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?
Serbia’s competition authority, the Commission for the Protection of Competition (the Commission), is the most active competition watchdog in the Western Balkans, and in its 13-year history has tackled cases covering various economic sectors in Serbia, such as telecommunication, energy, transport, insurance, food wholesale and retail. If we look at the list of sectors that were recently the subject of sector inquiries, we can conclude that the focus of the Commission is to closely monitor the food retail market, oil and oil derivates market and baby food and equipment. The last one is under particular scrutiny, since the Commission opened numerous cases in 2018 investigating the alleged application of resale price maintenance (RPM).
Regarding the enforcement priorities, the Commission’s focus has been on detecting and sanctioning two types of restrictive agreements: bid rigging and resale price maintenance. Out of seven infringement decisions in the past two years, six pertain to these areas. Most pending cases also centre on these two types of infringement.
In public appearances, Commission officials frequently stress the importance of detecting collusion in public procurement. Proceedings of that nature and the sanctions imposed by the competition authority garner widespread publicity and the Commission knows how to put it to good use while cultivating its public image. The biggest sanction in Serbia so date, percentage-wise, was in fact imposed for bid-rigging and amounted to 5.85 per cent of company’s turnover. Involvement in bid rigging falls within the category of cartels, as the most harmful restrictive agreements, which is also punishable under the Criminal Code and Public Procurement Act.
In addition to bid-rigging, experience has shown that vertical restrictions are omnipresent in Serbia and the Commission works aggressively to detect and sanction such restrictions, primarily in the field of resale price maintenance. Here too, as with bid-rigging investigations, the Commission is able to find clear evidence in the form of agreement to apply the provisions on RPM, which facilitates the evidentiary procedure and allows for relatively brisk proceedings. The Commission’s standpoint, upheld by the courts, is that RPM in itself constitutes a restriction of competition per se that cannot be exempted from prohibition.
Finally, the Serbian competition legislative still recognises the institute of individual exemption of restrictive agreements, a mechanism that EU abandoned in 2004. The Commission renders about 15 of those decisions annually, the great majority of which pertain to exclusive distribution and cooperation agreements. There are also block exemptions, but where the requirements for this exemption are not met, the agreements must be furnished to the commission for an individual exemption. Contracting parties that fail to do so run the risk of being sanctioned, regardless of the fact that the agreement could have been exempted.
2 What do recent investigations in your jurisdiction teach us?
Proceedings before the Commission are mostly initiated on the basis of formal complaints, submitted by market participants. Also, they could be initiated as a result of ex officio investigations by the Commission, following a sector inquiry or after receiving the information from other state authorities, trade and consumer associations, etc. Upon receipt of a complaint, the Commission usually examines the merit of the allegations and collects data from market participants and state authorities. The Commission has a statutory duty to inform the complainant about the outcome of the complaint within 15 days, usually in the form of a brief statement stating that the complaint is being under examination. Aside from the right to be informed of the outcome of the complaint, complainants have no other rights in the proceedings.
The first dawn raid in Serbia was conducted in July 2015, and there have been around 20 dawn raids to date. It was a long time coming (introduced under the Competition Act in 2009), but today it is a tool regularly deployed by the Commission. It is mostly used in bid rigging and vertical restrictions (RPM) cases. The Commission uses modern forensics IT tools that enable Commission officials to make copies of electronic documentation and conduct thorough searches of electronic devices. Our experience suggests that the Commission prefers doing email searches on the spot instead of making copies of hard drives.
Giving the publicly available data, the Commission has not, to date, conducted a single dawn raid or initiated a cartel investigation on the basis of a leniency application. This certainly makes it difficult for the Commission to investigate as it lacks insider information when conducting a search, and can also affect parties’ procedural rights. According to public sources, not one case regarding the conduct of an investigation or any infringement of parties’ rights during an investigation has been brought before the Administrative Court
Where faced with obstruction, the Commission may request police assistance in conducting an investigation, but this was not the case so far. A court order is not needed for a dawn raid because an order issued by the President of the Commission will suffice. No action can be filed against such order, and only a final decision in the procedure can be challenged before the court. The Commission recently published a dawn raid guide in order to vigorously promote this investigative tool and educate the public and market participants about the Commission’s powers and how to respond in the event of a search conducted by Commission officers.
For the most part, proceedings before the Commission are conducted by way of submissions, namely, through written correspondence between the parties and the Commission. Case handlers are also authorised to organise the hearing within the procedure. The President and the Commissioners are not actively involved in conducting investigating proceedings, and therefore do not attend hearings. A draft of a new Competition Act is under way, and will likely provide parties with the right to submit their defence in hearing before the Council of the Commission, after receiving the Statement of Objections (SO). We consider this to be a step in the right direction when it comes to improvement of parties’ position in this procedure.
