Competition Advocacy – Notice of the Office for the Protection of Competition on the alternative solution of certain competition issues
I. Introduction
1. The role of the Office for the Protection of Competition (thereinafter “the Office”) is first and foremost to protect competition as such. The forms of distortion of competition, review of which falls under the Office’s competence pursuant to the Act No. 143/2001 Coll., on the protection of competition and on amendment of certain acts (Act on the Protection of Competition), as amended (thereinafter the Act, or the Act on the Protection of Competition), are so-called prohibited agreements[1], abuse of dominant position[2] and certain cases of concentration of undertakings (mergers)[3] (Article 1, paragraph 1 of the Act).
2. The activities of the Office are in principle conducted in ex post supervision form – the Office assesses, whether the law has been breached or not by the competitors’ action. This happens in case of prohibited agreements and abuse of dominant position; in the area of merger review this happens in case of the implementation of non-approved mergers (Article 18, paragraph 5 of the Act)[4].
3. Besides the Act on the Protection of Competition the Office applies in relation to the prohibited agreements and abuse of dominant position which could significantly affect trade between EU Member States (so-called conducts with Community dimension)[5], directly applicable Community law, specifically Article 81, or Article 82 of the Treaty establishing the European Community (thereinafter the EC Treaty)[6]. In relation to mergers which may be reviewed by European Commission (thereinafter the Commission), thus so-called mergers with community dimension, the Office, however, does not have any decision-making powers[7].
4. The Act on the Protection of Competition stipulates only the formal procedure which the Office follows if it considers that the violation of competition law has occurred (either Czech or Community). In such cases the Act assumes an initiation of the administrative proceeding at the end of which the Office on the basis of the gathered information declares whether an administrative offence[8] has been committed, and if so, the Office eventually decides to impose a fine[9] or a remedy[10].
5. Furthermore, in case of proceedings on prohibited agreements or abuse of dominant position the Act gives explicitly the possibility to decide on imposition of measures, which were proposed together by the parties to the proceedings (thereinafter the commitments)[11].
6. The Office holds the view that cooperation with undertakings which are suspected of anti-competitive infringements, may under certain circumstances lead to the fast and efficient restoration of distorted competition. In cases where the undertakings are prepared to remedy their action out of their own initiative, the Office is ready to offer a helping hand to these undertakings; if the anti-competitive situation is remedied, the Office is ready not to initiate the administrative proceeding, or eventually conclude the already initiated administrative proceedings without decision stating that an administrative offence has been committed by this action.
7. The partnership approach between the Office and the undertakings may in many cases lead to a faster and more reliable achievement of the aim of competition policy, which is the protection of competition, but also to the restoration of competitive conditions in the market. The rapidity of this solution is connected with the informality of the approach. Higher reliance of the results is based on the assumption that the undertakings identify themselves more with measures they themselves adopt (although after formal steps taken by the Office) than with a fine which is imposed always against the will of its addressee.
8. Nevertheless, it is unquestioned that the alternative solution is not always possible; there are competition problems which cannot be solved in other way than by sanction. The Office believes that the system of adoption of sanctions and the prevention through commitments are interconnected: the authority of the competition office and the seriousness of the appeal to a “non-sanction” solution of an individual case by the Office results directly from the reality of threat of a fast sanction imposition that exceeds the essential threshold of sensibility. Thus the Office applies concurrently with these rules strictly its principles for imposing fines[12].
9. This document describes the cases and conditions under which the Office does not initiate the administrative proceedings, or terminates the administrative proceedings in course, depending on the seriousness of an anti-competitive conduct, with regard to the fact whether and for how long the anti-competitive state has lasted and on the measure of undertaking’s cooperation. These procedures are in this document called “alternative solution of competition issues”.
10. The Office is convinced that the primary consideration of the possibility of alternative solution of competition issues is the assessment of gravity of the anti-competitive action, its duration, or in case of agreements distorting competition also a question, whether such an agreement has only been concluded, or whether it has already been realized. It is necessary to take into account also the fact that the choice of alternative solution influences essentially the procedural situation of the subject harmed by the anti-competitive action in the framework of the judicial proceedings on the damages caused by anti-competitive actions (see below).
