hungaria Kft., and Sager Pharma Kft., and imposed fines following the discovery of infringements.

Several Types of Contracts Concluded with HCPs for Professional Services were Considered Unlawful Commercial Practices

Contracts involving holding professional trainings for medical sales representatives: The OGYEI objected to contracts which required HCPs to “host” medical sales representatives in a professional role-playing setting and to comment on the performance of the medical sales representatives. In the authority’s view, a professional role-playing scenario is not directly related to the healthcare activities of the HCPs participating in the simulation, and it gave the HCPs’ activity a promotional nature, involved in training sales representatives. Contracts concluded with an HCP to provide professional services may only be concluded for the provision of services closely related to the HCP’s professional activity, and should not serve promotional purposes.

Contracts involving professional presentations with promotional content: The OGYEI objected to contracts involving presentations by an HCP at roundtable events organized by a pharmaceutical company, because the presentations had a promotional nature, as the company’s medicinal products were easily identifiable. The OGYEI found that the aim of these contracts was to facilitate the pharmaceutical company’s commercial practices and promotion of its medicinal products. The authority emphasized that while performing contracts concluded with HCPs for professional speaker services, the use of company-branded presentation materials and backgrounds should be avoided and the presentation should not contain the name of the company, its products, or the company logo or image.

Contracts involving drafting professional articles published in company-branded publications: The OGYEI objected to professional services agreements which required HCPs to prepare professional articles or case reviews to be published in the pharmaceutical company’s own professional publication. The OGYEI found that the publications were of a promotional nature for the following reasons: (i) They were branded, i.e., it was clear from the outset that it was a publication from the pharmaceutical company; (ii) the articles focused on a product of the company and on trials related to that product; and (iii) the company used its own promotional channels to distribute the publication, i.e., medical sales representatives distributed the publications to HCPs and they were also available at company booths at professional events.

The OGYEI ruled that these contractual relationships went beyond the sharing of professional experience of the HCPs, as the performance of these contracts was meant to facilitate the company’s promotional activities.

Speaker services to subordinates of the speaker and presentations overlapping with the professional work duties of HCPs: The OGYEI ruled that speakers’ fees paid for presentations held by HCPs in front of audiences that predominantly consisted of their subordinates in the same department/institution were unlawful. This is because such fees could potentially motivate the speaking HCPs to discuss the sponsoring pharmaceutical company’s products at forums where their subordinates are required to be present, inducing them to follow the recommendations of seniors by applying the presented products in their healthcare practice. In addition, the OGYEI objected to speaking agreements where an HCP had a duty, based on its job description with the hospital, to hold similar presentations at the hospital’s internal meetings (so-called “referral meetings”).

Sponsorship provided to attend conferences abroad: Pharma companies may only sponsor the participation of HCPs at conferences abroad if the participation at the conference is justifiable. The OGYEI argued that the sponsorship of an HCP to attend the Singapore conference of the European Society for Medical Oncology was unreasonable and unlawful, given that there was another ESMO conference in Europe, involving essentially the same topics at the same time.

Pharmaceutical companies are encouraged to take the OGYEI’s case law into account during their daily operations to avoid potential investigations and sanctions, including fines, being imposed by the authority.

By Helga Biro, Co-Head of Pharmaceutical and Healthcare, Baker McKenzie Budapest

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Almost a year ago, in March 2020, the Hungarian regulator – the NMHH – announced that 5G frequency licenses had been auctioned for a term of 15 years with a 5-year extension option to Magyar Telekom, Vodafone, and Telenor (a fourth operator, Digi, did not acquire a 5G license). These three operators spent a total of HUF 125.8 billion on these 5G licenses, enabling them to provide next generation mobile broadband services. Vodafone started 5G services in downtown Budapest in 2019 on previously-acquired frequencies, using the newly acquired frequencies to improve coverage in other cities and certain rural areas. The 5G services – as well as related applications and technology products – are expected to fundamentally change the industry, as demand for broadband services has increased exponentially due the widespread introduction of home office due to the COVID-19 pandemic.

That same month, a new milestone in market consolidation was reached when, on March 31, 2020, UPC Hungary merged into Vodafone, introducing a new integrated mobile and fixed line operator into the Hungarian telecommunications market.