3 How is the leniency system developing, and which factors should clients consider before applying for leniency?
The leniency programme was introduced under the Competition Act (2009), but is still to yield results. The Commission has recently taken steps to raise awareness about the advantages of the programme by publishing bulletins, dedicating a special page on its website to it, and providing contact details for applications officers. Also, Commission officials always state the value of leniency in their public appearances, and bringing it to the attention of market participants that a leniency programme exists in Serbia and that they can benefit by applying for immunity. However, so far, there is no record of a cartel having been uncovered by way of the leniency application and no practice of the Commission in handling leniency applications.
The reasons why leniency is faltering in Serbia could be various. Firstly, competition law is still in its early stages in Serbia and there is a lack of awareness about the programme among the market participants. Second, there is no incentive for those involved in cartels to apply for leniency owing to the relatively low fines imposed by the Commission and the near absence of cartel cases it pursues. This is certainly changing because the Commission has stepped up its activities over the past few years, but the enforcement record is still too low to serve as a catalyst in the use of leniency.
The Commission has issued leniency guidelines detailing the application procedure. If clients are considering filing an application, the type of infringement in question, evidence and potential filing risks are first assessed. Given that there is no relevant case law in Serbia, the assessment is based on existing EU regulations and decisional practice, which is basis for the Serbian competition system. It is precisely the lack of relevant practice that is one of the biggest obstacles in analysing potential leniency applications for clients’ requirements because of the uncertainty surrounding the Commission’s response and also the outcome of procedure before the criminal courts in the event of such proceedings being initiated. Under a recent amendment to the Criminal Code, the conclusion of a restrictive agreement has been criminalised; hence, criminal responsibility must also be taken into account when considering the leniency application. The Criminal Code allows for criminal immunity only to a full immunity beneficiary, but not to others who subsequently apply for the reduction of fines. We believe that this is a problematic solution and carries the risk that even persons seeking a reduction of a fine and who cooperate with the Commission could end up being punished in criminal proceedings. In addition, the criminalisation of restrictive agreements and the possibility of sentences ranging from six months to five years being imposed for this offence may further hinder the development of the leniency programme in Serbia.
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?
Expediting proceedings before the Commission is possible if the party itself intensively cooperates with the Commission and voluntarily provides data and documentation that will facilitate the Commission’s work. Unlike the EU system, there is still no formal settlement procedure in Serbia, which would allow the reduction of fine on admission of liability. Commission representatives have publicly announced that this institute will be introduced under a new Competition Act, which will be enacted by the end of this or early next year.
In several decisions on RPM it was stated that the parties did not challenge the allegations levelled by the Commission in the SO in their responses, and the Commission treated that as a special type of cooperation leading to the swifter conclusion of proceedings. So, it may be concluded that a certain type of informal settlement has developed through the Commission’s decisional practice. Here we should note that the Commission treats cooperation as a mitigating circumstance when determining a fine.
In practice, if the parties wish to speed up the procedure, they may request an informal meeting with the Commission and offer to cooperate in exchange for expediting the procedure and, possibly, for considering a reduction of the fine by taking cooperation as a mitigating circumstance. As we mentioned, there is no legal basis for settlement but the Commission’s decisional practice suggests that it looks favourably on such suggestions while also saving its own resources and closing out the proceedings, thereby improving its enforcement record in the fight against anticompetitive practices. Nevertheless, every approach to the Commission must be carefully analysed and prepared, first and foremost because the speeding up of proceedings is not regulated by the Competition Act, and in turn carries legal uncertainty and potential risk for clients.
5 Tell us about the authority’s most important decisions over the year. What made them so significant?
In 2018, the Commission rendered only two decisions concerning the existence of restrictive agreements: one where it fined the parties for involvement in bid-rigging in public tender for Ministry of Defence; and a decision finding the existence of RPM provisions in distribution agreements for vehicles of the Škoda brand. There were no decisions concerning price-fixing cartels, nor have such proceedings been initiated. For that reason, we will briefly look at both decisions, because each has its own remarks that are important for future development.
The decision on the existence of RPM provisions in Škoda vehicle distribution agreements is significant because the Commission took an extremely mild approach in sanctioning, even though the RPM is flagged in the Commission’s Guidelines on the method of setting fines as one of the most severe forms of competition infringement. The supplier was fined only 0.22 per cent of the total annual turnover generated in Serbia. Also, this decision confirmed the Commission’s principle that resellers are also always fined for vertical restrictions, regardless of the fact that in most cases they are small market players with little room to manoeuvre when negotiating terms and conditions with suppliers. In this instance they were fined 0.2 per cent, which is only 0.02 per cent less than the fine imposed on the market maker and participant who imposed such provision. Finally, the Commission designated the RPM provision as a restriction of competition by object and that the contract at hand is in itself prohibited per se.