11. Alternative solutions of competition issuess, as described in this document, do not represent the only way the Office may cooperate with the undertakings on the elimination of competition problems. Procedures of the Office described in this document thus do not affect the so-called Leniency programme[13] related to cases, where an undertaking enables the Office to prove a prohibited agreement for which the Office has not had sufficient evidence before. Moreover, the further on described procedures do not affect the possibility of the Office to decrease the fine during the appelate proceedings if the party to the proceeding has fulfilled the remedies imposed on it in the first instance decision.
12. The rules mentioned below are not applied by the Office in non-standard cases where it is possible to define clearly the specificities of cases and the measure of difference and where this different procedure is necessary for effective protection of competition.
II. Alternative solution of competition issues in general
13. The following forms of cooperation on the part of undertakings is considered by the Office as the alternative solution of competition issues:
- i. Elimination of competition problems prior to the initiation of the administrative proceeding, and
- ii. Adoption of commitments proposed by the parties to the proceedings in the framework of the first instance proceeding.
14. The possibility of the alternative solution of competition issues is dependent, among others, on the gravity of the infringement the undertakings are suspected to have committed. In its application practice[14] the Office distinguishes among three categories of infringements´gravity, differing in the extent of threat for competition:
- i. Very serious infringements: namely price fixing horizontal agreements, horizontal agreements on market division or output-restriction horizonatal agreements; abuse of dominant position with significant impact[15] on a broader group of consumers, implementation of mergers contrary to a legitimate decision of the Office, and non-fulfillment of measures imposed by the Office pursuant to Article 18, paragraph 5 of the Act.
- ii. Serious infringements: other horizontal agreements, resale price maintainance and market division vertical agreements, other particular abuse of dominant position or violation of prohibition of merger implementation pursuant to Article 18, paragraph 1 of the Act in cases than different from those mentioned in “14. i” above, and
- iii. less serious infringements: other vertical agreements of leseer significance with a limited impact on consumers, which affect only a minor part of the market, and other less serious distortions of competition.
15. Conditions for alternative solution of competition issues before the initiation of the administrative proceeding and in the framework of the administrative proceeding are entirely specific; for this reason this document deals only with their individual forms. Alternative solution of competition issues outside the administrative proceeding provides lower rate of legal certainty to all subjects involved, i.e. to the affected undertakings, to the Office and also to the third parties. The Office thus applies the alternative solution outside the administrative proceeding in a narrower range of situations than is the case of alternative solution in the framework of the administrative proceeding.
III. Elimination of competition problems prior to the initiation of the administrative proceeding
16. Pursuant to Article 20, paragraph 1, letter a) of the Act the Office supervises, whether and how the undertakings fulfill their duties resulting from the Act or from decisions of the Office issued on the basis of this Act. Pursuant to Article 20, paragraph 2 of the Act the Office proceeds in the course of supervision appropriately pursuant to Article 21, paragraph 5 to 9 of the Act, thus pursuant to provisions which regulate the administrative proceedings before the Office.
17. Investigations conducted by the Office in order to find whether violation of law has taken place or not, are regarded as initiated by the Office’s ex officio. These investigations may basically end either in a conclusion that in the given case the violation of law has not taken place, and that outside the course of the administrative proceeding, or the Office initiates the administrative proceeding or the case is passed on to other relevant body.
18. If the Office learns about possible violation of law, it conducts an investigation to find out whether the detected facts give reasons for the initiation of an administrative proceeding in the given case (cf. Article 21, paragraph 3 of the Act).
19. If the detected facts give reasons for the initiation of an administrative proceeding, the Office preliminary analyses the gravity of the action in question, and whether the anti-competitive action has already been realized and if so, the duration of the infringement.
20. The Office is of the opinion that in case of certain less serious infringements it is not contrary to preventive sanction policy of the Office if it does not initiate the administrative proceeding (and thus does not decide on the commitment of the infringement, or on imposing a sanction) under the condition that the competition problem will be fully eliminated in the near future.