5G auctions were launched across Europe when the global commoditization of mobile services became more and more apparent and competition among mobile service providers started to shift from infrastructure-based to service-oriented competition. As 5G networks need significantly more masts and towers to cover the same area as former generations of mobile technology, access to pre-existing passive infrastructure has an increasing value when rolling out 5G networks.

In anticipation of the 5G auctions and the related increase in demand for passive infrastructure, two of the major mobile network operators – Vodafone and Telenor – decided to de-merge certain infrastructure assets (ground based towers and roof-top sites) and to establish their own tower companies (Vantage Towers Zrt for Vodafone and CETIN Hungary Zrt for Telenor). These tower companies provide their services to mobile network operators, other telecom operators like Antenna Hungaria (the Hungarian broadcasting company), and any other entities using mobile technologies for their operations. (Our firm provided legal advice to Vodafone in its de-merger, which, like Telenor’s, involved complex legal challenges involving regulatory, competition, and corporate law issues).

The demerger process in both cases involved the de-merger of towers and other sites containing not only affiliated service provider equipment but also the equipment of third-party operators, requiring the renegotiation of almost all co-location agreements across all network operators. An even more complex issue was the transfer of roof-top leases, as the right to occupy space by the predecessor operator post de-merger had to be maintained.

The main difference between the two de-merger processes was that Telenor transferred not only passive infrastructure assets but also active telecommunications equipment. As a result, CETIN became an electronic service provider. This was not as straight-forward in case of Vantage Towers, which only owns passive infrastructure. As reflected in the NMHH register, both tower companies are identified as electronic service providers, as towers and masts are considered “associated facilities” for the purposes Hungary’s Act C of 2003 on Electronic Communications, so Vantage Towers is also an electronic communications service provider. This means that both tower companies are obliged to provide co-location services on a non-discriminatory basis.

As network assets were transferred to the tower companies it had to be decided whether they were automatically considered successors to their related mobile network operators with respect to the access remedy imposed on them under the mobile termination market SMP resolution. The answer to this seems to be that only the mobile network operators remain subject to the access remedy. Whether these tower companies enjoy significant market power on other markets will be decided in potential future market definition proceedings. Currently it is too early to speculate.

It remains to be seen how the tower companies will perform and how the mobile telephony market will change as a result of their entry into the market. Nevertheless, it is almost certain that consumers will benefit from the cost savings that mobile network operators will realize by sharing passive infrastructure in the roll-out of their 5G networks.

By Janos Rausch, Senior Partner, Ban, S. Szabo, Rausch & Partners

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The original foreign direct investment screening regime was adopted in Hungary pursuant to Regulation (EU) 2019/452 of the European Parliament and of the Council and became effective on January 1, 2019. Instead of amending the original regime, a new parallel FDI screening regime was introduced in late May 2020 to protect Hungarian strategic sectors during the COVID-19 period. This second regime was fine-tuned in the middle of June, 2020 and then again at the end of October, 2020. The notification obligation under the second regime is applicable to relevant transactions made before June 30, 2021.

Due to the extraordinary regime declared in connection with the COVID-19 pandemic, the personal scope and affected industries set out in the original regime were also amended in late November 2020. Consequently, two overlapping and complex regimes apply to FDIs. In this article, we highlight their main characteristics and differences.

Personal Scope

The personal scope of what we’ll call the “Original Regime” originally covered non-EU, non-EEC, and non-Swiss citizens and entities as investors. The personal scope of what we’ll call the “Second Regime” is broader, extending it to cover legal entities and organizations having a seat outside Hungary but within the EU or the EEA or in Switzerland as well, provided that they acquire majority control of a strategic company. However, as mentioned before, the Original Regime was amended in late November 2020. It now also covers EU, EEA, and Swiss investors, though, in contrast to the Second Regime, no majority control is required. It is questionable whether the current scope – aimed at all foreigners – is in line with Regulation 2019/452 and general principles of EU Law.

Affected Industries

Both regimes cover strategic sectors, largely in line with Regulation 2019/452. The Second Regime does not cover the financial sector, but its scope is much broader than that of the Original Regime, since basically any activity can fall within its scope.

Considering the above, certain investments (e.g., those in the energy and communication sectors) must be notified under both regimes. However, other investments must be notified under either the Original Regime (e.g., in the financial sector) or under the Second Regime (e.g., in transport). Consequently, the categorization of the underlying investment requires deep market knowledge and thorough understanding of both regimes.

