The last year and a half has seen several important changes in the field of competition law in Slovenia. The appointment of Jani Sorsak, a former competition lawyer, as new director of the Competition Protection Office (CPO) has led to a notable intensification of competition law enforcement, with several investigations being opened into alleged anticompetitive practices and market conditions. The most important change was the adoption of the new Act on the Prevention of Competition at the beginning of this year (new Competition Act). This act entered into effect in April 2008 and replaced the old Competition Act of 1999, which was criticised because of its impracticability and lack of a clear allocation of competences.
The new Competition Act introduces several changes in the definition of anticompetitive behaviour as well as to procedural rules. It also sets out the clear competences of the CPO to carry out investigations into alleged anticompetitive activities (thereby ending a long row over its competences under the General Administrative Procedure Act and Misdemeanour Act). Generally, the new Competition Act aims at further aligning national competition law with EC competition rules and implementing the obligations of the competition authorities under Regulation 1/2003 of December 2002. The new Competition Act explicitly obliges the CPO to apply Articles 81 and 82 of the EC Treaty when assessing practices that may affect trade between member states.
Anticompetitive behaviour
The new Competition Act copies the exemption rule under Article 81 of the EC Treaty, exempting anticompetitive agreements and practices that produce countervailing competitive effects. To enhance legal certainty, the new Competition Act exempts agreements and concerted practices from the cartel prohibition if the undertakings involved meet the requirements of one of the block exemptions adopted by the European Commission, even if the agreement at stake has no bearing on trade between member states. The Competition Act also incorporates a de minimis regulation into national competition law. It exempts anticompetitive agreements and practices (under specific circumstances) from the cartel prohibition if the undertakings concerned have a combined market share of less than 10% in the case of horizontal agreements or 15% each in the case of vertical agreements.
One of the main criticisms of the old Competition Act was that the maximum fines for infringements of competition law lacked deterrent effect. The old Competition Act provided for a maximum fine of €375,000 ($534,000) for legal entities and €12,500 for the director in charge. The highest fine imposed under the old Competition Act was €260,000 and was imposed for bid-rigging, one of the most severe infringements of competition law. This moderate fine was in contrast to the EU policy of deterrent fines.
The new Competition Act follows Regulation 1/2003 of the EC Treaty and allows for fines of up to 10% of the respective company's turnover. On top of this, the criminal code contains a sentence of up to three years' imprisonment for individuals participating in cartel activity. In November 2008, this sentence will increase to a maximum of five years (and a minimum of six months).
The CPO's intention to intensify the enforcement of competition law was demonstrated soon after the new director had resumed his post when an investigation was opened into an alleged cartel involving the three most important retail chains in Slovenia: Spar, Mercator and Engrotus. According to public sources, they are accused of colluding on prices and forcing national suppliers to refrain from supplying other retail chains.
Recently, the CPO found that five electricity distribution companies (Elektro Primorska, Elektro Maribor, Elektro Ljubljana, Elektro Gorenjska and Elektro Celje) had fixed electricity prices by way of a simultaneous price rise. The decision on the level of fine – which will be the first one imposed under the new Competition Act – is still pending.
To our knowledge only two decisions, adopted in 2006 and 2007 respectively, have related to financial institutions. In November 2006, the CPO found the restrictions on point-of-sales instalment payments by the Banking Association of Slovenia (of which all Slovenian banks are members) to be in breach of the cartel prohibition. The decision is now under appeal before the Supreme Administrative Court. In February 2007, four large Slovenian banks, which account for a combined market share of some 80%, were found to have colluded on the introduction of a cash withdrawal fee.
Abuse of market dominance
The rules on dominance are, for the most part, similar to those at the EU level: an undertaking is dominant if it can act independently of its competitors and customers. The list of possible abuses, for example, applying unfair sale or purchase prices/conditions and exclusionary practices, follows Article 82 of the EC Treaty. The Competition Act differs from EC law in that there is a (refutable) presumption of market dominance when certain market share thresholds are met – 40% of the relevant market for single dominance and a combined market share of 60% for collective market dominance.