21. In case the Office, on the basis of a preliminary assessment, comes to a conclusion that it is possible to assess the anti-competitive action as less serious and that this action either has not been realized or has had a limited impact on competition, then, provided it does not result from the circumstances of the case that in order to get evidence it is necessary to undertake investigation on the premises in the course of the administrative proceeding (cf. Article 21, paragraphs 5 and 6 of the Act), the Office notifies, before the initiation of the administrative proceedings, the undertakings suspected of committing the infringement of the fact in which of their action the Office sees a possible violation of the Act or Articles 81 and 82 of the Treaty. Limited impact on competition is, according to this point, assessed mainly from the territorial point of view (area affected by the anti-competitive action), from the personal point of view (the number of competitors and consumers influenced by the anti-competitive action), and from the time point of view (the duration of the infringement).
22. If the undertaking which has been notified by the Office according to the preceding point of the suspicion of having committed an anti-competitive infringement, announces the Office in 10 days in writing, that it is to eliminate the identified competition problem, the Office invites this undertaking to submit in one month and not longer a proposal of a measure, implementation of which will lead to a full elimination of the competition problem. Such a proposal must contain a deadline in which the competitor implements the measures in question.
23. If the Office receives a proposal of a measure in the period stated in the previous paragraph, it assesses its sufficiency. The sufficiency of the measure is assessed from the point of view of the ability to properly, i.e. timely and completely, eliminate the competition problem. It is not possible to regard as sufficient such measure, the implementation of which is dependent on uncertain circumstances or which is not implemented immediately.
24. The proposed measures have to be of such a character and intensity that their implementation is capable of justifying the resignation on authoritative declaration of unlawfullness of the action and on imposition of administrative sanction on action, which is normally considered as an infringement of law. It can be thus applied only when the implementation of the proposed measure leads to an objective possibility of immediate and full solution of the detrimental situation caused by the anti-competitive action.
25. If after assessing the above-mentioned criteria the Office finds that the proposed measures are sufficient, the Office does not initiate the administrative proceeding, and this will last as long as the undertaking fulfills conditions contained in the proposal of the measure.
26. If the Office does not receive the proposal of a measure in the given period, or if the Office does not find the proposed measures sufficient, eventually if the undertaking concerned does not act according to the proposed measures, the Office initiates the administrative proceeding.
IV. Adoption of commitments proposed by the parties to the proceeding in the course of the first instance proceeding
27. Both in administrative proceedings on agreements distorting competition and on abuse of dominant position the Office may impose on the parties to the proceeding an obligation to fulfill measures they have jointly proposed, if such measures are sufficient for the protection of competition and if the detrimental situation is eliminated thereby. If the Office does not find such measures sufficient, it communicates the reasons for such finding to the undertakings in writing and it continues with the proceeding; otherwise it shall impose fulfilment of such measures and terminate the proceedings.[16]. The parties to the proceeding may propose the measures to the Office in writing within 15 days following the day, on which the Office delivered to them its objections to the agreement; any proposal or changes in the proposed measures made after this period shall be taken into account by the Office only in cases deserving special attention. The parties to the proceeding are bound by their proposals towards the Office, as well as mutually among themselves, or towards the third parties, and following the proposal, until the decision of the Office is issued, they must not perform the agreement in its original wording[17]. The Office may not issue a decision imposing the measures, if the prohibited agreement has already been performed and if it resulted or could have resulted in a substantial distortion of competition[18], or if the abuse of dominant position resulted in a substantial distortion of competition[19].
28. The Act enables the parties to the proceeding suspected of having concluded a prohibited agreement or abused their dominant position to propose the Office measures (commitments), the fulfillment of which leads to elimination of the situation the Office (on the basis of the information obtained in the course of the administrative proceeding) regards as detrimental. In case the fulfillment of such commitments is sufficient for the protection of competition, the Office issues a decision which imposes fulfillment of these measures on the parties to the proceeding and simultaneously terminates the proceedings (Article 7, paragraph 2, and Article 11, paragraph 3 of the Act, thereinafter “the decision on commitments”).
29. Decision-making practice of the Office shows that the proposed commitments should have such characteristics and intensity that their fulfillment is able to justify the termination of the administrative proceeding in progress which may eventually lead to an imposition of sanction for an infringement regarded as an administrative delict. This is an exceptional situation when the interest in an instant and full settlement of the detrimental situation outweighs the interest in punishment of the guilty undertaking, and subsequently the interest in legal certainty of third parties[20].
