Anti-competitive Cooperation
Abuse of a Dominant Position
Merger Control
The Notification Procedure
Administrative Fines
The Icelandic Competition Act dates from 1993. The act has been amended four times, most recently by Act 107/2000, which came into force on December 6 2000. This act was designed to harmonize the Icelandic competition rules with Articles 53 and 54 of the European Economic Area (EEA) Agreement (which are similar to Articles 81 and 82 of the Rome Treaty).
The Competition Authority (Samkeppnisstofnun) has the primary responsibility for administering the act. The authority can only take provisional decisions in individual matters. All other decisions regarding the enforcement of the act are taken by the Competition Council (Samkeppnisráð), including decisions on imposing administrative fines to be paid by undertakings or associations of undertakings that have violated the prohibitions of the Competition Act, or decisions taken in accordance with the act. Decisions taken by the authority or the council can be appealed to the Competition Appeals Committee (Áfrýjunarnefnd samkeppnismála). Such decisions can only be referred to the courts after a decision by the Competition Appeals Committee has been rendered.
The most important provisions of the act are a prohibition on anti-competitive cooperation between undertakings, a prohibition on abuses of dominant positions and a merger control provision.
Jurisdiction of the Regulatory Authority
When assessing the need to apply for an individual exemption from the prohibition on anti-competition cooperation between undertakings or the duty to notify a merger according to the Competition Act, one must first look to Article 3 on the jurisdiction of the act. This article states that "this law shall apply to agreements, terms and actions that have or are intended to have an effect in Iceland".
According to this the Competition Authority and the Competition Council only have jurisdiction over agreements, terms and actions, such as merger agreements or acquisitions, which have an effect or are intended to have an effect in Iceland. The degree of effect required for the act to be applicable is not stated in the act itself, but it seems that the agreement or merger in question must have an impact on the Icelandic market. Such an effect can be established by examining whether parties participating in cooperation or merging parties have some operation and/or offices in Iceland.
According to Article 10 of the Competition Act any agreement or resolution between undertakings, whether binding or guiding, and concerted practices aimed at preventing, restricting or distorting competition are prohibited.
This prohibition includes agreements, resolutions and concerted practices that:
- directly or indirectly fix prices, discounts, margins or any other trading conditions;
- limit or control production, markets, technical development or investment;
- share markets or sources of supply;
- apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or
- make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations, which by their nature or according to commercial usage have no connection with the subject of such contracts.
The concepts of 'undertaking', 'agreement' and 'concerted practice' are interpreted by the Competition Council in accordance with the practice of the European Court of Justice and the European Free Trade Area (EFTA) Court.
Exemptions
The prohibition of Article 10 of the act does not apply to cooperation between companies that are of only minor importance. The act lays out guidelines or thresholds in order to determine which agreements fall outside the scope of prohibition. In order to make this assessment the aggregate market share held by all of the participating undertakings on any of the relevant markets must be determined. 'Participating undertakings' are defined as undertakings that are party to the agreement, undertakings that the parties to the agreement control directly or indirectly, and undertakings that control directly or indirectly parties to the agreement.
If the market share does not exceed (i) a 5% threshold, where the agreement is made between undertakings operating at the same level of production or of marketing (horizontal agreement), or (ii) a 10% threshold, where the agreement is made between undertakings operating at different levels of production or marketing (vertical agreement), then the agreement is considered to be of minor importance and is not prohibited by the act. In the case of a mixed horizontal and vertical agreement or where it is difficult to classify the agreement as either horizontal or vertical, the 5% threshold applies.
Further, agreements do not fall under the prohibition of Article 10 even though the market share exceeds these thresholds if the market share does not exceed 5.5% in horizontal agreements or 11% in vertical agreements for two successive financial years.
The Competition Council may also grant individual exemptions from the provisions of Articles 10 if agreements, resolutions, concerted practices or decisions meet any of the following conditions:
- contribute to improving the production or distribution of goods or services, or to promoting technical or economic progress;
- allow consumers a fair share of the resulting benefit;
- do not impose restrictions on the undertakings concerned that are not indispensable to the attainment of these objectives; or
- do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.
The Competition Council can set conditions for an exemption. The council also has the authority to set group exemptions, but this authority has not yet been used.
Article 11 of the Competition Act prohibits abuse of a dominant position by one or more undertakings. According to the practice of the Competition Council a dominant position is not in itself abusive. The concepts 'dominant position' and 'abuse' are interpreted by the council in accordance with the practice of the European Court of Justice and the EFTA Court.
Article 11 lists examples of practices that can be seen as being abusive. This list is not exhaustive. According to the list an abuse of a dominant position may consist of the following:
- directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
- limiting production, markets or technical development to the prejudice of consumers;
- applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or
- making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations, which by their nature or according to commercial usage have no connection with the subject of such contracts.
