In 2014 the Competition Agency issued a decision on the Association of Orthodontists cartel –to date, one of the most controversial cases it has considered.
Facts
The Association of Orthodontists adopted a price list which included minimum prices for various dental services. The price list was published on the association’s website, promoting price harmonisation across the industry. The agency concluded that the association’s adoption of a minimum price list amounted to a prohibited agreement.
The party filed suit against the agency’s decision in the High Administrative Court. The court set aside the agency’s decision, finding that the agency had erred during the establishment of the relevant facts and applying substantive law. It held that:
“The Minimum Price List does not represent an agreement within the meaning of the Competition Act, particularly because it does not, directly or indirectly, establish the lowest price of dental care services, considering that its establishment falls within the exclusive competence of the Chamber, rather than of the plaintiff (i.e. Association).”
The court concluded that another organisation was vested with the right to regulate prices and continued:
“Therefore, such a document (the price list) is not legally binding either with respect to its content or its legal status, nor can it be applied in practice, since the doctors of dental medicine are obliged, in determining the lowest prices of their services, to adhere to the price list adopted by the Chamber.” [i]
Shortly afterwards, the agency announced that it believed that the court’s reasoning denied the concept of a ‘prohibited agreement’ defined by the Competition Act and EU law, indicating that if the ruling remained in force, it could have harmful effects on the interests of consumers and undertakings. The agency’s position was supported by various experts within the competition law community.
Agency opposes court for first time
Prompted by its initial understanding of the scope of prohibited agreements in the context of associations of undertakings, for the first time in its 18-year history the agency took an extraordinary legal remedy and instituted proceedings for examination of the court ruling. The agency argued that it, rather than the court, was correct –that is, the price list adopted by the Association of Orthodontists represented a prohibited (horizontal) agreement.
The agency went a step further and publicly announced that “the ruling of the court makes room for price agreements in professional and other interest associations of undertakings”. Moreover, it stated that “the Agency will remain consistent in the application of the provisions of the Competition Act to prohibited agreements in the field of competition, in line with the criteria deriving from [EU law]”.
However, the agency did not rely on Article 101 of the Treaty on the Functioning of the European Union as a basis for instituting the proceedings, but rather based its
case solely on national rules. Thus, it is odd that the agency did not consider whether the court (which is one of the national bodies charged with interpreting of the Competition Act) has the right –albeit only in national cases –to interpret prohibited agreements more leniently than the European Commission and the EU courts would on the basis of EU law. If the court has such a right, the entire case may have required a less emotional approach.
Proceedings in HURA
In the meantime, the agency became involved in a similar case. In infringement proceedings against the Croatian Association of Communications Agencies (HURA) based on Article 8 of the Competition Act,[ii] it was established that HURA had drawn up its Guidelines for Successful Pitching. The agency raided HURA’s premises and in the course of proceedings established that:
- the guidelines were publicly available on HURA’s website and all HURA members were bound to apply them;
- the primary objective of the guidelines was to ensure the “regularity” of the pitching process, primarily by limiting the number of agencies in the pitch (three plus one) and setting the deadlines for competitive selection (eg, HURA members were obliged to register any call for a pitch in the established “information exchange system” within 48 hours);
- if a HURA member circumvented the guidelines, other members were obliged to report this (which implied their awareness and collusion);
- proceedings for violation of the guidelines would be initiated by HURA;
- members were obliged to abandon any pitching process not in compliance with the recommended HURA guidelines; and
- the members were subject to penalties for non-compliance with the recommendations, in the form of:
- a reprimand;
- public reprimand;
- a ban from certain events organised by HURA; and
- ultimately, revocation of membership.[iii]
Although the case shared many features with the case against the Association of Orthodontists, the outcome was surprising. After the proceedings against HURA were opened, HURA voluntarily proposed commitments to eliminate the possible anti-competitive effects of its behaviour. The agency found the commitment to remove the disputed provisions to be sufficient and adequate to restore competition on the market, and consequently accepted the commitment.[iv]
Comment
In HURA the agency for the first time accepted the proposed commitments in a case conducted under the qualification of a prohibited horizontal agreement. Moreover, in this case all characteristics of a prohibited horizontal agreement were present. By accepting the commitments, the agency abandoned its previous position in favour of a more lenient one.
HURA is of immense importance for practitioners. Article 49 of the Competition Act, which regulates commitments, does not explicitly exclude the possibility of proposing measures in proceedings conducted for the purpose of establishing cartels; however, before HURA it was believed that, in practice, such attempts would inevitably fail. The consideration of commitments within the scope of cartel proceedings has now become a reasonable option, which the parties might try to use in even the most challenging proceedings. HURA sets a precedent which may compel the agency to explain carefully its rejection of commitments in future, regardless of the type of proceedings.
[i] Another organisation established by law
[ii] As with the Association of Orthodontists proceedings, the proceedings were not conducted on the basis of Article 101 of the Treaty on the Functioning of the European Union.
[iii] See http://www.aztn.hr
[iv] HURA committed to remove from the guidelines all provisions raising competition concerns within 30 days – specifically, the provisions:
Obliging the members to report on the pitching process;
Specifying the penalties that could be imposed on members for non-compliance with the guidelines; and
Obliging advertisers to abandon the pitching process unless it complied with the guidelines.
This article was edited by and first appeared on International Law Office
By Mislav Bradvica, Attorney at Law, Schoenherr