One of the very few decisions on abusive behaviour was rendered in mid-2007 when the CPA found Kolosej kinematografi (Kolosej), which has a virtual monopoly on Slovenian cinemas, to have abused its market dominant position by refusing to exhibit certain film titles distributed by Blitz Film & Video Distribution (and thus discriminating against Blitz with regard to other film and video distributors). Kolosej has appealed this decision to the Supreme Administrative Court.
In 2007, Slopak was found to have abused its dominant position in the market for organising systems for collecting and recycling commercial packaging waste by preventing its customers from joining a competitor's system. The competitor lodged a complaint to the CPO, which subsequently fined Slopak €125,000 for the breach.
Concentrations
The Competition Act brought about several changes to the merger control rules: (i) amending the thresholds that trigger a filing obligation to the CPO; (ii) extending the previous filing deadline; (iii) introducing a suspension clause; and (iv) imposing decision deadlines on the CPA.
Under the new Competition Act, a concentration requires notification if: (i) the combined group turnover of the undertakings concerned in the business year preceding the concentration exceeds €35 million; and (ii) each of at least two undertakings concerned had a national group turnover in the last business year exceeding €1 million.
The Competition Authority may also require the undertakings concerned to notify a transaction if the parties have a combined market share in Slovenia of 60% or more. This rule requires twofold clarification. Firstly, undertakings that fall short of the turnover thresholds but meet the market share threshold must inform the CPO of the transaction, but may proceed with the implementation of the transaction. The CPO may, within 15 days of being informed of the transaction, require the undertakings concerned to submit a formal notification. Secondly, the 60% market share threshold does not necessitate both undertakings being active in the same market. Where only one undertaking exceeds the market share threshold, the acquiring undertaking must notify the CPA of the envisaged transaction.
These amendments are significant. Formerly, a filing was required if the undertakings concerned had either a combined national turnover exceeding approximately €33 million or a combined market share of 40% or more. Furthermore, the CPO applied a local effects doctrine whereby no filing was required if the thresholds were only met by the acquiring undertaking. The national turnover threshold was one of the highest among member states (in relation to the national GDP). This resulted in very few annual notifications to the CPO, which received an average of only 50 or so filings a year. More importantly, several horizontal transactions with significant overlaps did not require notification, but this loophole has now been closed.
The old Competition Act required the submission of a notification within either: (i) 7 days following the signing of the transaction agreements; or (ii) the submission of a public bid or the actual acquisition of control (whichever happens first). The new Competition Act extends this deadline to 30 days.
The new Competition Act also explicitly provides that no rights or obligations that stem from the concentration may be executed before the Competition Authority declaring the concentration compatible with the Slovenian market. The concentration cannot be closed before formal clearance. All acts that violate the suspension clause shall be null and void. This, however, does not apply to: (i) the execution of a public offering, provided that the acquiring party does not invoke voting rights (see below for exceptions); and (ii) the validity of transactions involving securities, if such transactions are carried out by financial institutions and concern the acquisition of shares in an undertaking with the purpose of resale.
In addition to civil sanctions, failure to adhere to the suspension clause may entail fines. The new Competition Act increased such fines from a maximum of €83,400 under the old Competition Act to a maximum of 10% of the relevant undertaking's annual turnover. Also, the person in the respective undertaking responsible for the infringement of the suspension clause may be fined up to €30,000. In this context, in 2007 the CPO fined companies and their managers for a failure to notify in two instances. Koro_ka trgovina and Skupina Viator & Vektor each received fines of €25,000 for failing to notify the CPO of an intended acquisition.
Transactions that meet the market share threshold but not the turnover thresholds can be implemented when informing the CPA of the transaction. Should the CPO require a formal notification, the new Competition Act obliges the respective undertakings to cease to take any implementation steps from the start of service of the notice until formal clearance is obtained. Undertakings that do not meet the turnover thresholds are therefore well advised to assess their market position before closing a deal, as a post-closing filing obligation to the CPO would certainly derail the integration process and involve unwelcome inconveniences and possibly fines. At worst, the deal could be declared incompatible with competition rules and the parties could be ordered to restore the conditions existing before the concentration.
