Austria: Protective structures

Author: | Published: 1 Oct 2008
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The main sources of Austrian competition law are the Cartel Act 2005 (Cartel Act) and the Competition Act. The authorities responsible for the enforcement of competition law in Austria are the Federal Competition Authority (FCA), the Federal Cartel Prosecutor (FCP, jointly referred to as the Official Parties) and the Cartel Court. However, except for Phase I clearances of merger control notifications, the Official Parties have no decision-making power. They can only bring antitrust cases before the Cartel Court (as can individuals and other statutory parties) and instigate Phase II merger control proceedings. Decisions of the Cartel Court can be appealed before the Supreme Cartel Court.

With the Cartel Act (which entered into force on January 1 2006), the Austrian competition law regime was further aligned with EC competition law. In particular, the substantive provisions in the field of anti-competitive agreements were brought in line with Article 81 of the EC Treaty and the procedural provisions were harmonised with the rules laid down in Regulation (EC) 1/2003. Furthermore, the Cartel Act introduced new thresholds for merger notifications as well as new procedural provisions for merger control proceedings.

The Competition Act, which sets out the procedural rules to be applied by the FCA, was amended in 2005: most notably, a formal leniency programme was introduced. The amendment also conferred new powers, in particular in merger control, upon the FCA.

Anti-competitive agreements

The cartel prohibition (Section 1 of the Cartel Act) virtually copies Article 81 (1) of the EC Treaty, prohibiting all agreements between undertakings, decisions of associations of undertakings and concerted practices that have as their object or effect the restriction of competition. Section 2 of the Cartel Act mirrors Article 81 (3) of the EC Treaty and exempts from the cartel prohibition anti-competitive agreements that generate countervailing efficiencies. However, unlike EC law, no block exemption regulations have been adopted yet under the Cartel Act, though the act provides that the Minister of Justice may issue regulations exempting certain groups of agreements from the cartel prohibition. Despite the absence of formal block exemption regulations, the Austrian authorities apply the regulations adopted by the EC by analogy.

However, there are some peculiarities that differ from the EC rules. The Cartel Act is more stringent in that certain unilateral behaviour may constitute an infringement of the cartel prohibition: pursuant to Section 1 of the Cartel Act, recommendations for the observance of specific prices, price limits, calculation guidelines, trade margins or discounts with the object or effect of a restriction of competition are deemed anti-competitive agreements. If the recommendation explicitly states that it is non-binding and is neither enforced nor intended to be enforced by social or economic pressure, it does not constitute an illicit behaviour. However, the Cartel Court has held that, even if these two conditions are fulfilled, a recommendation by an association of undertakings constitutes an anti-competitive decision of an association within the meaning of Section 1 of the Cartel Act if it amounts to an accurate statement of the policy of coordinating the conduct of the members of the association on the market.

In contrast to the de minimis notice of the European Commission, the Austrian de miminis provision applies irrespective of the restrictions of competition at stake. Agreements – be they horizontal or vertical – are generally exempted if the combined market share of the undertakings involved does not exceed 5% on the national market and, where applicable, does not exceed 25% on the relevant regional or local market.

In the banking sector, Section 2 of the Cartel Act provides that restrictions of competition, agreed between banks belonging to a credit institution group (Kreditinstitutsgruppe) within the meaning of Section 30 of the Banking Act (Bankwesengesetz), are exempted from the cartel prohibition. Furthermore, the exemption also applies to restrictions on competition between a cooperative society and its members, as well as between its members, if the restrictions are justified by the mandate of the society (Förderungsauftrag).

The Neighbourhood Supply Act 1977 (Nahversorgungsgesetz) includes noteworthy provisions as regards the distribution relationship between suppliers and retailers. Whereas under EC rules only a market dominant undertaking cannot discriminate against its business partners, the Neighbourhood Supply Act imposes on a supplier of goods or services, even below the level of market dominance, a general prohibition to discriminate against resellers in the absence of an economic justification.

Agreements infringing the cartel prohibition are null and void. Furthermore, fines of up to 10% of the worldwide annual turnover of the infringing undertaking may be imposed. Generally, antitrust misbehaviour does not entail personal sanctions. The one exception is that bid-rigging constitutes a criminal offence and individuals engaged in such behaviour face imprisonment of up to three years. Theoretically, certain anti-competitive conduct may also fall within the ambit of fraudulent behaviour, which also constitutes a criminal offence.

The amendment of the Competition Act also brought about the adaptation of a formal leniency programme (see the leniency handbook of the FCA published on their website www.bwb.gv.at). It largely follows the programme of the European Commission, so that undertakings may benefit from immunity from fines if they are the first to report a cartel that the FCA has been unaware of, whereas they are granted reductions of fines if they concede their participation in a cartel and cooperate fully with the FCA during the investigation. However, the Austrian programme differs from its EC counterpart in that: (i) vertical agreements may be subject to a leniency application; and (ii) no marker system (whereby an undertaking can mark its ranking in the race for leniency for a distinct period of time before submitting a formal leniency application) is in place in Austria (yet).

In contrast to the EC level, neither the Austrian competition law nor the FCA has introduced a formal settlement procedure for cartel cases (yet). However, there is a possibility under certain circumstances to enter into talks with the FCA and settle cartel proceedings by accepting commitments.

