Introduction

The Competition Agency acts ex officio where it initiates proceedings concerning abuse of a dominant position, as set out in Article 13 of the Competition Act. However, any legal or natural person may request the agency to institute proceedings that fall under its purview – which usually occurs in abuse of dominant position cases. This option is often explored by competitors which perceive certain practices of a dominant undertaking as problematic.

Recent case

This procedural pattern arose in a recent case brought before the agency. A competitor requested the agency to institute abuse of dominance proceedings against Gemicro,(1) which had allegedly concluded 'non-poaching' agreements with the leasing companies which were its buyers, thereby restricting competition and creating significant barriers to entry into the relevant market.

It appears that the agency highlighted several aggravating obligations in the non-poaching agreements, which prevented:

  • the employment and engagement of any former Gemicro employees; and
  • buyers from concluding contracts with Gemicro's competitors if their personnel comprised former Gemicro employee(s).(2)

According to the agency, such agreements allegedly led to adverse effects on the market for the provision of specialised IT services to leasing companies,(3) in which Gemicro primarily operated.

Gemicro offered undertakings to eliminate the indicated negative effects, in accordance with Article 49 of the act – this is a procedural option at the disposal of an enterprise during abuse proceedings instituted against it. The undertakings were published and the agency is expected to accept them, thus avoiding problematic and difficult proceedings for both parties.

Issues

This is the first time that the Competition Agency has examined this type of agreement as problematic and assessed - albeit not thoroughly - its actual or potential adverse effects from the competition perspective. Although the agency's acceptance of the undertakings does not constitute a ruling on the merits, it will certainly raise many questions. In their day-to-day business activities, companies should be aware of the following issues:

  • During the proceeding, the agency determined that there were sufficient indications that Gemicro had a dominant position on the market for the provision of specialised IT services to leasing companies. Given Gemicro's total revenues, it is questionable whether Gemicro was in a position to restrict competition and effectively establish barriers for potential competitors seeking to enter such a niche IT market. However, the agency applied its discretionary power to define the market by its methodology and indicated that the seemingly small enterprise had a dominant position on the specialised niche market.
  • The agency also found problematic a provision in the agreement concluded with leasing companies, according to which each contracting party agreed not to hire or otherwise engage, for the term of the agreement and for two years thereafter, personnel who had been employed by the other party during that time. On the buyers' side, this provision was additionally restrictive because it referred to employees hired both by subcontractors and by Gemicro. The provision appeared to apply to both direct and indirect business relationships, which meant that its scope was widened to the greatest possible extent.
  • The agency did not give its final word on the scope of certain non-poaching provisions because Gemicro fully consented to their deletion. It would be interesting to see which parts of those provisions would not raise competition law concerns (eg, restrictions that applied only for the term of the agreement, mutually balanced restrictions or restrictions which did not apply to third parties).

In light of the above, parties should tbe particularly vigilant when evaluating their market positions and should not disregard the fact that certain products or services may be assessed independently as a separate product market. Further, non-poaching agreements should not immediately be perceived as intelligible and justified; rather, they should be checked carefully in order to avoid the scrutiny of the Competition Agency.

For further information on this topic please contact Mislav Bradvica attorney at law in cooperation with Schoenherr by telephone (+385 1 4813 244) or email (m.bradvica@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

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