In the second decision, which relates to bid-rigging in a public tender, the Commission found that competition had been infringed and it fined the cartel organiser 3 per cent and the other parties to the agreement 2.5 per cent of their annual turnover. The Commission initiated these proceedings after the referral of the Public Procurement Directorate. Recently, the Commission has established close ties with the institutions tasked with enforcing the Public Procurement Act and this has so far resulted in several proceedings. Participants operating on the market of the Republic of Serbia ought to know that complaints submitted to these institutions could easily end up before the Commission, which, as of recently, has kicked off bid rigging investigations with dawn raids. This is because previously, before it began conducting dawn raids, the Commission had problems proving bid-rigging, since without dawn raids it was difficult to gather any material evidence of communications between the cartel members, so its conclusions had to be based on circumstantial evidence. Fines for this type of competition infringement are the highest in the Commission’s decisional practice, so the fines imposed in this case are considerably higher than those levied in the RPM case.
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?
The Commission both investigates infringements and issues decisions. Formally, it does not have to coordinate with or apply to any state body or court before rendering the first-instance decision. It is an independent authority and its decisions are final and immediately enforceable.
The Commission’s infringement decisions are challenged in an administrative dispute procedure before the Administrative Court. The Court is formally competent to assess the claims against the Commission’s decisions both procedurally and on merits. However, we see that the claimants mostly win their disputes on procedural grounds. In these situations, the case is brought back to the Commission to make a new decision. Although the legislation allows the Administrative Court to decide on the merits, this rarely happens in practice. Basically, the Administrative Court is a court of general competence for all administrative matters, and it does not have any departments or judges specialised in competition-related matters. Hence, the Court will most likely render its decision by focusing on formal flaws, to avoid having to deal with the substantive complexities of an infringement decision.
In any case, the dissatisfied claimant may challenge the Administrative Court decision by filing an extraordinary legal remedy – a claim to the Supreme Court of Cassation. We also note that the practice indicates that settlements are not possible in an administrative dispute.
For 2018, we would highlight an abuse of dominant position case against EPS Distribucija d.o.o. Beograd (EPS Distribucija), a state-owned operator of a power distribution system. The first-instance infringement decision from December 2016, by which the Commission fined EPS Distribucija for abuse of dominance with a fine of €3 million, was challenged before the Administrative Court. EPS Distribucija did not succeed before the Administrative Court, but it did before the Supreme Court of Cassation. The Supreme Court of Cassation, upon pinpointing several procedural flaws in the first-instance decision, referred the case back to the Administrative Court. Acting upon the indications of the Supreme Court of Cassation, the Administrative Court annulled the first-instance decision and returned the case to the Commission to make a new decision. In the ‘second’ administrative proceeding, the Commission addressed the pinpointed flaws, with most of the decision staying the same but with one peculiar tweak – the amount of fine imposed on EPS Distribucija was even higher this time. As the currently available public data do not indicate whether the ‘second’ decision of the Commission was challenged (although it likely was), we have yet to see how this interesting case will end.
7 How is private cartel enforcement developing in your jurisdiction?
A private cartel enforcement regime theoretically exists in Serbia, but it is still in development.
In fact, the Competition Act regulates the matter only in one provision. Private claimants can request damage compensation if the Commission’s infringement decision confirms that the damage was caused by acts and activities representing competition infringement. Such infringement damages can be claimed before civil courts. However, the damage caused by infringement has also to be proven before the court (that is to say, the infringement decision does not presuppose that the damage occurred). The rules on damage claims are regulated in detail in the Obligations Act.
So far, court databases show no data on private cartel enforcement cases. Hopefully, this will change with further development of the Serbian competition regime.
8 What developments do you see in antitrust compliance?
In our experience, companies are increasingly committed to education and training in the field of competition protection in Serbia and this is predominantly attributable to the recent increase in visibility and activity of the Serbian Commission. In most cases, these companies are part of international corporations that have their global, in other words, group-wide, compliance policies and rules regarding regular employee training and education. Training is mostly initiated from headquarters abroad, but are also often launched at the behest of local managers, who are becoming increasingly aware of the competition law rules and of potential risk for their business in Serbia in the case of non-compliance with such rules.
