Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Cartels volume discussing topics including leniency systems, enforcement trends, judicial review and compliance developments within key jurisdictions worldwide.
1 What kinds of infringement has the antitrust authority been focusing on recently? Have any industry sectors been under particular scrutiny?
Competition authorities in South East Europe (Serbia, Croatia, Bosnia and Herzegovina, Montenegro, North Macedonia, Albania, and Kosovo (the region)), although rather young, are steadily building their practice in detecting and sanctioning cartels. The Serbian and Croatian competition authorities lead the way in terms of numbers of successfully completed cases, while the track record of other jurisdictions is still in the early stages.
Two types of restrictions seen in regional practice, which are frequently under the scrutiny of regional authorities, warrant particular mention. The first type of infringement is the detection of resale price maintenance (RPM). This has been commonplace for several years given that RPM is very widespread in the region. Steps by competition authorities to detect and sanction this practice have prompted undertakings to introduce compliance programmes and be more vigilant. However, competition law awareness in the region still lags behind that in developed economies, and RPM is often a common feature of standard distribution and sales contracts, making them an ‘easy catch’ for competition authorities. All authorities in the region have a strict practice when it comes to assessing RPM and this type of infringement is a fineable hardcore restriction. In contrast to recent decisional practice at EU level in detecting RPM, there is still no practice in sanctioning RPM on the e-commerce market due to the low intensity of online trading in the region, which might increase as a consequence of covid-19 causing changes in consumer behaviour.
The second type of most common infringement is the detection of bid-rigging cartels. This type of competition infringement takes pole position in terms of competition authorities’ priorities, especially for the competition authorities in Serbia, Montenegro and North Macedonia. Serbia’s competition commission boasts the largest number of bid-rigging cartels detected, which in 2019 also issued a decision imposing the highest competition infringement penalty seen to date (expressed as a percentage) – 7.55 per cent of total annual turnover. Given that public procurements cover a significant part of the economy in these jurisdictions and that they affect the proper spending of public funds, this priority is key to image building for competition authorities and fostering competition advocacy. Not only are public procurements subject to scrutiny when it comes to bid-rigging cartels, but often consortium contracts also come in for investigation by the competition authorities. For example, in 2019, Montenegro’s competition authority found a consortium agreement for participation in a medical equipment tender to be a restrictive agreement. Consortia are often the subject of individual exemptions before competition authorities in Serbia and Montenegro.
Classic cartels are few and far between, and if discovered usually concern local arrangements having limited significance for the functioning of the one country’s economy. Examples include decisions rendered by Croatia’s competition authority concerning a cartel between driving schools or a cartel of undertakings on the sewerage market that were local in character.
A growing number of regional competition authorities are conducting sector inquiries, with fast-moving consumer goods, the oil and petroleum products market, banking services, household equipment, etc. We emphasise in particular that lately there has been a visible step up in sectoral analysis on the part of the Albanian competition authorit,y which is usually the step before the initiation of investigations.
2 What do recent investigations in your jurisdictions teach us?
In most cases, investigations are triggered following a review of formal complaints filed by undertakings. Competition authorities in the region rely heavily on undertakings contacting them rather than taking a proactive approach to unearthing information about possible competition infringements. Complaints can be submitted by legal and natural persons, associations or institutions. The majority of authorities have complaint forms on their websites, while anonymous or email complaints are also likely to be examined.
An exception to this are investigations launched by competition authorities as a result of sector inquiries. Serbia’s competition authority leads the way in this respect as almost every sector inquiry it conducts leads to it launching investigations into suspected competition law infringements. This was the case, for example, with a sectoral analysis of the food retail market, which in 2019 led to an investigation into RPM against a leading dairy and leading brewer and their customers.
One of the reasons for the ‘passivity’ of competition authorities in the region is that most lack the administrative resources, which to a large extent are tied up handling merger notifications (merger notifications vastly outnumber infringement investigations, owing to low merger notification thresholds). These are systematic shortcomings that have no quick fix. Taking Serbia as an example, only after it committed more administrative and staffing resources to form special sectors and larger teams was it in a position to redouble its antitrust enforcement by launching a plethora of investigations and dawn raids.