Relevant Investments

Under the Original Regime, the notification obligation applies to acquisitions of ownership – including establishment of a company or branch office and share acquisition – exceeding 25% (10% for stock corporations) or of a controlling interest by a foreign investor in a direct or indirect manner in a company that is subject to the regime. The definition of investments which require notification is much broader under the Second Regime than in the Original Regime, since it also covers transfers of essential assets, capital increases, transformations, mergers and demergers, obtaining bonds, and establishments of usufruct rights on shares. Furthermore, acquisitions of 10% of shares by non-EU/EEC investors and reaching certain investment thresholds also requires notification. The Second Regime does not apply to certain intra-group transactions and between related undertakings.

Authorities

Under the Original Regime, the Minister of Interior is competent, whereas under the Second Regime competence belongs to the Minister of Innovation and Technology. If a particular FDI triggers both notification requirements, that notification must therefore be made to both Ministers. The two regimes seem to operate with roughly similar procedural rules. However, the details, including procedural deadlines, are different. Under the Original Regime, the Minister is required to examine whether there any elements of the transaction endanger Hungary’s security interests. Under the broader Second Regime, the Minister focuses on public interest, public order, and public security issues. All these categories might lead to subjective interpretation. Failing acknowledgement by the Minister – which makes both procedures a licensing – a transaction cannot be closed. Furthermore, violation of the notification obligation may give rise to considerable fines.

Effects on M&A Transactions

This patchwork of rules make investment in Hungary complex, and the broad conditions that might lead to rejection of investment may cause an investor to think twice before acquiring a Hungarian company. Accordingly, the subject matter, structuring, timing, and closing conditions of most M&A transactions in Hungary need to be examined and planned carefully.

By Gergely Szabo, Partner, Ban, S. Szabo, Rausch & Partners

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Reflecting the Hungarian tax administration’s nature as a pioneer in innovative tax administration measures, 2021 brings significant eVAT developments in Hungary.

As of January 2021, to better track business transactions and enhance VAT collection, Hungary introduced a widespread real-time invoice reporting obligation for Hungarian taxpayers. The new rules are controversial because they put an administrative burden on non-Hungarian web-shops performing B2C sales to Hungary by threatening them with a penalty starting from April 1, 2021. As another unique development in the region, the Hungarian tax administration will prepare draft VAT returns for Hungarian taxpayers starting from July 1, 2021.

On January 4, 2021, Hungary introduced a real-time invoice reporting obligation applicable to taxpayers holding a Hungarian VAT registration number and performing sales subject to Hungarian VAT. This obligation applies to both B2B and B2C sales.

Due to the COVID-19 situation, Hungary provided a grace period for businesses to comply with the real-time invoice reporting obligation, and sanctions for non-compliance will first be enforced as of April 1, 2021.

The law provides an important exemption to this rule. No real-time invoice reporting obligation is applicable for businesses that declare and pay VAT through the EU’s OSS system. This rule is relevant because on July 1, 2021, the EU Mini One-Stop-Shop regime will be extended to all types of B2C services as well as to intra-EU distance sales of goods and certain domestic supplies facilitated by electronic interfaces. As such, the Hungarian OSS exemption was designed to grant an exemption to non-Hungarian businesses – mostly web-shops – performing B2C sales to Hungary.

The only problem with this exemption is the timing. The Hungarian regime becomes applicable on January 1, 2021, but the OSS goes live only on July 1, 2021. As a result, non-Hungarian businesses that will apply the OSS as of July 1, 2021 may nevertheless fall under the Hungarian real-time invoice reporting obligations before this date.

Non-compliance with the real-time invoice reporting obligation may trigger a penalty of up to EUR 1,400 per unreported invoice. How and in what amount the tax authority will assess and enforce the penalties in practice is yet to be seen.

Based on the new rules, non-Hungarian web-shops may have to find a way to comply with the Hungarian real-time invoice reporting obligations until July 1, 2021, when they can enjoy the OSS exemption. A potential solution may be engaging a Hungarian service provider to comply with real-time invoice reporting obligations on the web-shops’ behalf in the interim (or even beyond the July 1, 2021 date, if the OSS is not applied).

