Hungary has taken several steps in recent years to further align its competition regime with EC rules. In June 2008, the Hungarian Parliament adopted a number of amendments to the 1996 Act on Unfair and Restrictive Market Practices (Competition Act). However, the part of the amendment package that will introduced changes to antitrust and merger rules has not yet become effective. This is due to the fact that the President of Hungary has questioned whether the automatic disqualification of the directors of undertakings found to have participated in a cartel conflicts with the constitutional right to a fair trial. He has referred this issue to the Hungarian Constitutional Court, thereby preventing the proposed changes (Proposed Amendment) from entering into effect.
The Hungarian Competition Authority (Gazdasági Versenyhivatal, GVH) has handed down several decisions on cartels, abuse of market dominance and merger control in recent years. Some of these decisions have been high-profile.
Anticompetitive agreements
The cartel prohibition in Article 11 of the Competition Act follows Article 81 (3) of the EC Treaty. All agreements, concerted practices and decisions of associations of undertakings that have as their object or effect a restriction of competition are prohibited. As in Article 81 (3) of the EC Treaty, anticompetitive agreements are exempted from the cartel prohibition if they have countervailing pro-competitive effects. The Hungarian government has adopted guidelines that mirror the various regulations of the European Commission on the application of Article 81 (3) of the EC Treaty: for example the regulations on vertical agreements, vertical agreements in the motor vehicle industry and technology transfer agreements. Furthermore, de minimis agreements are defined as horizontal agreements between undertakings with a combined market share of not more than 10% or vertical agreements with the undertakings involved not having a market share of more than 10% each. These are exempted from the cartel prohibition unless they contain certain extreme restrictions.
Sanctions for infringements of the cartel prohibition are far-reaching. The GVH can impose fines of up to 10% of the infringing undertaking's worldwide turnover in the business year preceding the infringement. Agreements underlying the infringing behaviour are null and void. In addition, individuals found to have engaged in serious breaches of competition law will face criminal prosecution, including imprisonment of up to five years, in relation to: (i) public procurement proceedings; or (ii) tenders in connection with activities bound to concessions.
The Proposed Amendment would expose senior officers who are found by the GVH or a court to have been in charge of an antitrust infringement to automatic disqualification. The senior officers would have to go to court in order for such sanctions to be lifted.
Like most EU member states, Hungary operates a leniency programme, offering a company immunity from fines if it concedes its participation in anticompetitive behaviour before the GVH has become aware of the wrongdoings, or a reduction in fines if a company admits this at a later stage. The current leniency programme is regulated by a GVH ruling, and the Proposed Amendment would incorporate the Hungarian leniency programme into primary legislation.
The construction industry
In recent years, a dispute between the GVH and the Hungarian construction industry concerning a motorway tender has attracted broad media attention (and not just because of the high fines). The dispute was finally brought to an end in the second half of 2007 when the Appeal Court of Budapest rejected an appeal by five companies (Betonút Rt, DEBMÚT Rt, EGÚT Rt, Hídépít_ Rt and Strabag Rt) against a decision of the GVH. In this decision, the GVH fined the five undertakings a total of Ft7.04 billion ($41.67 million) for rigging bids for construction work contracts in planned motorway works in 2002. A particular point of dispute was whether the GVH was allowed to use evidence against the five undertakings that it gathered in an inspection originally instigated for a different purpose.
Several construction companies are subject to cartel proceedings for allegedly rigging bids for reconstruction works in the renovation of heating centres tendered by the Hungarian Main Heating stock exchange company. These proceedings are still pending.
Further case law
Two Hungarian newspaper distributors, the Hungarian Wholesale Newsagent Co Ltd and the Hungarian Post Co Ltd were each fined €1.9 million ($2.7 million) for agreeing not to enter the market where the counterparty was active. As the two companies are virtual monopolists in their respective markets, the agreement was aimed at excluding competition in any form in both markets.
In November 2006, the GVH fined Hungarian egg producers and the Egg Producer Association for several anticompetitive decisions and agreements that aimed at fixing selling prices, and for exchanging future pricing information. The companies appealed against the GVH's decision but this appeal was dismissed by the Municipal Court of Budapest in June 2008.
Following dawn raids at several mill undertakings, the GVH has opened proceedings against 11 flour manufacturers, accusing them of sharing the Hungarian flour market from 2004 onwards, as well as agreeing on minimum prices, exchanging dates of price increases and exchanging information on the actual level of the increase.
The Budapest Stock Exchange (alongside several brokerages) was subject to an investigation by the GVH. The investigation was triggered by an increase in premium fees charged by broker companies of between 200% and 300% following a resolution of the Budapest Stock Exchange. However, the GVH's investigation did not unveil sufficient evidence for an infringement, and proceedings against the brokerages were terminated. The investigation against the stock exchange was closed after it made a number of commitments to the GVH.