All competition authorities in the region have the authority to conduct dawn raids. However, in practice, this investigative tool is not availed of to the extent that it is in more developed competition systems. Serbia’s commission tops the list in terms of the number of raids (approximately 25 since 2015), while dawn raids are a rarer occurrence in other jurisdictions. There are different procedural requirements for conducting dawn raids, with a court order required in Croatia, while in Serbia, Montenegro and Albania there is no such requirement and a decision issued by the competition authority is sufficient.
The parties have procedural rights and can actively participate in the proceedings by presenting evidence, witnesses and expert witnesses so that the facts can be established as accurately as possible. In addition to the right to access to file, in almost all jurisdictions competition authorities must provide a statement of objections, which is provided almost exclusively to the parties only. Bosnia and Herzegovina is the exception, where no such statutory duty exists. As for informal meetings or state of play meetings, this certainly depends on the circumstances of each case individually, but, in principle, competition authorities are not always open to the parties and prefer to take a formal approach when dealing with them.
3 How is the leniency system developing, and which factors should clients consider before applying for leniency?
The leniency programme has not taken hold in the region. All jurisdictions have leniency programmes similar to the EU model included in their regulations, but this institute is yet to yield any results in practice. It was only last year that Serbia’s competition authority adopted its first decision in respect of a leniency application. Croatia, despite being an EU member state since 2013 and having a leniency programme since 2009, is yet to develop practice in this domain. Other jurisdictions too have detailed leniency rules, both in primary legislation and by-laws (North Macedonia, Montenegro, Kosovo and Albania). In addition, public officials emphasise the importance of this tool and encourage undertakings to avail of the leniency programme. Most competition authorities in the region have a dedicated leniency section on their websites and contact details for leniency applications.
Given the sluggish uptake on leniency and the low level of antitrust enforcement, instances are few and far between of clients showing a particular interest in learning about their rights and obligations should they opt to make use of the leniency programme. Generally, expressions of interest in leniency come about as part of queries about fining policies and the level of activity to detect competition infringements, when assessing the pros and cons of opting to go down the leniency road. The lack of decisional practice, both on the part of the competition authorities and the courts, regarding leniency programme implementation issues, presents a unique challenge when preparing an opinion about a possible application.
4 What means exist in your jurisdiction to speed up or streamline the authority’s decision-making and what are your experiences in this regard?
The settlement procedure, which is a common instrument for speeding up the process of rendering a final decision, is not employed in the region. Settlement is expected to find its way into the legal framework of jurisdictions in the region in the near future. For example, work on drafting a new law is currently under way in Serbia and one of the mooted changes concerns the introduction of a settlement procedure, with the current proposal providing for settlement for other types of competition infringements and not just cartels.
Parties and competition authorities in the region are increasingly using commitments to end proceedings. Although this commitments decision procedure is largely used in investigations of abuse of a dominant position, there is also the practice that it can be used to close out procedures for examining restrictive agreements. In Croatia, in one of the few competition infringement investigations, a party offered commitments in a procedure to investigate the existence of RPM, which were accepted by the authority and led to the prompt resolution of the procedure. Considering that parties in Croatia are encouraged, with a view to expediting the completion of the procedure through acceptance of the proposed measures, to propose measures within the first six months of the procedure, it can be said that this is also a statutory mechanism for speeding up the procedure.
There are no other formal instruments for speeding up the procedure. However, a party’s conduct during the procedure can expedite its completion if the party demonstrates a high level of cooperation and does not obstruct or impede the procedure.