As another important development is that, starting in the second half of 2021, the Hungarian tax administration will prepare businesses’ draft Hungarian VAT return and make this draft available to businesses on a designated online platform. The first VAT return to be drafted by the tax authority will be for the reporting period that begins on July 1, 2021.

Businesses will of course be free to amend the draft or to opt to not use it all. For many businesses, this development will represent a significant easing of their administrative obligations, and it is a true sign that the Hungarian tax administration is offering a more efficient service to Hungarian taxpayers.

By Gergely Riszter, Head of Tax, Baker McKenzie Budapest

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

This report has the purpose of shedding light on the most important developments in the field of obtaining and enforcing Intellectual Property rights in Hungary in 2020.

Concerning patents, an amendment to Hungary’s Patent Law has brought about a change in filing applications in Hungary in foreign languages. Previously the Hungarian Intellectual Property Office (HIPO) started action only after a Hungarian translation of the specification was filed, which was required to occur within four months of the filing date. According to the amendment, the term for filing the Hungarian translation was changed from four months to a full year, and (for only USD 400) applicants can request a preliminary search and written opinion on patentability based on an English specification. The search and resulting opinion must be provided by HIPO, in English, in less than eight months.   

This is a major step forward, as in Hungary there are numerous foreign companies that need to protect their inventions, and following this new amendment they can start their first filing in Hungary and receive an opinion of patentability well before the expiration of the priority year.

This has proven a good amendment, benefitting not only foreign-owned companies with local R&D activities, but also many foreign companies with no enterprise in Hungary, as this service is so cheap and reliable and efficient that it has attracted wide attention.

A further event worth mentioning is the effect of the pandemic on the country. The HIPO has authorized its staff to work partly from home, electronic filing has become more common, and certain services which were previously available only through personal consultation have now been made available online. The application of official terms has become less strict in certain periods of Hungary’s State-of-Emergency. Regulations concerning compulsory licenses were slightly changed to eliminate any potential problems arising from a vaccine’s enjoyment of patent protection that would block wide-range use. To my knowledge this part of the law has not been put into practice so far.

In the enforcement of IP-related court cases the basic amendment to the Law on Civil Procedures, introduced in 2019, has had a great impact. The amendment, which was designed to speed up prosecutions, has imposed a number of new obligations on parties, which means that preparation for a lawsuit has to be made in a very comprehensive and thorough way, and that parties have limited opportunities to submit arguments. This has brought about a decrease in the number of cases, but hopefully, as lawyers become more familiar with these new procedural rules, the initially-envisaged shortening of the length of the proceedings will finally prevail. 

Enforcement of IP-related laws takes place at the Metropolitan Court of Budapest (a competent first instance IP court with two special IP chambers), and second instance proceedings are dealt with at a single appeal court – the Appeals Court (Table Court) of Budapest. All parties may turn to the Curia (the Supreme Court of Hungary) by means of a so-called “supervisory petition” to challenge a ruling of law made by the appeals court. In practice the Curia has accepted almost all such petitions, so instead of a two-instance proceeding, in fact there is a three-instance proceeding, which has drawn out the process significantly. Under the provisions of a new amendment, however, such “supervisory proceedings” will be possible only in cases where the value of the proceeding is beyond a high limit, which will eliminate this delay. Additional amendments in the IP field designed to further improve the enforcement of IP rights are under consideration by the legislators, and the main one involves a proposed amendment, potentially uniting the current system, in which status cases are considered under separate proceedings from infringement cases.

Other issues concern the further modernization of the utility model system.

By Michael Lantos, Patent Attorney, Danubia Patent & Law Office

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Social media has become a phenomenon, representing our extroverted life, and thus a critical part of our work environment.

It has also become a powerful tool of communication, where information about events, news, and products can be found and made available. These tools are essential for companies that wish to open a direct channel of communication with their consumers/clients. However, it is obvious that, for people working in a particularly delicate sector – one in which communications are strictly regulated – social media offers a frontier to be explored, but which at the same time has to be approached with utmost caution. Its use is easily abused.

So, Whose Social Media Is It, Anyway?

Under the Hungarian Labor Code, employees wishing to participate in social media outside their paid working hours must do so in a way that does no harm to the employer’s reputation or legitimate economic interests. The employer may discover the need to restrict the personal rights of the employees for using their social media, on conditions that such restrictions be proportionate and well-documented.