The GVH conducted dawn raids at the premises of eight taxi undertakings in early 2008. They were suspected of rigging the tender in public procurement proceedings for the provision of transport services between 2006 and 2008 in Budapest and its surroundings.
In January 2008, the GVH conducted dawn raids at several companies suspected of anticompetitive practices in the freight retail industry. The GVH suspects MÁV (the Hungarian State Railways Company), the GYESEV railway shareholding company and Central European Rail Transport, Trade and Services to have entered into anticompetitive behaviour. No more details of this infringement are known at present.
One of the few decisions involving a fine for vertical restraints relates to the market for navigation tools. At the end of 2007, the GVH imposed a fine of approximately €169,000 on Navi-Gate Kft, the wholesaler and retailer of navigation tools, for agreeing prices with other retailers. This was brought about through a clause in the distribution agreements stating that any deviation from the recommended resale price would require the express approval of Navi-Gate. Though mainly a form of resale price maintenance, the agreements were also considered to have horizontal effects in view of Navi-Gate's role as an important retailer of the products in question.
Finally, the GVH instigated an inquiry into the market for electronic media in the second half of 2007. The investigation concerns the wholesale and retail segments of television broadcasting, television advertising, the access to sport and film rights and the conditions for television broadcast transmission. This focuses on a suspected lack of unrestricted conditions for market entry. The outcome of the market investigation is expected to be announced soon.
The GVH has been or is still involved in several other cartel cases. Several important manufacturers of cathode-ray tubes allegedly participated in a cartel, during which they exchanged sensitive market information and fixed prices and market shares, allocated consumers and volumes of sales, limited output and coordinated production in Europe between 1995 and 2007. The proceedings initiated by the GVH relate to alleged infringements before Hungary's accession to the EU, as infringements thereafter are covered by a parallel investigation by the European Commission. This raises the interesting question of whether or not the GVH has the authority to investigate cartel behaviour before accession while the European Commission is investigating the same Europe-wide cartel. In a similar case in the Czech Republic, a national court ordered the Czech Competition Authority to pay back fines imposed on manufacturers of gas-insulated switchgears for their participation in a Europe-wide cartel before the Czech Republic joined the EU. As the same manufacturers were fined by the European Commission for the Europe-wide cartel between the late eighties and 2004, the court ruled that fining them again for the same cartel, though restricted to the area of the Czech Republic before its EU accession in 2004, would amount to double jeopardy. This decision is under appeal at present.
Abuse of dominance
Articles 21 and 22 of the Hungarian Competition Act on the abuse of dominance follow Article 82 of the EC Treaty. They prohibit any exclusionary or exploitative market conduct by a company that can act largely independently of other market participants.
As with infringements of the cartel prohibition, the abuse of market dominance may lead to fines of up to 10% of the respective undertaking's turnover in the preceding business year and possibly the nullity of the agreement. However, directors neither face criminal charges nor disqualifications for their behaviour. The Proposed Amendment would not give the GVH the power to disqualify individuals in charge of undertakings found to have abused their market-dominant position (in contrast to undertakings found to have participated in a cartel).
In early 2008, Tigáz Zrt was fined €16,000 for the abuse of its dominant position and the GVH also demanded specific behavioural commitments. The proceedings started in 2007 when the GVH accused Tigáz of abusing its dominant position in the market by charging excessively high connection fees and not enabling customers to choose the company laying the pipes.
Following the liberalisation of the rail freight market after Hungary's EU accession, the Hungarian State Railways Company (MÁV) had to provide non-discriminatory access to the public railway network and its accessories to enable new railway companies to enter the market. However, the GVH soon received complaints from market entrants over MÁV's behaviour in relation to granting access. The GVH opened an investigation and fined MÁV for the abuse of its market-dominant position. The decision was appealed and the Metropolitan Court mostly upheld the GVH's decision but reduced the original fine from Ft1 billion to Ft700 million.
The state railways are also involved in an investigation into an alleged abuse of market dominance. MÁV and several other companies are accused of abusing their market-dominant position in the market for rail freight transport and the vertical market for logistics services.
Recently, the GVH has been very active in the banking industry. Most of its decisions have related to misleading credit card advertising by banks. In a separate decision, the OTP Bank was suspected of abusing its dominant position by charging excessively high early repayment fees in connection with consumer credits: the fee had been raised from Ft5,000 to Ft35,000. The proceedings were terminated after the GVH had accepted commitments offered by the bank.
Concentrations
The Hungarian Competition Act follows Article 1 of the EC Merger Control Regulation and covers the following types of transaction:
- the merger of two or more previously independent undertakings;
- the acquisition of sole or joint control over another undertaking; and
- the establishment of a full-function joint venture.
A filing with the GVH is required if the undertakings involved meet the following thresholds:
- a combined worldwide turnover in excess of Ft15 billion; and
- a group turnover of more than Ft500 million for at least two of the undertakings concerned.