5 Tell us about the authority’s most important decisions over the year. What made them so significant?
A most noteworthy decision is that rendered by Serbia’s competition authority finding that importers and distributors of the Konika-Minolta brand had coordinated their participation in procurement procedures. This decision is significant for the following reasons: (1) it was the first decision as a result of a leniency application in Serbia; (2) it had the highest penalty seen to date, expressed as a percentage – 7.55 per cent; and (3) it was the first decision in respect of bid rigging that distorted intra-brand competition. In addition, in this decision the Commission stated for the first time that for this type of cartel to exist it is irrelevant whether the procurement was conducted pursuant to the Public Procurement Act, that is, whether the contracting authority is from a public or private sector entity, and that this type of competition infringement can occur irrespective of the contracting authority’s status.
In Croatia, the investigation taken by the competition authority against Coca-Cola garnered widespread attention. The procedure was initiated to establish a competition infringement related to the imposition of an exclusivity clause in contracts with its customers in the HORECA channel (food service and hotel industries). The investigation focused on both types of infringements: restrictive agreements and abuse of dominance. The procedure ended with commitments being imposed and Coca-Cola undertaking to remove the clauses establishing an exclusive purchasing obligation and tying the sale of carbonated non-alcoholic drinks to non-carbonated non-alcoholic drinks.
6 What is the level of judicial review in your jurisdiction? Were there any notable challenges to the authority’s decisions in the courts over the past year?
All competition authorities in the region, with the exception of Montenegro, have powers to investigate infringements and impose fines. In Montenegro, once a competition infringement has been established by the competition authority, it remits the case to the Misdemeanour Court, which hears the case and imposes the fine. All competition authorities are independent and their decisions do not require the assent of another authority, nor do other administrative authorities have powers to examine the legality of those decisions. Some employ an internal quasi separation of powers within the competition authority – that is, separation of the investigation from the decision-making process. In Serbia, for example, the professional staff conducts investigations, while the Council decides on the merits. In North Macedonia, the competition authority is comprised of two committees: one to identify administrative offences and the other to identify misdemeanours (ie, to impose penalties).
Competition authority decisions are subject to judicial review as part of legal disputes before the competent administrative courts. Administrative courts can also hear full jurisdiction disputes, that is, adopt decisions amending decisions adopted by the competition authorities, but this practice is almost non-existent. Owing to a lack of knowledge about economics and competition law, courts generally steer clear of substantive issues and focus instead on procedural shortcomings and the rights of the parties to proceedings. Therefore, in the event of a decision being overturned, the procedure is referred back to the competition authority for reconsideration, which is then required to act on the court order.
An interesting decisional practice example from Serbia concerns the fate of a decision adopted by the competition authority in an abuse of dominance case procedure against the incumbent on the electricity distribution market. In that case, the competition authority adopted a decision imposing a record fine (€3.2 million), but the court first overturned the competition authority’s initial decision. Following the court’s decision, the competition authority imposed an even higher fine in the repeated procedure that was also quashed by the court, which remitted the case for reconsideration. This ‘back and forth’ between the competition authority and the court was brought to an end when the party submitted, in the third proceeding, commitments accepted by the Commission and finalised by means of a commitment decision.
7 How is private cartel enforcement developing in your jurisdiction?
Croatia, being the only EU member state in the region, enacted a special Competition Law Infringement (Actions for Damages) Act in 2017. This regulation transposes Directive 2014/104/EU into the Croatian legal system, which lays down rules governing actions for damages for infringements of the competition law provisions.
Private enforcement is in its early stages in other states, which for the time being is governed by a single provision in competition legislation and relevant provisions on contracts and torts. So, there is no systematic regulation of this issue, as is the case in the EU. It is against that background, and owing to the fact that decisional practice is not yet developed and the lack of awareness of recourse to bring actions for damages in the event of a competition infringement, that there are no court decisions. In addition, Croatia too is yet to witness the first instances of private enforcement.
Regarding Serbia, which is in the process of drafting a new Competition Act, the provisions of the EU Private Enforcement Directive are not expected to be fully incorporated into the new legislation. Specifically, the recommendation is that a separate regulation on private enforcement be adopted, as has been done in the majority of EU countries.