Where does the control of the employer stop and the employee’s freedom of personal social media use start?

Regulations applicable to specific sectors are usually quite strict and misdirected comments by employees on social media, in addition to potentially causing damage to the reputation of the company, could potentially result in heavy monetary fines. For example, an innocent personal comment by the employee in a social media group can trigger compulsory control by an authority for the employer, if they can be associated with it. Hence, utmost attention should be paid to the independent activities of company employees on social networks to monitor content (such as videos, images, and texts) published on their own pages or accounts, and comments posted on other people’s pages.

Indeed, this is a thin line, and, aside from two short general clauses in Hungary’s Labor Code, we are left to our best judgement. Employers tend to forget about a powerful tool they might have to set ethical rules of conduct. This tool – the creation of a so-called “Employers’ Handbook” – can be a flexible but statutory solution, as, once it is implemented, it can be modified unilaterally by the Employer, unlike an employment contract, which needs mutual agreement to be modified.

How Can the Employer Advise its Employees?

To help employees use social networks properly and in an informed manner, employers are strongly encouraged to establish several simple rules and require that they be followed carefully by any employees wishing to publish content related to their employer, its brands, or its products on social media channels. Employers should also remind the employees that these rules exist to protect them as well. Should disputes arise, the existence of such rules can serve as a basis for compensation for damages.

Here are some useful tips to include in an Employer’s Handbook regarding social media:

The instruction that employees should never publish content concerning confidential, sensitive, and private products or information on social network channels. For example: video of an internal company event, or information regarding sensitive company data, the launch of new products, projects in progress, sales or financial data, sector data, details of company revenues, strategies, etc.

The instruction that only information that has already been published or authorized by the employer’s official communications department should be published.

A reminder that even if employees clearly state that they are speaking from a personal point of view, in the mind of their readers their posts will be easily associated with the company they work for.

A reminder that the employer can hold employees legally responsible for content of a defamatory and pornographic nature, and content that is copyright-protected, offensive, slanderous, or that may create a hostile working environment.

A reminder that respecting the privacy of others means that employees shall not mention or share photographs, names, or other personal materials of colleagues.

A reminder that publishing comments or content under anonymous or fake names should be avoided.

The list could go on, as per specific requirements. Ultimately, it is the employer’s responsibility to exploit all lawful tools to protect its interests.

By Adrienne Mates, Head of Labor, bpv Jadi Nemeth

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In accordance with worldwide trends, Hungarian public markets are not showing the signs of exponential growth that private markets are. The legislative environment for public listings has not changed significantly in Hungary since 2019, when Act CXX of 2001 on the Capital Market was heavily amended in order to be fully harmonized with the European Union’s Prospectus Regulation (2017/1129 EU). That modification made public issuances easier, as it dispensed with the requirement that prospectuses must be prepared for listings of securities with unit values of at least EUR 100,000. 

Partly due to the stability and the predictable legal environment, Hungary remains a relatively attractive target for public issuances, demonstrated by the several new listings on Budapest Stock Exchange (BSE) last year, even in the middle of the economic slowdown of 2020.

Private Markets – Attractive Atmosphere

It is safe to say that the CEE region has been a popular target for venture capital and private equity investments for the past half-decade. Although opinions differ as to the catalysing factors of this trend, all can agree that the relatively stable and EU-harmonized legal and regulatory environment, investor-friendly tax rates, the high number of well-educated IT professionals, and the lower cost of human resources, together with both EU and state-founded incentives, are contributing factors. These conditions led to two significant opportunities in Hungary: to invest in the country or to found a start-up. 

Investors and inventive minds have realized these competitive advantages, and billions of euros have been injected into the CEE region in recent years in the form of private equity and venture capital investments – a trend that continues to increase despite the COVID-19 crisis. It is a common understanding between market experts that the potential in the region is far from exhausted, and that there is more space for growth. This is absolutely supported by the fact that the start-up culture is constantly developing in Hungary, as, in addition to the presence of VC funds specialized in different areas of growth with private investors, the infrastructure exists for start-up founders to receive world-class mentoring.