The increased number of training days and increased work on compliance is primarily the result of the improved work of the Commission since 2015, when dawn raids became common practice, and when the Commission conducted more investigations and sector market analyses that raised the level of awareness about competition law in Serbia. There is a growing need for tailored compliance workshops and internal guidelines, meaning the legal services market must adapt to these growing demands. We offer our clients hands-on training through mocked dawn raids to check the robustness and effectiveness of existing compliance programmes, as well as training on how to minimise or eliminate the risk of them being investigated by the Commission owing to their conduct.
A particular challenge in designing a compliance programme is the scarcity of decisional practice on the part of the Commission and the uncertainty as to how the Commission would assess specific issues that have not been the subject of proceedings so far. In these situations, we rely on the EU law and decisional-practice, which should serve as interpretative instruments that the Commission is required to apply. In addition to the efforts made by the Commission to promote competition policy, the awareness of the importance of adhering to these rules is still at a lower level than in developed market economies and market participants are often unaware of the unlawfulness of their behaviour. That is why our role is partly dedicated to raising competition law awareness in the business community. Recently, there has been an increase in demand for training in regulated markets such as banking, insurance, telecommunications and energy, in which companies were focused on fulfilling regular conditions and rules, neglecting the fact that competition law applies to those sectors as well.
The Serbian Commission often analyses individual sectors and extensively collects information from market participants. This also requires extra caution on the part of market participants with regard to the compliance of their business operations with competition rules. The Commission’s activity in that regard calls for ever more frequent competition compliance audit by companies. Awareness of Serbian companies has increased due to the fact that they do not need to be under investigation for the Commission to ask for their detailed business information. Data and documentation may be requested from them as third parties in an investigation against another market participant, but also during sector inquiries, which the Commission conducts frequently. It was precisely the sector analysis of aftermarkets that initiated the proceedings against the distributor of the Škoda brand.
9 What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?
The drafting of a new Competition Act is under way, and we are actively involved in this process as part of the Working Group, which is appointed by the Ministry of Trade, Tourism and Telecommunication. The current draft of the new law suggests that no significant changes will occur as the existing law is in line with EU law to a great extent. Therefore, it is not expected that the basic concept will be changed, but the new law will regulate in more detail proceedings before the Commission and will aim to eliminate the shortcomings that have been identified in the existing law so far. When it comes to new institutes, settlement is expected to be formally introduced, which should facilitate greater efficiency in proceedings before the Commission. Furthermore, there is a chance of the system of individual exemptions of restrictive agreements being left out. It was abolished in the EU in 2004, but it was kept in Serbia due to the need to build the Commission’s decisional practice and for market participants to gradually adapt to the modern competition rules.
It is expected that matters of dawn raids, privileged communication and procedural rights of parties in proceedings will be governed in greater detail. The new law will further regulate the area of action for damages; however, it is unlikely to implement the EU Directive on Antitrust Damages Action in full, which for the most part will be the subject of a separate regulation in the future.
The new law will certainly have inevitable consequences on the development of competition law in Serbia and will affect every market participant. Our role in this process is to articulate the needs of the business community and contribute to improving the competition system in Serbia through appropriate regulations.
The Inside Track
What was the most interesting case you worked on recently?
One of the most important proceedings conducted by the Commission concerned an investigation of concerted practices in the tobacco industry in Serbia. The proceeding is at the final stage and a decision is expected soon, which will, among other things, give us an insight into the Commission’s position on concerted practices and parallel behaviour, which were not the subject of previous Commissions’ practice. The Commission has demonstrated throughout this investigation that it is prepared to conduct dawn raids of large multinational companies and employ complex econometric analysis to examine the alleged concerted practice among market participants. The complexity of this proceeding is reflected both in terms of the defence put forward and the work done by the Commission, so on that note we can say that this case, regardless of the final outcome, will rank as a landmark investigation by the Serbian Commission.
If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?
Priority number one would be greater transparency and a higher degree of legal certainty in proceedings conducted by the Commission and the Administrative court – in particular, clearer and more accessible decisional practice and opinions on certain issues. The Commission has cut down sharply on the number of opinions it issues and decisions pertaining to the exemption of prohibition of agreements are no longer published, meaning that accessibility to the Commission’s decisional practice has been greatly reduced. Finally, court judgments do not offer a merit analysis of the Commission’s decisions and are rarely published, so the public is, to a significant extent, left in the dark when it comes to antitrust enforcement in Serbia. Therefore, as advisers to market participants on how to conduct themselves, we believe that improving legal certainty is the key activity necessary to facilitate the development of competition law in Serbia. We believe that the Commission will continue to use its capacities in advocating competition law and policy in Serbia and in achieving greater transparency of its practice and court practice.