30. When considering the adoption of commitments it is necessary to take into account the fact that the decision on commitments in a certain way complicates the legal situation of subjects affected by the anti-competitive behavior, either consumers, or competitors of the parties to the proceedings (the so-called third parties), because the Office’s decision does not declare the illegality of action of the undertakings concerned. In the proceedings before the civil court such third parties cannot rely on the fact that the question, whether the administrative delict has been committed and by whom, has already been bindingly solved as a preliminary question[21], and they themselves have to prove basic conditions of private responsibility for anti-competitive behavior.
31. All the parties to the proceedings submit the proposal of commitments jointly (Article 7, paragraph 2 and Article 11, paragraph 3 of the Act); in the case of a prohibited agreement it thus has to be a joint proposal of all its participants, in the case of collective dominant position a joint proposal of all the undertakings in the dominant position in the relevant market. In case any of the parties to the proceeding does not agree with the proposed commitments, it is not possible to issue the decision on the commitments.
32. The proposal of commitments has to be offered within 15 days following the day on which the Office delivered its objections to the parties to the proceedings; if there are more parties to the proceeding, this period starts on the day the last party has received the objections. Statement of objections is not defined by the Act; however, from the existing decision-making practice of the Office it results that it is such statement of the Office (therefor it is not a decision), in which are the parties to the proceeding notified: which of their actions are regarded by the Office as unlawful; which of the legal provisions were violated; and on the basis of which evidence did the Office come to such conclusion. The statement of objections is generally an individual administrative act undertaken in the course of the administrative proceeding following the termination of evidence gathering, but before the parties to the proceeding inspect the documentation serving as the basis for the decision[22], [23].
33. The proposal of commitments is binding for the parties to the proceeding. After the proposal of commitments has been submitted to the Office, the parties to the proceedings may not continue in action, which was indicated by the Office as detrimental in the statement of objections (e.g. they may not fulfill an agreement, which the Office regards as prohibited), and thus have to proceed according to the proposed commitments (Article 7, paragraph 3 and Article 11, paragraph 4 of the Act). In case any of the parties to the proceeding does not comply with this obligation, the submission is not regarded as proposals of commitments in accordance with the law.
34. The decision on commitments may not be issued if the action, which the Office regards as detrimental on the basis of the gathered evidence, has already been performed and has resulted (or could have resulted) in a substatial distortion of competition (Article 7, paragraph 4 and Article 11, paragraph 5 of the Act). The Office holds a view that with regard to these provisions of the Act the decision on commitments may be accepted only if it relates to:
- i. less serious infringement;
- ii. serious infringement in the form of agreements distorting competition which has not been performed so far;
- iii. serious infringement which has been terminated, and which had a limited impact on the competition, and which did not show signs of a hard-core restriction pursuant to Article 6, paragraph 2 of the Act, or pursuant to paragraph 11 of the Commission Notice on the de minimis agreements[24].
35. Limited impact on competition is, according to this point, assessed mainly from the territorial point of view (area affected by the anti-competitive action), from the personal point of view (the number of competitors and consumers influenced by the anti-competitive action), and from the time point of view (the duration of the infringement).
36. The Office assesses only such proposals of commitments that have to been delivered within 15 days following the statement of objections. Later proposals shall be taken into account by the Office only in cases deserving special attention. Similar regime stands also for significant changes in the already proposed commitments. This does not exclude later partial modification or specification of the timely proposed commitments.
37. If the Office receives the proposal of commitments in the stated period, it assesses the sufficiency of commitments with a view to their ability to eliminate the detrimental situation, and proceeds pursuant to criteria stated in paragraphs 22, 23, 28 and 29.
38. Provided the Office finds the commitments sufficient, it imposes the obligation of their fulfillment on the parties to the proceeding and by the same decision it concludes the administrative proceeding. Such decision does not declare a breach of competition law.
39. If the Office
- i. does not receive the proposal of commitments;
- ii. receives the proposal of commitments after the stated period and it is not a case deserving special attention;
- iii. finds the proposed commitments insufficient,
it continues in the administrative proceeding. In the two last mentioned cases the Office notifies the parties to the proceedings of this fact in writing.
