Bulgarian competition rules are laid down in the Bulgarian Competition Protection Act (CPA) and enforced by the Bulgarian Commission for Protection of Competition (CPC). The CPC's tasks include: (i) investigating prohibited agreements and abuses of a dominant position; (ii) assessing concentrations in relation to their compatibility with competition rules; and (iii) carrying out investigations. The CPC has the power to impose fines for infringements of the CPA and to adopt appropriate orders to restore effective competition.
In preparation for Bulgaria's EU accession, the CPA was brought in line with EC competition rules. Noteworthy amendments were introduced in relation to the substantive law (definitions of prohibited behaviour and the definition of the abuse of dominant position and merger control rules, among others) and procedural rules (dawn raids and leniency rules).
To enhance transparency and legal certainty, the CPC has adopted an array of notices and guidelines, such as the Guidelines on the Definition of the Relevant Market, the Merger Control Guidelines, the Notice on Procedural rules for Dawn Raids and the Guidelines for the Setting of Fines.
Anticompetitive agreements
Legal framework
The cartel prohibition pursuant to Article 9 CPA copies Article 81of the EC Treaty and prohibits all agreements, concerted practices and decisions of associations of undertakings that have as their object or effect the restriction of competition. Examples of restrictive practices are:
- fixing prices or other trading conditions;
- sharing markets or sources of supply;
- limiting or controlling production, markets, technical development or investment;
- applying dissimilar conditions to equivalent transactions with respect to specific trading parties, thereby putting them in unequal positions as competitors; and
- making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations or the conclusion of supplementary contracts that, by their nature or according to commercial usage, have no connection to the subject or the performance of the main contracts.
Agreements that fall foul of the cartel prohibition are null and void. In addition, the infringing undertakings face fines of up to Lev300,000 ($220,000). Failure to comply with the decision of the CPA may lead to fines of up to Lev500,000. The same amount can be imposed if an undertaking is found to have engaged in the same type of breach within one year of the enforcement of the previous penalty.
There are, however, two exceptions to the cartel prohibition, as follows.
- Agreements that have a negligible effect on competition are exempted despite their restrictive provisions (de-minimis agreements). In order for an agreement to be regarded de-minimis, the undertakings concerned must not exceed certain market share thresholds. If the parties to the agreements are active on the same level of supply, their combined market share must not exceed 5%. In all other cases, the undertakings concerned must not have an individual market share in excess of 10%. A further pre-requisite is that the respective agreement does not contain any hard-core restrictions, for example provisions amounting to price fixing or market sharing.
- The CPA further exempts all anticompetitive agreements from the cartel prohibition that, in a nutshell, generate countervailing efficiencies. In order to enhance legal certainty, the CPA has adopted several regulations that exempt specific types of agreements if certain requirements are met. Four such block exemption regulations are in force. The types of agreements covered are: (i) vertical agreements in general; (ii) distribution agreements in the motor vehicle industry; (iii) specialisation agreements; and (iv) research and development agreements. These regulations virtually copy the respective regulations adopted by the European Commission.
In addition to these block exemption regulations, the CPC may exempt agreements individually upon request of the undertakings concerned if, in short, their anticompetitive effects outweigh the adverse effects on competition. Very few such individual exemptions have been granted so far.
Case law
The CPC has conducted several investigations relating to suspected infringements of the cartel prohibition in recent years. In the second half of 2007, six such investigations were instigated, of which five saw the respective undertakings being raided by CPC officials. The investigations concern the following sectors: (i) milk and milk products; (ii) vegetable cooking oil; (iii) poultry and eggs; (iv) bread and confectionery; (v) taxi services; and (vi) insurance.
Three of these investigations have been concluded and fines have been imposed on the implicated undertakings, as follows.
- In July 2008, the CPC found that 14 Bulgarian insurance companies, including Generali, Allianz Bulgaria and Interamerican Bulgaria, alongside the Association of Bulgarian Insures, had breached the cartel prohibition by agreeing on minimum insurance premiums (relating to third party liability insurances) and maximum insurance compensations (commission fees for insurance brokers). In total, fines of Lev2.5 million were imposed. The Association was fined Lev20,000 and the 14 insurance companies were fined between Lev100,000 and Lev250,000 each. This case was the first in which the CPC established an infringement of Article 81 of the EC Treaty.
- Also in July 2008, the CPC imposed fines of Lev293,000 on 28 egg and poultry manufacturers for infringing the cartel prohibition. The undertakings were found to have fixed prices and exchanged sensitive business information through the Association of Poultry Producers (the Association was fined Lev5,000). In total, 36 undertakings were involved in the infringement, with eight of them having the same parent undertaking. The investigations were triggered by press reports that the price level for eggs and poultry in Bulgaria deviates significantly from the levels in other countries.
- At the end of 2007, the CPC fined the Bulgarian Association of Oil and Oil Products Manufacturers and its 13 member undertakings a total of Lev1.9 million for fixing the purchase and selling prices of sunflower cooking oil between 2005 and 2007. The three largest manufacturers were hit with a fine of Lev300,000. This decision is under appeal before the Supreme Administrative Court at present.
Recently, a CPC decision against the Diageo group became final after the Supreme Administrative Court confirmed the decision in which three companies belonging to the Diageo group were found to have infringed the cartel prohibition. The three companies entered into agreements with importers that made the import of products with Diageo trade marks conditional upon their explicit permission. The three Diageo group companies were fined a total of Lev600,000.
Further decisions are expected to be adopted in the near future. The latest investigation was instigated at the beginning of June 2008 in relation to suspected anticompetitive practices in the petroleum industry.
Abuse of dominance
Legal framework
The CPA prohibits the abuse of market dominance and provides for a non-exhaustive list of impermissible exclusionary and exploitative practices. The list follows the one contained in Article 82 of the EC Treaty. However, the CPA provides for a refutable presumption of market dominance if an undertaking has a market share of more than 35%.
Undertakings that are found to have abused their market dominant position may be fined up to Lev300,000. In addition, the undertakings can be ordered to cease their abusive conduct. If the infringing undertaking does not comply with the CPC decision, a fine of up to Lev500,000 may be imposed. The same maximum fine can be imposed if an undertaking is found to have engaged in the same type of breach within one year of the previous penalty being effectuated.
Case law
The CPC has concluded some high-profile investigations into suspected abuse of market dominance over the last two years. In May 2008, the CPC fined Bulgarian Post EAD, the state-owned postal services monopoly, for the abuse of its dominant position in the market for home delivery services of periodical newspapers and magazines. The CPC established that Bulgarian Post EAD engaged in predatory pricing between 2005 and 2008 by providing home delivery services to customers at price levels below costs with the aim of forcing competitors to exit the market. Bulgarian Post EAD was fined Lev50,000 and instructed to terminate the infringement.
Following the privatisation of the Bulgarian Telecommunication Company AD (BTC) in 2004, the CPC has instigated several investigations of BTC over the years and has fined BTC for various forms of abusive behaviour in different segments of the market for telecommunications services, including internet ADSL access, access to fixed subscriber lines and fixed-line telephony services. The abusive behaviour of BTC included the imposition of unjustified high access fees, refusal to grant access and bundling. The highest fine came in November 2007 when BTC was fined Lev250,000 for bundling (without objective justification) its ADSL internet access and telephone services.
In August 2007, the CPC imposed a maximum fine of Lev300,000 on Kremikovzi AD and a total fine of Lev200,000 on its wholly-owned subsidiary Kremikovzi Trade EOOD for the abuse of a market dominant position. Kremikovzi AD is a leading manufacturer of cast iron and various steel products. A byproduct of the manufacture of these products is granule slag, which is used in the production of slag cement. Kremikavozi is the only supplier of granule slag in Bulgaria and is active in this market through its subsidiary Kremikovzi Trade EOOD.
Kremikovzi was fined for charging excessive slag prices. The CPC also imposed three fines on Kremikovtzi Trade: two fines of Lev50,000 for the unjustified termination of supply contracts with long-term customers, restricting the trade of slag by only entering into short-term supply contracts and making the conclusion of the contract subject to the acceptance of unfair selling prices. The third fine of Lev100,000 was imposed for discriminating against customers.
In April 2007, a remarkable case was finally brought to an end when the CPC dismissed a complaint by Vemira against Metro Cash & Carry Bulgaria. The complaint was filed in 2003 and the CPC, after conducting a proper investigation, fined Metro Cash & Carry Bulgaria for the abuse of its dominant position in the market for the cash and carry trade of sweets. Metro Bulgaria appealed and the Supreme Administrative Court annulled the decision on the basis that the CPC had applied too narrow a market definition. The case was referred back to the CPC, which fined Metro Bulgaria again for an abuse of market dominance, applying virtually the same market definition. Not surprisingly, the decision was appealed a second time and annulled again. In April 2007, the CPC finally dismissed the complaint by Vemira, owing to the fact that on the basis of a wider market definition (the retail of chocolate and sweets), Metro Bulgaria did not hold a market dominant position.
Merger Control
As regards the types of concentrations caught and the undertakings concerned, the CPA follows EC Merger Regulation 139/2004 and the EC Consolidated Jurisdictional Notice. Consequently, a concentration arises where:
- two or more independent undertakings merge;
- control is acquired over another undertaking; or
- a full-function joint venture is established.
Pursuant to the CPA, a transaction requires notification to the CPC if the aggregate turnover of the undertakings concerned in the financial year preceding the transaction exceeds Lev15 million on the relevant market. However, the CPC in its recent decisional practice – in contrast to the wording of the law – does take into account the entire Bulgarian turnover of the undertakings concerned.
The CPC has not formally acknowledged a domestic effects doctrine. Thus, all foreign-to-foreign transactions that meet the turnover thresholds require clearance by the CPC. It is not required that the turnover thresholds are achieved by a Bulgarian subsidiary or that the target is active in Bulgaria.
There is no filing deadline apart from for public tenders and bid procedures, where a filing must be submitted within seven days of the result of the tender or the publication of the bid.
Following the submission of a complete filing, the CPC has one month to decide whether to clear the transaction or open Phase II proceedings. A decision to open second phase proceedings must be published in the Official Gazette. Following the publication, the CPC has three months to ultimately decide whether to approve the transaction or not.
Undertakings must not implement the transaction before obtaining formal clearance. A violation of this suspension clause can entail fines of up to Lev300,000. Should the appraisal of the transaction find that it is not compatible with Bulgarian competition rules, the CPC has the power to take appropriate measures to restore the status quo before the transaction.
In this context, it is noteworthy that in July 2008 the CPC fined two undertakings for failure to notify a transaction. Schneider & Schneider OEG and Duropack AG did not notify the acquisition of joint control over Trakia Papir AD, one of the largest Bulgarian manufacturers of paper products. Duropack AG also failed to notify the subsequent acquisition of all of the shares in Trakia Papir. As a consequence, Schneider & Schneider and Duropack were each fined Lev40,000 for the infringement of the suspension clause in relation to the acquisition of joint control and Duropack was additionally fined Lev80,000 in relation to the second transaction.
Procedural rules
In order to enforce competition law, the CPA is vested with various investigative powers. The CPA is empowered to:
- order an undertaking to produce specific documents or information;
- conduct interviews with individuals;
- conduct dawn raids at business premises; and
- carry out inspections of residential premises.
Many cartels can only be unearthed through the cooperation of the undertakings involved. In order to provide cartels with an incentive to report their anticompetitive practices, the CPA, like the vast majority of other European competition authorities, has introduced a leniency programme, following the one adopted by the European Commission. The programme provides for immunity from fines for the first undertaking to concede participation in a cartel the CPA has hitherto been unaware of, with other involved undertakings that notify at a later stage still eligible for reductions in fines (under certain circumstances).
Foreseeable developments
On July 31 2008 the Council of Ministers approved a draft version of a new Competition Protection Act (Draft). Generally, the Draft seeks to further align Bulgarian competition law with EC competition rules and provide the CPC with the appropriate tools for an effective enforcement of competition law. It therefore comes as no surprise that the Draft sets out significantly increased maximum fines for competition law infringements (up to 10% of the respective undertaking's worldwide turnover). The Draft is expected to be adopted by the end of 2008. Other noteworthy amendments include the following.
Anticompetitive agreements
Most importantly, the Draft will replace the current authorisation system (and thus bring an end to the notification system) with a regime of direct applicability of exemption from the cartel prohibition. The market share thresholds for de-minimis agreements will be brought in line with the EC Notice on de-minimis agreements and thus increased as follows: (i) combined market share of 10% if they are competitors; and (ii) individual market share of 15% if they are active on vertically-connected markets.
Abuse of a market dominant position
The Draft will remove the refutable presumption of market dominance above a market share of 35%. Hence, the existence of a dominant position will be assessed solely on the basis of factors such as market share, financial resources, sources of supply, technology level and relations with other undertakings.
Merger control
The Draft amends the turnover thresholds triggering filing obligations and provides for the following thresholds: (i) a combined turnover exceeding Lev25 million in Bulgaria; and (ii) a turnover exceeding Lev3 million for each of at least two of the undertakings concerned or for the target company in Bulgaria for the previous financial year. In addition, the Draft provides an express competence of the CPC to make clearance decisions conditional upon structural and/or behavioural commitments by the acquiring undertaking.
| Author biographies |
Mariya Papazova
Andreev, Stoyanov & Tsekova in cooperation with Schoenherr
Mariya Papazova is an attorney at law working in Andreev, Stoyanov & Tsekova in cooperation with Schoenherr. She specialises in competition law, IP law and corporate and commercial law. Upon graduation from Sofia University St Kliment Ohridski, Mariya worked in a reputable Bulgarian law firm from 1999 to 2001. In 2003 she completed her LLM at Friedrich-Alexander University, Erlangen-Nürnberg, Germany. Before joining Advokatsko druzhestvo Andreev Stoyanov & Tsekova in 2007, Mariya worked at the Bulgarian Commission for the Protection of Competition for four years. During her work at the Commission, she completed a four-month traineeship in the European Commission DG Competition.
Franz Urlesberger
Schoenherr
Franz Urlesberger became a partner at Schoenherr in 2007, where he works in the firm's EU and competition unit in Vienna. Franz also heads the respective competition practices in the firm's CEE offices. He obtained his law degrees from the University of Salzburg (JD, 2000) and the London School of Economics (LLM, 1999). Franz has been a member of the Austrian Bar since 2003. His practice focuses on European and Austrian competition law, where he represents and advises clients from a wide range of industries, including paper and packaging, energy, oil and media. He is engaged in all types of public and private litigation, as well as giving out of court advice and – of course – engaging in merger control work. In addition, he has gained broad experience in supporting firms to implement comprehensive antitrust compliance programmes. |