8 What developments do you see in antitrust compliance?
While not yet at a high level, there is a growing awareness of the importance of complying with competition law in the region. This is supported by the fact that more and more companies are choosing to introduce compliance programmes and regularly test their readiness for investigations by the competition authority.
In light of the upsurge in dawn raids by Serbia’s competition authority over the past five years, there is an increasing demand for training, mock dawn raids and the drafting of dawn raid guidelines. Other jurisdictions in the region are also expected to experience an upturn in demand for this type of compliance training as national authorities begin to leverage the dawn raid mechanism.
We regularly provide general competition law compliance training, but we also notice that clients are increasingly looking for issue-specific compliance training. For example, we regularly provide training targeted at sales departments in the fast-moving consumer goods sector, when we focus on the issues of their everyday work. Or, drafting rules on communication with customers and business partners, since many companies noticed that emails and other electronic communication contain potentially problematic content and wording. Also in demand is management training with regard to setting commercial terms and conditions for companies that have a significant market share. Companies are cognisant of the need to update their compliance programmes regularly, but tend to opt for targeted, tailor-made training and programmes.
Competition authorities are encouraging companies to introduce these programmes, but for now there is no decisional practice to shine a light on how, when imposing a penalty, they weigh the existence or absence of a compliance programme.
9 What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?
There have been, or are expected to be in the near future, changes to the management boards of several competition authorities in the region, so we can expect to see some changes in the enforcement of competition law in the region. What should be expected is heightened antitrust enforcement through use of the full suite of available cartel detection resources, such as leniency programmes and dawn raids.
Work on drafting a new Competition Act is under way in Serbia and our office is actively involved in this process through membership of the Working Group. The new act is expected to introduce certain amendments that will potentially result in a reorder of the priorities of competition authorities. First, there will be a change in the merger notification thresholds, which may result in a reduction in workload in this area, freeing up resources for antitrust work. In addition, there are plans to abolish the mandatory notification of an individual exemption of restrictive agreements, so that the Commission would only handle competition infringements that significantly affect market competition.
So far, there has been no sign of any amendments to the legal frameworks in other countries of the region. After the Croatian competition authority was given powers to deal with unfair trading practices, we have noticed that it has stepped up its work in this area, while antitrust issues account for but a smidgen of its decisional practice. If this trend continues, it would greatly weaken these institutions and lead to an even greater fall off in the level of antitrust enforcement, which could prove detrimental for consumers and the economic system in Croatia.
Lastly, we have witnessed an increase in the use of sectoral analyses to collect data and make recommendations for improving the business environment. Serbia, Albania and Croatia have taken the lead in this regard, with other regional institutions also expected to follow suit.
The Inside Track
What was the most interesting case you worked on recently?
We represented a client in a cartel investigation, which the Serbian Commission initiated against undertakings on the tobacco market. After a lengthy procedure lasting almost five years, the Commission sent the parties a statement of objections including a detailed economic analysis and all the facts established during the course of its investigation. The object of the procedure was to investigate concerted practices regarding price changes and the timing of cigarette price changes. Having considered the replies of the parties, the Commission closed the proceedings by deciding that the evidence collected did not demonstrate the existence of a cartel. This has been one of the competition authority’s landmark investigations since its establishment.
If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?
Greater transparency and legal certainty. Progress has been made with the application of competition rules in the region, but much remains to be done. Certain competition authorities do not publish their decisions on a regular basis, and it is not uncommon for some to publish decisions without the rationale behind the decision. In addition, courts also rarely publish their decisions in the area of the competition law. Add to this the fact that there are no guidelines, such as the EU Guidelines for Vertical and Horizontal Agreements, and it is clear that undertakings face difficulties when defining their business practices in a way that gives them a greater degree of certainty regarding their compliance with competition law in a particular jurisdiction. Referencing and relying on EU law and practice may somewhat compensate for this shortcoming, but neither is it always a guarantee that the competition authority will comply with the EU practice in a given case.