The turnover thresholds usually relate to worldwide revenues. However, in the case of a foreign company, only the Hungarian turnover is taken into account.
Merger notifications must be submitted to the GVH within 30 days of the publication of the invitation to tender, the signing of the transaction agreements or the acquisition of controlling rights, whichever occurs first. The GVH may impose a daily fine of up to Ft50,000 on undertakings that fail to meet the filing deadline.
The Proposed Amendment would bring about some significant changes to merger control proceedings. The maximum fine to be levied in a case of non-compliance with merger notification provisions would be increased to Ft200,000, on a daily basis.
In addition, and for the first time, a suspension clause would be introduced. Steps taken before obtaining formal clearance from the GVH that leads to the acquisition or exercise of control over an undertaking would be null and void and the undertaking involved could be fined. At present, the Hungarian Competition Act does not contain an explicit suspension clause that prohibits the closing of a transaction before formal clearance is obtained.
The Proposed Amendment would also introduce a new substantive test (SLC test) to merger control proceedings. Following the approach taken by the European Commission, the test would concern whether or not the notified transaction would lead to a substantial lessening of competition. The difference between the SLC test and the current test is minimal, as a transaction will substantially lessen competition if it creates or strengthens a market-dominant position. However, one may assume that the SLC test affords wider possibilities for the GVH when taking economic considerations into account.
The Proposed Amendment would also bring about a change in the fees payable for the merger approval process. They would be increased as follows:
- for mergers that can be processed in a single Phase I procedure, the fees would be raised from Ft2 million to Ft4 million; and
- should a Phase II investigation be necessary, the fees would be raised from Ft8 million to Ft12 million.
Therefore, an approval process that includes both phases would involve fees of Ft16 million instead of the current Ft10 million.
Case law
The GVH cleared 42 mergers in 2007, of which only seven were cleared in Phase II proceedings. However, the two most prominent mergers involving Hungarian undertakings were not dealt with by the GVH, but by the European Commission. In June 2008, it permitted the acquisition of Plus Élelmiszer Diszkont Kft, a Hungarian discount retailer, by Spar, a large Austrian retail company. OMV only recently withdrew its notification of the intended acquisition of its Hungarian rival MOL after serious concerns were raised by the European Commission, which OMV considered it economically unjustified to address. The OMV/MOL merger was strongly contested in Hungary, as it involved a national institution. A special law was passed to hamper the unfriendly bid and the GVH issued statements in which it raised serious doubts about the compatibility of the envisaged merger with the Common Market. The GVH lobbied against the deal and issued press releases concerning its assessment of the transaction.
On a national level, one of the problematic mergers cleared by the GVH in 2008 related to the poultry sector, where the acquisition of a 50.1% stake in Kishunhalasi Baromfifeldolgozó Zrt (active in poultry processing) by Bács-Tak és Forgalmazó Kft (active in fodder production and distribution) was considered to create a market-dominant position. Though these companies do not have overlapping activities, the GVH was concerned about their interlocking directorships with Hungerit Baromfifeldolgozó és Élemiszeripari Zrt, which is also active in the poultry sector. The GVH concluded that, given the interlocking directorships and shareholdings, Bács-Tak (through its control over the Kishunhalas group) and Hungerit would become jointly dominant on the poultry market post-merger. To alleviate these concerns, Bács-Tak undertook to remove ownership and personal links between Bács-Tak and Hungerit, in addition to several commitments not to purchase shares of Hungerit until the end of 2017.
Procedural rules
The Proposed Amendment introduces an important assumption in relation to supra-competitive profits that will significantly lower the burden of proof in compensation claims for the damages suffered from anticompetitive practices. Until proven to the contrary, it would be assumed that anticompetitive infringements have affected the price by 10%: that is, 10% of the revenues relating to the impermissible behaviour amount to supra-competitive profits. Hence, the onus of proof would shift and the infringing undertaking would have to prove that its wrongdoings did not result in any enrichment.
| Author biographies |
Kinga Hetényi
Schoenherr
Kinga Hetényi is head of the corporate M&A practice group of Schoenherr in Budapest. She is a Hungarian attorney with over 13 years of experience including numerous M&A transactions. Kinga has advised many multinational clients on corporate law, labour law and other matters. Her expertise includes distribution and agency law, as well as IT/media, telecommunications and competition law. After graduating from the University of Budapest in 1995, she worked for nine years in the corporate department of the Budapest office of one of the largest international law firms. She also worked for a year at the Frankfurt office of the same firm. Before joining Szécsényi in 2005, she was head of the legal department of the Hungarian subsidiary of a global FMCG company listed on the NYSE.
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. He 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, in which he represents and advises clients from a wide range of industries including paper and packaging, energy, oil and the media. He is engaged in all types of public and private litigation as well as giving out of court advice, and, of course, merger control work. In addition, he has gained broad experience in supporting firms in implementing comprehensive antitrust compliance programmes. |