Legal changes give Competition Council teeth

With fines of tens of millions of euro levied since the beginning of the year, the Competition Council (CC) seems to have reached an all-time high. However, with a new regulatory framework and tens of investigations involving heavy industry or oil and gas companies nearing an end, the council is now expected to smash its own records and break new ground in terms of fines. BR takes a closer look at the newly empowered body.

Dana Verdes

About EUR 4 million – this is the total value of the fines given by the Competition Council last month to three companies, namely Interfruct, Albinuta Shops and Profi Rom Food, for fixing the sale prices of fruit and vegetables. It is one of the latest million-euro penalties dished out by the CC after the competition law changed in August last year, giving the body more powers in line with EU law.

“Last year’s amendments constitute the biggest overhaul of Romanian competition laws for over six years, touching upon fees, clearance periods, the appeal procedure and the level of fines imposed,” Ioana Talnaru, counsel at Badea Clifford Chance, told Business Review.

Profi Rom Foods announced that it would contest the council’s decision in court, much like telecom providers Orange and Vodafone, who were themselves fined about EUR 63 million for abuse of their dominant position, a ruling the two operators pronounced “unreasonable”. According to CC officials, Orange and Vodafone were for charging their customers more for the interconnection of calls from abroad than allowed by the Romanian authorities.

A number of factors lie behind the remarkable increase in fines levied by the CC from EUR 2.3 million to EUR 31.5 million. “The council has been much more active in 2010, concluding 16 investigations into anticompetitive deals in 2010, seven of which resulted in fines, as opposed to only five investigations completed in 2009 and three fines. This is due both to the increased level of council activity and the limited number of mergers brought to the attention of the council in 2010,” Anca Buta Musat, partner at Musat & Asociatii and head of the competition practice, told BR. However, since the number of companies actually penalized in 2009 greatly outnumbers the total in 2010, another factor must be taken into account, namely the turnover of the companies involved, noted Buta Musat. Many streaming services are offering free movies and shows these days, as long as you’re fine with watching an ad or two.

“The level of the fines given by the council varies with the turnover of the penalized entity, making a correlation between the number of cases completed and the amount of fines applied difficult. The total fines levied in 2011 will greatly exceed the total in 2010 because two large companies, Orange and Vodafone, were given very large penalties,” said the Musat & Asociatii partner.

Specialists say that the council’s activity is set to be at least at the same level as last year, as there are 60 ongoing investigations, many of which are expected to be concluded this year. The trend in 2011 will depend on the Competition Council’s ability to complete some of its most important investigations, such as probes into the siderurgy market (opened in 2004), the production and trading of natural gases (2005), the oil and oil derivate market (opened in 2005) and others, which involve companies with large turnovers and therefore whose potential fines could be high.

Cases build momentum

The competition cases keep on coming. ”Currently we have various cases on the dockets of Romanian courts with companies appealing against Competition Council fines. Most recent cases relate to the fines handed to second pillar pension funds for clientele sharing, where we are representing ING Pensii and BCR Pensii. These cases are currently in the first court phase in front of the Bucharest Court of Appeal,” Raluca Vasilache, partner at Tuca Zbarcea & Asociatii and head of the firm’s competition/antitrust practice group, told BR.

She added:”Some of the older

cases involve companies seeking to have fines overturned, such as UPC and Cablevision Romania. We got a favorable decision before the first level of jurisdiction (the Bucharest Court of Appeal). Currently, the cases are in the appeal phase.” According to Vasilache, the largest fine currently being challenged in court is the penalty handed to UPC for market sharing in Timisoara, which amounts to approximately EUR 2.16 million, and abuse of dominant position by a tariff increase, of about EUR 5.25 million. “The case was successful for the client in the first court phase and is currently under appeal,” said the lawyer.

Meanwhile, NNDKP is currently challenging the fines imposed on Vodafone Romania this year (EUR 28.3 million), Raiffeisen Bank in 2010 (EUR 3.37 million) and Alico, an administration company of a private pension fund, in 2010, in the first case in which the Competition Council also found a breach of the Treaty for the Functioning of the European Union. All of these cases began in the past year, and are currently at various stages in court.

“NNDKP is currently assisting clients in seven investigations before the CC, in various business areas, such as: banking, pharmaceutical, FMCG, construction, private pensions and WEEE management. It is currently assisting a major multinational corporation in an antitrust case before the European courts,” Georgeta Harapcea, senior associate and competition practice coordinator at NNDKP, informed BR.