The suspension clause can be waived upon request by the acquiring undertaking. In order for the CPA to approve the request, the acquirer has to demonstrate that early closing of the deal is pivotal for maintaining the value of the investment or the performance of services of general interest. The CPA has a 15-day deadline to decide on a request for early closing.
The CPA has a new obligation to issue a final decision on the permissibility of a concentration within 60 working days of opening Phase II proceedings, which it must open within 25 working days of the submission of a complete merger control filing.
In the finance and insurance industries, two concentrations were cleared in 2007: Vipa acquired Vipa Holding by way of a public bid and Generali acquired control of the insurance arm of the Austrian banking group Bawag Psk.
Facing the most public attention are the proceedings against the Slovenian beverage producers Pivovarna Lasko, Pivovarna Union, Radenska and others on the grounds of a failure to notify the acquisition of joint control in the largest Slovenian retail chain, Mercator. Apart from being one of the first merger control proceedings initiated ex officio, this case appears to be unveiling unusually dense ownership connections, previously unknown, between the food producers and Mercator.
In addition to merger control approval, Slovenian law requires the further clearance of concentrations in special sectors, one being the financial sector. Domestic laws regulating banks, insurance companies, stock brokerages and fund management companies require approval from the regulatory bodies for the acquisition of a qualified stake: that is, a stake of 10, 22, 33 and 50%.
Further procedural rules
The new Competition Act not only increases the fines for anticompetitive practices, abuse of market dominance and misdemeanour in merger control proceedings but also establishes an express obligation of parties subject to an investigation to cooperate with the CPO, be it an investigation into alleged anticompetitive practices or the appraisal of a notified concentration. Failure to cooperate may lead to fines of up to €50,000, which can be increased in the case of a continuing failure to cooperate to up to 1% of annual worldwide turnover.
Much discussion has recently focused on the private enforcement of infringements of competition law and damage claims in Europe. In this context, the new Competition Act explicitly states that anyone in breach of competition law will be liable for damages arising from such violation and that civil courts are bound to final decisions rendered in relation to this misdemeanour by the European Commission or the CPO.
The new Competition Act introduced collegial decision-making into proceedings with a decision-making panel (consisting of the director of the CPA and two of its employees). Further changes introduced are a precise definition of the parties to a proceeding, an express right to the confidentiality of submissions to the CPA and an explicit entitlement of parties to an effective defence.
Foreseeable developments
The new Competition Act provided for the adoption of further important legislation for competition law enforcement.
Firstly, the government will publish a notification form outlining all the information demanded by the CPA for the assessment of a merger notification. This should counter current uncertainties concerning the extent of information demanded by the CPA for a filing and should in particular remove the situation where a notification is rejected by the CPA due to incompleteness (which entails a considerable delay to the merger control process and consequently clearance to implement the deal). It would be apt to also provide a shorter form for filing in cases where an adverse effect on competition is highly unlikely from the outset.
Secondly, even though the new Competition Act sets out the cornerstones of a leniency programme, the CPO has not formally introduced this. It can be expected that such a programme would follow that of the EC Commission as regards immunity from fines and the significant reductions of fines.
Further progress in these antitrust proceedings and market investigations is much anticipated. It will be up to the CPO to make its mark as a rigid enforcer of competition law.
| Author biographies |
Vid Kobe
Schoenherr
Vid Kobe is an associate with Schoenherr in Ljubljana, where he focuses on mergers and acquisitions, competition law and intellectual property law. He graduated from Ljubljana University at the beginning of 2007 and incorporated one year at the University of Heidelberg, Germany, into his degree. Vid is continuing his legal studies at Ljubljana University, where he is attending a postgraduate programme on corporate and commercial law.
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. |