On December 22 2014 the Competition Authority issued a controversial decision in which it fined Czech carmaker Škoda Auto Kr49 million (approximately €1.8 million) for engaging in anti-competitive practices in the form of resale price maintenance (RPM). The decision was publicly released in May 2015 and completely deviates from the authority's established decision-making practice. The decision is extremely opaque, as it contains an unusually high number of business secrets. Even given that the fine was imposed as the outcome of a settlement procedure, the reasoning behind the amount of the fine is still unclear. This raises questions such as whether this indecipherable procedure for setting fines will be applied to future cases or whether this case was exceptional. Either way, legal certainty will be affected.
Škoda is a leading Czech carmaker with business in the European Union, Russia, China, India, Latin America, Africa and Asia. It has long been the top seller of new passenger vehicles on the Czech market and has the largest market share in the country, at around 30%. Škoda delivers its passenger vehicles to end customers mainly through independent contract distributors, which purchase the vehicles directly into their ownership. The difference between the purchase price that distributors pay to Škoda and the achieved sale price at which distributors sell vehicles to end customers is the distribution margin. The distribution margin (and therefore the distributor's profit) thus depends on the price at which vehicles are sold to end customers.
The authority fined Škoda for concluding price agreements with its distributors which aimed to determine minimum distribution margins (ie, the RPM system). During training sessions organised by Škoda, distributors were told to provide discounts on the sale price of new passenger vehicles to end customers only in order to achieve sales with a fixed distribution margin. The RPM system also included a mechanism to control compliance with the proposed minimum distribution margins and a penalties mechanism. The distributors adhered to the RPM system.
The authority found that Škoda's RPM system breached Section 3(1) of the Protection of Competition Act (143/2001) and Article 101 of the Treaty on the Functioning of the European Union (TFEU). The authority fined Škoda only, not the Volkswagen Group, as it had the closest link to the anti-competitive conduct in question.
Since a settlement procedure was followed, the decision provides only a basic description of the infringing conduct.
Maximum fine amounts are clearly set out in the Protection of Competition Act. To make the procedure for setting fines more predictable and transparent, the authority has adopted the Principles of the Procedure of the Office for the Protection of Competition when Assessing Fines in Accordance with Section 22(2) of the Protection of Competition Act.
When setting the basic fine, the authority considered Škoda's sales on the relevant product market in the Czech Republic. The relevant product market was defined as the market affected by the RPM, but the final definition of the relevant product market and the sales figures of the affected products were marked as confidential. Regarding the gravity of the anti-competitive conduct, Škoda's market share and the impact of the anti-competitive conduct, the authority applied the share of the total sales volume available for this group of offences (ie, 1%). In line with the authority's guidelines, the infringement of Article 101 of the TFEU was considered an aggravating circumstance. On the other hand, the fact that Škoda ceased its anti-competitive conduct before administrative proceedings were initiated was a mitigating circumstance. Nevertheless, the percentage applied for both of these factors was again confidential. The final fine imposed was further reduced by 20% because of the settlement reached between Škoda and the authority. In the end, the authority arrived at a final fine of Kr49 million (approximately €1.8 million).
In light of the authority's previous decision-making practice in RPM cases, the Škoda decision has many discrepancies.
For example, it is far from transparent, as it is difficult to understand the authority's reasoning – in particular, its procedure for setting the fine. The information needed to understand and assess the amount of the fine was marked as confidential, particularly the definition of the relevant product market and the percentage by which the fine was reduced or increased.(1)
Further, considering Škoda's almost Kr12 billion (approximately €444 million) profit in 2013 in the Czech Republic, the Kr49 million fine seems disproportionate and discriminatory. This approach does not reflect the authority's guidelines or the act – in particular, the requirement that a fine must serve as both punishment and deterrent.
It is unclear whether this decision is simply a one-off aberration or a complete departure from the authority's regular decision-making practice. Either way, the decision casts legal uncertainty over the authority's procedure for setting fines, given that it is clearly regulated by law and the authority's own principles. In addition, the amount of confidential information in the decision (particularly concerning the relevant product market and end customers affected by the infringing conduct) deprives potential injured customers of the chance to sue Škoda for damages due to the increased prices of new passenger vehicles under the RPM system. Potential claimants have none of the necessary information available to them and are thus discouraged from bringing their actions to court. With this new approach to what information is considered a business secret, the authority has thwarted the private enforcement favoured and incentivised by the European Commission.(2)
For further information on this topic please contact Claudia Bock at Schoenherr by telephone (+420 225 996 500) or email (email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.