On April 7 2011 the Office for the Protection of Competition published a draft amendment to the Competition Act and opened a public consultation to receive feedback. The amendment is being prepared in response to the contemplated abolishment of the Act on Significant Market Power. The main provisions of the abolished act will be incorporated in the Competition Act. The remaining, mainly technical, provisions will be included in the Act on Prices.
Ever since it was issued, the Act on Significant Market Power has been criticised for its ineffectiveness, as well as for doubts about its compliance with EU law. It has also been criticised from the perspective of systematics for being classified as a competition law regulation, although in fact it is not a competition law norm.
Following the proposed abolishment of the Act on Significant Market Power, the legislature is considering extending the Competition Act by two sections, providing for a new type of prohibited conduct called 'abuse of significant economic position'. The draft amendment defines 'significant economic position' and the types of conduct which are not admissible for competitors in such a position.
Under the first section of the draft amendment, competitors have a 'significant economic position' when:
- their turnover exceeds Kr5 billion (approximately €204 million), while their market share is considerably higher than the market share of most competitors on the relevant market;
- their market share is considerably higher than the market share of most competitors on the relevant market and their aggregate turnover combined with that of a competitor which purchases goods on its behalf exceeds Kr5 billion; or
- they do not meet the above criteria, but are nevertheless in a position to enforce inadequate advantages from the other competitors or to prevent effective competition, irrespective of whether they are active on the supply or demand side of the relevant market.
The second section of the draft amendment provides a list of practices constituting abuse of a significant economic position. These include, for example:
- negotiating inadequate conditions;
- negotiating duties leading to an imbalance between contractual parties;
- asking for advantages without adequate consideration; and
- transferring sanctions imposed by a controlling authority on a contractual party.
Like the Act on Significant Market Power, the draft amendment of the Competition Act is aimed at retail chains. Unfortunately, the new regulation still contains imprecise and disputable provisions. The definition of 'significant economic position' - which is based on terms such as "considerably higher turnover than other competitors" or "position enabling [it] to enforce inadequate advantages or to prevent an effective competition" - is particularly vague. As a consequence, it may be difficult for competitors to assess whether they enjoy a significant economic position and, therefore, whether they have to comply with the limitations resulting from it.
It is also unclear whether competition on the Czech market is so lessened that it requires protection above and beyond the existing safeguards against prohibited horizontal and vertical agreements and abuse of dominant positions. Furthermore, the proposed regulation imposes greater limitations on competitors in a significant economic position than on competitors in a dominant position. This approach does not seem to be appropriate, as the existence of a dominant position certainly constitutes a bigger risk factor for competition on a relevant market than does a significant economic position.
The authority should therefore extend the scope of the Competition Act to the abuse of a significant economic position only insofar as such a measure is necessary to remove existing competition restraints in the Czech Republic. Should such a measure prove necessary, the definition of 'significant economic position' must be refined. It would also be advisable to define it on the basis of market share or turnover.
Finally, the limitations imposed on a competitor in a significant economic position should be relaxed. The limitations could apply only to the business relationships of competitors in a significant economic position with suppliers that depend on them.
The public consultation is welcomed, as it will help the authority to develop the contemplated amendment to the Competition Act.
For further information on this topic please contact Martin Nedelka or Radovan Kubác at Schönherr sro by telephone (+42 0 225 996 500), fax (+42 0 225 996 555) or email ([email protected] or [email protected]).