The Competition Council may take measures against any action that it deems to violate Article 11.
A 'merger' is defined in Article 4 of the Competition Act. This definition was added to the act by the amendments made in December 2000.
According to the act a merger has taken place when:
- two or more previously independent undertakings merge;
- an undertaking takes over another undertaking;
- owners controlling one or more undertakings acquire direct or indirect control of one or more other undertakings; or
- undertakings create a joint venture that performs on a lasting basis all the functions of an autonomous economic entity and does not give rise to coordination of the competitive behaviour of the parties among themselves or between them and the joint venture.
According to Article 4 the Competition Council may annul a merger that has already taken place if it deems that a merger obstructs effective competition by either giving one or more undertaking a dominant position or strengthening such a position. The council may also set conditions for such a merger that must be complied with within a given time. When assessing the legality of a merger the council shall take into account to what extent international competition affects the competitive position of the merged undertaking. Also when assessing the legality of a merger it must be considered whether the market is open or whether access to it is obstructed.
Exemptions
The Competition Council's authority to intervene in merger cases only applies to mergers where the total turnover of the undertakings in question is at least Ikr1 billion. This must include the turnover of parent undertakings and subsidiaries, undertakings within the same group of undertakings and undertakings that, directly or indirectly, are party to the merger control. Then at least two of the undertakings that are party to the merger must have an annual turnover of at least Ikr50 million each for the merger to fall within the council's authority.
The wording of this rule in the act is unfortunately not as clear as it could be, as it does not state which mergers should be notified and whether the turnover thresholds are limited to turnover generated in Iceland or if worldwide turnover should be included. As there is not yet any experience as to how this will be interpreted by the Competition Council or local courts it is difficult to foresee the implications this new notification procedure will have. However, from the explanatory notes that accompanied the bill for this amendment it is clear that the aim of the turnover thresholds was to simplify the notification procedure so that merging undertakings did not have to define the market first in order to see whether a notification of a merger was necessary. In accordance with this it seems likely that turnover thresholds are to be interpreted as to be worldwide.
A new notification procedure is described in Article 18 of the act. The Competition Authority must be notified of all mergers that are not exempted by the turnover threshold rule. This must be done no later than one week after the conclusion of the agreement, the announcement of the public bid or the acquisition of the controlling interest in an undertaking. That week shall begin when the first of these events occurs. The notification shall contain information about the merger and the undertakings connected to it. The Competition Council has laid down rules that indicate more precisely what information must appear in a notification (ie, markets that the merger affects and other necessary points for considering its competitive effects).
The authority shall notify the relevant undertakings within 30 days if it has reason to investigate further the competitive effects of the merger. The deadline is counted from the time that the authority receives the proper notification. If no notice comes from the authority within these 30 days the council cannot annul the merger. A decision to annul a merger must be taken no later than three months after the authority has sent a notice on its investigation of the merger to the relevant undertakings.
If the Competition Authority is not notified of a merger then the Competition Council can annul it if it finds that it obstructs effective competition. Before the council takes any such decision it must notify the parties and give them a chance to submit any relevant documentation, as well as their arguments. Such a decision can then be appealed to the Competition Appeals Committee and then to the courts.
According to Article 52 administrative fines can be imposed on undertakings or associations of undertakings that have violated the prohibitions of the Competition Act or decisions taken in accordance with the act, provided the violation is not deemed insignificant or such fines are not considered necessary in order to promote and strengthen effective competition. Fines shall be determined with regard to the nature, extent and duration of restrictions to competition. The fines shall accrue to the State Treasury.
Fines can be from Ikr50,000 to Ikr40 million, or a sum in excess of this but not exceeding 10% of the turnover in the preceding business year of each of the infringing undertakings or associations of undertakings. When deciding the amount of the fine the Competition Council can take into consideration the guilty undertaking's will to cooperate.
According to the wording of Article 52 only a violation of the prohibition provision gives the Competition Council the authority to impose sanctions. Such sanctions can therefore be imposed if an undertaking is guilty of anti-competitive cooperation or abuse of a dominant position. No such prohibition is found in Article 18 of the act, which deals with merger notification. It is therefore clear that the council does not have the authority to impose sanctions if mergers are not notified to the Competition Authority in accordance with the rules laid out in Article 18. However, a fine can be imposed if the council's decision to annul a merger is not obeyed.
For further information on this topic please contact Gudrun Björk Bjarnadottir or Gunnar Sturluson at LOGOS by telephone (+354 5 400 300) or by fax (+354 5 400 301) or by e-mail ([email protected] or [email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer