Competition law in Croatia is enforced by the Croatian Competition Agency (CCA), which was established in 1997. Its managing body is the Competition Council, consisting of five members, one of which is the appointed president of the Council. The prime source of competition law in Croatia is the Croatian Competition Act, which became effective in 2003. Certain sector-specific acts contain competition rules that must also be adhered to: for example the Banking Act and the Media Act.
Under the Stabilisation and Association Agreement between Croatia and the European Community, Croatian competition rules are to be applied and interpreted in accordance with the rules, measures and principles of EU competition law. In essence, Croatian competition rules mirror the EC rules, so it should come as no surprise that several bylaws follow the lines of European regulation, for example, the Regulations on the Definition of the Relevant Markets, the Regulation on Agreements of Minor Importance, as well as various block exemption regulations. Furthermore, the CCA has frequently referred to rulings of the European Commission and the Community Courts in its decisional practice.
Anticompetitive agreements
Agreements between parties, concerted practices and decisions of associations of parties with the object or effect of restricting competition in the relevant market are not allowed. There are two exemptions from the cartel prohibition: those of minor importance and those that generate countervailing efficiency gains.
Anticompetitive agreements of minor importance are permissible unless they contain certain significant restrictions and unless one of the following market share thresholds is met:
- the total market share held by the parties to the agreement and their controlled undertakings must not exceed 10% in any of the relevant markets affected by the agreement, provided that the parties are actual or potential competitors in any of these markets; or
- the market share held by each of the parties to the agreement or their controlled undertakings should not exceed 15% of the market affected by the agreement provided that the parties are not actual or potential competitors in the market concerned.
Anticompetitive agreements are also exempted if they generate countervailing efficiency gains, in that they contribute to the improvement of the production or distribution of services, or to the promotion of technical or economic progress, and at the same time allow consumers a fair share of the resulting benefit without affording the parties concerned the opportunity to eliminate significant competition in the relevant market.
To enhance legal certainty, regulations have been adopted that exempt certain types of agreement from the cartel prohibition. These are comparable to the regulations at EU level. If no block exemption is applicable, parties may apply for the agreement to be exempted individually. Should the requirements be met, the CCA exempts the respective agreement for a limited period of time which, as a rule, will not exceed five years. This time limit may be extended by a further five years upon request.
Anticompetitive agreements may incur fines of up to 10% of the infringing party's worldwide turnover. However, the CCA is not empowered to impose these penalties and this hampers the effective enforcement of competition law. Instead it must apply to the Misdemeanor Courts, which have a reputation for imposing inappropriately low fines. In addition, the natural person responsible for the infringement can be fined up to K200,000 ($37,000). Finally, restrictive agreements are exposed to nullity.
The highest known fine to date was imposed by the Misdemeanor Court of Zagreb in November 2007 when Kolnoa was fined K534,232 for the conclusion of an anticompetitive distribution agreement with P.Z. Auto. The agreement contained obligations that excluded Kolnoa's only competitor from the relevant market between December 2003 and May 2005.
In 2007, the CCA unveiled a cartel between 14 bus operators. These parties were found to have fixed bus fares on the routes between Zagreb and Split and Zagreb and Sibenik. The CCA applied for fines to be imposed on the implicated parties. The court, however, only imposed a fine of K10,000 on Sazmatrans prijevoz, one of the companies involved, and of K6,000 on the natural person in charge. The CCA is of the view that these fines are inadequately low and thus lack any deterrent effect. Consequently, it appealled the decision before the High Minor Offence Court in Zagreb. The Administrative Court is now looking into the appeals of seven of the bus operators against the CCA's decision establishing the infringement.
Early in 2008, the CCA concluded that the non-full-function joint venture between Viro and Pfeifer & Langen, Germany, would not infringe the cartel prohibition if certain provisions in the joint venture were deleted. These provisions might have led to market sharing and price fixing between the parties to the agreement.
Grocery retail market
At the end of 2007, the CCA presented the outcome of an investigation into the grocery retail market, with a focus on household food, beverages and sanitary products. It revealed that Konzum is the market leader, holding a 30% market share, followed by Rewe grupa, Billa and Minaco, Kaufland Hrvatska, Getro, Mercator-H, Plodine and Kerum. Considering the concentration ratio and the Herfindahl-Hirschman index, the market is considered to be moderately concentrated, dynamic and with relatively good market segmentation in terms of coverage.
In this context, the CCA also decided to dismiss the complaint by Lidl Hrvatska against Konzum in relation to an alleged abuse of dominance by the latter, due to lack of sufficient evidence. In its request, Lidl listed several suppliers. Konzum was accused of having further dealings with these suppliers dependent on their willingness to stop (or not start) supplying Lidl. The investigation by the CCA, however, unveiled that eight out of 10 suppliers supply both Lidl and Konzum, whereas two other suppliers even refused to supply Konzum for commercial reasons.
Audit service
In April 2007, the CCA finished its investigation into the audit service market. It proposed that the act that governs the provision of audit services should alter the setting of binding minimum fees to be charged by audit service providers. The fees are set by an association of audit service providers with the assent of the Ministry for Finance. The CCA concluded that the minimum fees will have anticompetitive effects, excluding many small audit service providers from the market. Furthermore, the CCA fears that the lack of competition in the market might generate higher fees for audit services and thus higher costs for the service users. The CCA suggests that the audit service fees should not impose restrictions on audit service providers and audit service users in terms of their inability to freely set prices but only make price recommendations or set maximum prices.
The findings in the audit services market investigation also fed into the appraisal of the draft code for estate agents. In July 2007, the CCA decided that certain provisions in the draft code of practice for estate agents were anticompetitive. The CCA was – again – particularly concerned about the fact that the draft act provided for the setting of fees to be charged by estate agents. In the CCA's view, the association whose members are service providers should not be able to set fees and other charges for the provision of these services. If at all, the Ministry of Finance should set prices, but these must only represent recommended or maximum prices for particular services.
Abuse of dominance
Legal framework
The CCA prohibits any exploitative or exclusionary practice by a party that enjoys a market-dominant position. When defining market dominance, the CCA takes recourse to the case law of the Community Courts and considers any party dominant if it is largely independent of other market participants when determining its market conduct.
Abuses of market dominance can result in the following action:
- cease and desist orders;
- instructions to remove adverse effects of abusive practices;
- the imposition of measures, both structural and behavioural, to restore effective competition; and
- fines of up to 10% of parties' total annual turnover in the preceding financial year.
In addition, the individuals responsible for the infringement face fines of up to K200,000. Under specific circumstances, their behaviour may even fall within the scope of the criminal code, which provides for a maximum imprisonment of up to five years.
Recent case law
In June 2008, the CCA initiated proceedings against the Croatian Composers' Collecting Society (HDS ZAMP) upon the request of the Croatian Association of Small Importers and Distributors of ICT Equipment. HDS ZAMP is accused of abusing its market-dominant position through the unjustified discounting of copyright fees for reproduction of audiovisual and other resources. The investigation by the CCA is still continuing.
In January 2008, the CCA appealled the decision of a Minor Offence Court to terminate proceedings against Kamen Ingrad and its directors Velika Gorica, Vlado Zec and Dren Jozi. The decision of the CCA found Kamen Ingrad to have abused its market-dominant position in the supply of construction stones by refusing another party's access to its quarry for more than a year.
In October 2007, the CCA established that Tisak Zagreb and Distri-Press Zagreb had been abusing their dominant position since March 2005. The abusive behaviour related to the distribution of the daily newspaper 24 sata, published by Media-Ideja. The service fees for 24 sata were made dependent on the total number of distributed issues and returned issues from the agents. In contrast, other publishers' fees disregarded the returns from the agents. As a consequence, Tisak and Distri-press were ordered to terminate the restrictive practices and to revise their general terms of operation within three months. However, the CCA dismissed Media-Ideja's claims for compensation that allegedly arose from this practice and for the fining of these parties.
The CCA approached Microsoft Hrvatska at the end of 2007 and requested that it comply with the conditions and obligations imposed by the European Commission in its decision 2007/53 of March 2004 (which was upheld by the ruling of the Court of First Instance of September 2007). Microsoft Hrvatska undertook to perform its business practices within the meaning of the decision 2007/53 and to respect the key principles of the competition law and rules of Croatia.
Another recent high-profile case involved HT-Hrvatske telekomunikacije and its connected company T-Mobile Hrvatska. In a decision of July 2007, the CCA found these two parties to have abused their market-dominant position. Members of the HT group had made the conclusion of contracts subject to the acceptance of their key accounts of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts. The contracts for the provision of these telecom services had been entered into by the members of HT group in 23 different key accounts. The CCA ordered HT-Hrvatske telekomunikacije and its connected company T-Mobile Hrvatska to remove the impermissible provisions.
Merger control
Legal framework
The Croatian merger control regime encompasses the mergers of independent parties, the acquisition of control and the creation of a full-function joint venture. A notification to the CCA is required if the parties concerned simultaneously meet these thresholds:
- a combined worldwide turnover in the preceding financial year of over K1 billion; and
- the Croatian turnover of each of at least two parties concerned of over K100 million in the financial year preceding the merger.
A merger control notification must be submitted within eight calendar days following the signing of the transaction agreements or the publication of a public bid, whichever occurs first. Failure to comply with this filing deadline may entail fines of up to 1% of the respective party's annual turnover. Individuals responsible for the party's failing to submit a notification in time may also be fined up to K50,000.
The CCA has 30 days upon the submission of a complete notification to decide whether to open Phase II proceedings or not. Should the 30-day period elapse without the CCA taking such a decision, the transaction is deemed to be cleared. Phase II proceedings may take three months (with the possibility of an extension of another three months). The closing of the transaction before obtaining formal clearance may entail corporate fines of up to 10% of the implicated party's worldwide turnover. On top of that, the parties concerned may be forced to restore the status quo before closing. In addition, a fine of up to K200,000 may be imposed on the individuals responsible for infringing the suspension clause. Under specific circumstances, their behaviour may even fall within the scope of the Criminal Code, which provides for a maximum imprisonment of up to five years.
Apart from the merger control rules laid down in the CA, industry-specific laws exist. For example, the Banking Act requires that the Croatian National Bank is informed of any merger in the banking industry irrespective of turnover thresholds. The same applies to media mergers under the Media Act, though the competent authority to assess media mergers is again the CCA.
Recent case law
One of the few mergers that have recently been cleared conditionally was that of Agrokor and Tisak, both of which are active in the food and non-food retail market. The Agorkor group consists of more than 30 parties active at all stages of production or distribution processes and that carry out a wide range of activities Croatia and the wider region. The primary concern related to portfolio effects as a result of the Agrokor group's broad portfolio and buying power. To alleviate these concerns, the parties had to prove that at least 25% of Tisak's product portfolio consisted of products that are substitutes for the products manufactured by Agrokor group, and that all existing supply agreements with other suppliers remained in effect for at least another year.
Several of the unconditional clearances by the CCA in the last 12 months related to parties that enjoyed a considerable joint market share. In April 2008, the CCA decided not to oppose the merger between the EPH and Dubrova_ki vjesnik, which had a combined market share in the relevant weekly magazine publishing market of 20% to 30%. The merger was not found to lead to the creation or strengthening of a dominant position in the relevant market.
At the end of 2007, the CCA cleared the merger between Phoenix Pharmahandel Aktiengesellschaft & Co KG, Germany, and Unipharm, Zagreb, both active in the wholesale pharmaceuticals and medicinal products market. The implementation of the merger led to a combined market share of 25% to 35%.
The CCA also deemed the merger of Slobodna Dalmacija and _ibenski list compatible within the meaning of both the competition rules and the rules of the media industry. The implementation of the merger did not raise competition concerns in relation to the market for general interest weekly magazine publishing. After the implementation of the merger in question, the market share of Europapress, the majority owner of Slobodna Dalmacija, increased in the general interest weeklies market by some 2% so that the Europapress holding's market share post-merger amounted to some 20% to 30%.
Two mergers were cleared at the beginning of July 2007 that may, on the face of things, have been seen as problematic. Konzum was permitted to acquire Jadran trgovina from Rovinj, and Mercator was cleared to acquire Presoflex. Both proposed mergers were found not to lead to a significant lessening of competition in the relevant grocery retail market. This market is well-structured in terms of the number of competitors and the size of their market shares. The mergers in question may be seen as part of the continuing consolidation and agglomeration process in a market where competitors with similar market power are created and competition between them consequently strengthened. Hence, the CCA found that this transaction, despite increasing market concentration post-merger, will foster competition in the grocery retail sector and ultimately benefit the customers through better supply, wider choice and lower prices.
Future developments
Although Croatia has one of the most sophisticated competition law regimes, changes are desperately needed in order to enhance competition law enforcement. Although (to our knowledge) no draft proposals have been published yet, the CCA will most probably continue lobbying for the adaptation of amendments as early as possible. In view of the workload of the Misdemeanor Courts and the poor record of imposing fines with deterrent effect, one big step forward would be to confer on the CCA the power to impose fines, as is the case with the European Commission and most national competition authorities. This change should go hand in hand with the introduction of a proper leniency programme similar to that of the European Commission (which has been copied by most EU member states): in other words, a leniency programme for the party that is first to submit information and evidence of the alleged cartel to the CCA.
Leaving aside these much-needed changes in procedural rules, the CCA is expected to further invest in the training of case-handlers and expand its administrative capacities in view of its current workload.
| Author biography |
Franz Urlesberger
Schoenherr
Franz Urlesberger became 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. |