39. The Office believes that commitments pursuant to Article 7, paragraph 2 and following of the Act or Article 11, paragraph 3 and following of the Act must be strictly differentiated from remedial measures pursuant Article 23 of the Act (thereinafter “remedial measures”). Remedial measures are complementary instrument the Office may use if it concludes that neither the authoritative declaration of an anti-competitive infringement together with its prohibition for the future, nor the eventual sanction imposed in the form of a fine pursuant to Article 22, paragraph 2 of the Act, constitutes sufficient measures to achieve the aim of the Act. From its nature it is an imposition of measures defining an obligation to restore the previous state resulting from the parallel prohibition of particular action and from a general obligation to refrain from unlawful action. The relationship of the two instruments, i.e. commitments and remedial measures, is as follows: if the Office does not find the commitments proposed by the parties to the proceeding sufficient to eliminate the detrimental situation, it may, provided the conditions of the Act are fulfilled, impose measures (similar in substance and form) as remedial measures pursuant to Article 23 of the Act[25].
40. The Office continuously supervises the fulfillment of commitments by which it conditioned the termination of the administrative proceeding; the supervision is performed pursuant to Article 20, paragraph 2 of the Act. If the Office discovers that some undertakings do not fulfill the measures adopted pursuant to Article 7, paragraph 2 or Article 11, paragraph 3 of the Act, it imposes a fine on these undertakings pursuant to Article 22, paragraph 2 of the Act. This does not affect the procedure pursuant the following point.
41. Even if the administrative proceeding has been terminated as a result of adoption of commitments proposed by the parties to the proceeding, the Office may re-initiate the administrative proceedings, provided one of the three situations anticipated by the Act occurs. The Office re-initiates the administrative proceedings pursuant to Article 7, paragraph 1, or Article 11, paragraph 2 of the Act, if
- i. the conditions decisive for the decision on the termination of the proceeding have significantly changed;
- ii. the undertakings have acted contrary to the imposed measures, or
- iii. the decision on the termination of the proceeding has been issued on the basis of false or non-complete documents, data or information[26].
- In such cases the re-initiation of proceeding is not obstructed by the principle of the authority of the thing judged.
[1] Cf. Article 3 and following of the Act.
[2] Cf. Article 10 and following of the Act.
[3] Cf. Article 12 and following of the Act.
[4] Ex ante regulation (which the Office performs in connection with the approval of mergers (cf. particularly Articles 16 and 17 of the Act), is not included in this document.
[5] In particulars cf. the Commission notification published in the Official Journal C 101 on April 27, 2004, p. 81.
[6] Council Regulation (EC) No 1/2003, Article 3
[7] Council Regulation (EC), No 139/2004, Article 21, paragraph 3
[8] Cf. Article 7, paragraph 1, Article 11, paragraph 2 and Article 18, paragraph 5 of the Act.
[9] Cf. Article 22, paragraph 2 of the Act.
[10] Cf. Article 23, or Article 18, paragraph 5 of the Act.
[11] Cf. Article 7, paragraphs 2 – 5, and Article 11, paragraphs 3 – 7 of the Act.
[12] Guidelines of the Office on the method of setting fines (http://www.compet.cz/en/competition/antitrust/guidelines-on-the-method-of-setting-fines/), thereinafter the Guidelines on setting fines.
[13] The Office’s Leniency programme (http://www.compet.cz/en/competition/antitrust/new-leniency-programme/).
[14] Guidelines on setting fines, paragraphs 21 – 24.
[15] Both direct and indirect impact on consumers is taken into account.
[16] Article 7, paragraph 2, or Article 11, paragraph 3 of the Act.
[17] Article 7, paragraph 3, or Article 11, paragraph 4 of the Act.
[18] Article 7, paragraph 4 of the Act.
[19] Article 11, paragraph 5 of the Act.
[20] Cf. the decision of the Office for the Protection of Competition of May 15, 2006 R 10/2005 ČSAD Liberec.
[21] Cf. Article 131, paragraph 1 of the Act No. 99/1963 Coll., Rules of Civil Procedure, as amended.
[22] Cf. Article 36, paragraph 3 of the Act No. 500/2004 Coll. on Administrative Proceedings, as amended.
[23] The possibility of proposal of commitments after this period is described below.
[24] Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty (de minimis) (2001/C 368/07).
[25] Cf. points 81 to 88 of the justification of decision R 10/2005 of May 5, 2006 in the ČSAD Liberec case.
[26] Article 7, paragraph 5, or Article 11, paragraph 6 of the Act.