What’s new?

The changes made to the competition law in the summer of 2010 were intended to align Romanian competition rules with EU ones. The experience of the last few months has shown that these rules, as well as bringing a greater focus on enforcement, can impact significantly on business activity.

“For example, it is no longer possible for companies to obtain an individual exemption ruling from the Competition Council. So there is less legal certainty in applying competition rules. If, for various reasons, a firm cannot meet the legal conditions to benefit from a block exemption regulation, it will always have to make its own legal and economic assessment of whether the agreement can qualify for an individual exemption. This means that it needs to balance the benefits of an intended agreement or action against the competition restrictions and is free to act only when it can be satisfied that the anticompetitive effects would be outweighed by benefits,” Manuela Lupeanu, associate at PeliFilip, told BR. Clearly, say specialists, the council would be better placed to make such a judgment, as it could raise information from the market. The reform was intended to give the CC time to focus on more severe infringements, such as cartels and abuse of dominant position.

The amendments have also introduced a minimum level of fines in infringement cases – 0.5 percent of the company’s turnover for the worst infringement and 0.1 percent for less significant ones. Previously there was no minimum and the Competition Council could apply much lower or even no fines for minor infringements. Any company challenging a fine in court has to pay a surety of 30 percent of the fine, if it is asking for the decision to be suspended, until a final court decision is made. The new form of the Competition Law allows any person suffering damages due to an anticompetitive practice to seek compensation in court within up to two years of the Competition Council’s final decision, Alexandru Stanciu, partner at Leaua & Asociatii, told BR.

CC gains new jurisdiction

Under the changes, the council has more means by which it can intervene to restore competition on a market. The institution can impose any interim measure it considers necessary if certain conditions are fulfilled: if the Competition Council ascertains, through its first assessment, the existence of anticompetitive practices expressly prohibited by law, which must be eliminated without any delay, and the matter is urgent due to the risk of serious and irreparable harm to competition.

“In exceptional situations, the interim measures can be adopted after a ruling as well, more specifically in cases where economic concentration has occurred either due to the failure to observe a condition or obligation imposed through the decision, or, despite a ruling declaring the concentration incompatible with a normal competitive environment,” said Florentina Munteanu, managing associate with Reff & Asociatii.

Meanwhile, Georgeta Harapcea, senior associate and competition practice coordinator at NNDKP, told BR that the new legislative changes have given the competition authority increased powers in relation to other authorities or state bodies.

“For instance, under the new regulations, the council may fine (a fixed sum between RON 5,000 and RON 40,000) central and local authorities and government institutions for failing to provide the requested information and documents, as well as for providing inaccurate or incomplete data. Previously, the legislation only allowed the CC to fine companies, not the authorities too,” said Harapcea. Moreover, the Competition Council can now interview any individual or representative for its investigation. And the powers of the CC have been increased in terms of the control of economic concentrations.

“Based on the new form of the law, where an economic concentration has occurred and been found incompatible with a normal competitive environment, the CC may order any action required to re-establish the situation prior to the infringement, including: the spin-off of the merging companies, sale of shares, dissolution etc,” Alexandru Stanciu, partner at Leaua & Asociatii, told BR.

dana.verdes@business-review.ro

Main changes in the CC legislation

The new regulations establish a minimum fine level, namely 0.1 percent of the total turnover made by the company in the year preceding the sanction, and 0.5 percent of the turnover in cases where the maximum fine level is set at 10 percent, for instance, participation in a cartel or abuse of dominant position.

The law also stipulates a decrease of the fine quantum by 10 to 25 percent of the basic fine level if the deed is expressly acknowledged by the undertaking under investigation after having received the investigation report and having exercised its right of access to the file.

The new law establishes a financial guarantee amounting to 30 percent of the fine payable by a firm where it asks the court to suspend the order for payment of the fine until the case seeking the annulment of the CC decision is settled.

The law establishes a maximum threshold of EUR 100,000 for the authorization fee in economic concentration cases. Also, the calculation method of the authorization fee was modified, being set at 0.04 percent of the total turnover achieved in Romania by the undertakings involved in the concentration, without exceeding the maximum threshold.

An undertaking may not challenge an order from the CC while it is deciding whether to open an investigation, but only along with the final decision in connection with the investigation.

The 2010 amendment introduces the enforcement of the attorney-client privilege principle.

Source: Tuca Zbarcea si Asociatii