Due to this open environment full of possibilities, the landscape is colorful in terms of domestic investors, but it is far from full, and there are plenty of opportunities for foreign investors as well. In the current situation, investors looking for potential targets are prioritizing start-ups providing some sort of remote solution in their particular field of operation and contributing to the remote service of consumer needs.

As far as the domestic situation is concerned, the focus of investors in Hungary is on companies at an early stage of development, with older companies typically forming a secondary point of interest. Investing in earlier-stage companies makes it possible for investors to limit their risks: at first, a smaller amount of money is typically transferred, with additional capital injections being disbursed following the achievement of certain development milestones. The incentive to growth obviously lies in the provided financial assets primarily, but managerial rights, veto rights, co-decision, removal rights, tag-along and drag-along rights, among others, are also crucial instruments to achieve the desired end result. A grounded investment decision requires detailed legal due diligence, and once the decision to enter into the transaction is finally made, the investor needs an effective shareholder agreement to secure a return with the possible highest probability and to provide security and easily enforceable preferential rights.

Needless to say, during the pandemic, the importance of being protected from unexpected changes has significantly increased, and unusual times require unusual measures: the scale of material adverse change clauses has widened and early-exit options are appreciated. 

To this end, it is indispensable for investors to hire the highest-level quality legal counsel – one who has both an international perspective and a familiarity with local regulations, and who can guide them through the whole transaction process.

By Gabor Marky, Partner, bpv Jadi Nemeth

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Emerging new tendencies in economic activities have reached Hungary in the last few years. The most important driving force behind this change is the shifting of consumption into the online space, which inevitably entails a change in market structure. As a result, new products that are exclusively or partially available online have appeared, the geographical coverage of products has widened, and other services related to online consumption have become increasingly important. Social media, influencer marketing, and targeted advertisements all contribute to the popularity of the new market as well. Hungarian consumers are now able to fulfil a significant portion of their product and service needs through e-commerce channels. With the COVID-19 pandemic continuing to push economic activities online, the role of digital distribution channels has increased even more.

As a result of this economic evolution, the Hungarian Competition Authority is increasingly concerned about competition and consumer protection in the digital economy. In order to ensure more efficient actions, in 2018 the HCA published a mid-term strategy paper called “Digital Consumer Protection Strategy” presenting its views on consumer protection in the digital age.

Achieving the goal of effectively protecting the public interest by defending consumers’ decision-making process in the digital era, the strategy paper sets a toolbox. Apart from competition supervision proceedings as primary tools, the HCA takes the view that preventing competition law infringements via guidelines, soft law notices, and competition advocacy can be effective instruments as well. And indeed, over the past two to three years, the HCA has published several notices in order to help undertakings offering online services comply with competition law. These include, for example, notices regarding influencer marketing, advertising to children, and the recently published “green marketing” notice that assists undertakings in developing appropriate advertising practices regarding the environmentally friendly and sustainable nature of their products and services. In 2020, the HCA also compiled a Digital Comparison Tools market report, based on thorough research on the subject.

Despite its competition advocacy, the HCA is reporting an increasing number of unfair trading practices against consumers on digital platforms, and has thus recently initiated a large number of competition supervision proceedings and imposed unprecedented fines against operators of online services.

Since more consumer protection cases have been falling into the focus of HCA’s enforcement practice, a trend seems to be developing: HCA appears to be shifting its focus from launching complex and difficult-to-prove antitrust proceedings to consumer protection cases. This trend started at the end of 2019 with the HCA’s decision in the Facebook case, in which it imposed a fine of EUR 3.6 million on the company for advertising its services as free of charge, but failing to clarify that the users indirectly paid for the services by providing their personal data.

Another flagship case of the HCA’s recent enforcement practice is the Booking.com case, in which the HCA imposed a record fine of EUR 7 million on Booking.com for misleadingly advertising certain hotel rooms as available with “free cancellation” and for pressure-selling tactics such as adding statements such as “32 more people are also watching” or “one person is considering booking this accommodation right now.” the HCA considered this an unfair commercial practice due to its effect on the decision-making process of consumers.

As the classic consumer protection regulations are effectively applicable in the digital environment and commercial practices are easier to monitor in the online space, the HCA’s tendencies are expected to become even more prominent going forward.

By Peter Zalai, Partner, and Barbara David, Trainee, PwC Legal Hungary

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.