In 2007, the first leniency case was decided by the Cartel Court, which imposed a total fine of €75.4 million ($106.6 million) on four elevator and escalator manufacturers (the decision is on appeal before the Supreme Cartel Court) for allegedly rigging bids and fixing price increases (with a fifth undertaking benefiting from immunity from fines). In parallel, customers claiming to have suffered damages from the cartel activities appear to pave the way for damages proceedings before civil courts by having initiated declaratory proceedings confirming the breach of antitrust law.

A landmark decision of 2008 related to the envisaged cross-guarantee scheme between Erste Bank and the Austrian savings banks. The scheme was heavily criticised by Austria's biggest bank, Bank Austria, over alleged anti-competitive effects. After years of debate and legal proceedings, the Supreme Cartel Court ruled in March 2008 that on the basis of EU Law the scheme would produce efficiency gains that smaller members of the scheme would reap through joint IT platforms and applications, joint product development, product marketing and publicity campaigns. The Supreme Cartel Court also saw the advantages of sector cooperation in connection with Basel II.

Another cartel case is pending before the Cartel Court where, at the end of 2007, the FCA applied for fines to be imposed on undertakings that were suspected of market sharing, price fixing and exchanging sensitive business information on the wholesale chemical market.

In addition to these cartel cases, several industry inquiries were carried out or are still continuing. All of these relate to industries that are under intense public scrutiny in view of the current debate over inflation and recession.

Fuel prices

The FCA recently published a much-anticipated interim report and concluded that the pricing behaviour of the oil companies in Austria raises several questions. The inquiry alleged that all oil companies simultaneously raise petrol and fuel prices on the day that there is a substantial increase in crude oil prices, whereas passing on crude oil price drops takes several days (and is then carried out jointly by the oil undertakings). This raises several concerns as to the compliance of these practices with the cartel prohibition and questions in relation to the claims by oil undertakings that all price moves only reflect price moves of crude oil. In reaction to the interim report, the FCA has now received a statement from the oil undertakings, as well as an expert opinion. The FCA is understood to be releasing a statement in due course.

Food retail

This inquiry continued for years and was only finalised last year. The FCA found that smaller retailers may suffer a (further) loss in competitiveness in relation to their suppliers and that market entries are hampered because of buyer power. The main reason why the industry inquiry took so long was the reluctance of market participants to comply with the FCA's requests for information. As a result, one company was fined €120,000.

Energy

This is under constant scrutiny by the competition authorities. Recently, rumours were spread that energy companies coordinated market conduct in relation to residential and commercial customers. Reports are expected next year. This follows industry inquiries into the supply of gas in 2006 and electricity in 2005, both of which identified several competition concerns.

Abuse of market dominance

The Cartel Act mirrors Article 82 of the EC Treaty in that undertakings are dominant if they can act on the market largely independently of other market participants. However, the Austrian Cartel Act contains very broad (refutable) presumptions of market dominance if certain market share thresholds are met. An undertaking is deemed to be market dominant if

  • its market share exceeds 30%;
  • its market share exceeds 5% and it is exposed to competition of no more than two competitors on the market; or
  • its market share exceeds 5% and it is one of the four largest undertakings in the relevant market, which together account for a market share exceeding 80%.

As at the EC level, the Cartel Act contains a non-exhaustive list of impermissible exclusionary and exploitative practices. However, in addition to the examples corresponding to Article 82 of the EC Treaty, the Cartel Act provides for a rebuttable legal presumption with regard to predatory pricing: it assumes that an abuse has occurred if undertakings sell their goods below cost price without factual justification.

An abuse of market dominance may entail fines of up to 10% of the infringing undertaking's worldwide turnover.

One of the few cases before the Austrian Cartel Court relating to the abuse of market dominance was brought to an end in April 2008 when OMV AG, the biggest Austrian oil and gas company, agreed with the Cartel Court several commitments aimed at enhancing competition in the market for jet fuel provision at Vienna Airport. The proceedings were instigated following a complaint by Austrian Airlines over OMV's prices for jet fuel. OMV is the owner of the only refinery near Vienna Airport. In addition, the discharging and storing facilities for the only available alternative supply chain for jet fuel (that is, supply by train) are embedded into OMV's refinery. Finally, OMV also jointly controls FSH, the owner of hydrant installations under the airfield, enabling OMV to closely monitor the supply of jet fuel to other oil undertakings operating at Vienna Airport. OMV undertook to resign from the management of FSH, open the discharging facility for other oil undertakings under transparent and foreseeable terms and implement Chinese walls within OMV between its logistics and jet fuel supply divisions. These commitments assured the FCA that effective competition would be restored in the market for jet fuel supply and the proceedings before the Cartel Court were consequently terminated.

Another proceeding related to Paylife (formerly Europay), a subsidiary of Austrian banks and a large Austrian provider of payment cards and payment systems. It was found that a provision in the payment card contract between Europay and the Austrian banks was anti-competitive. According to this provision, the envisaged acquisition of a stake in one of Europay's competitors by a bank required prior approval by Europay. In addition, the interchange fees charged by Europay were deemed to be excessive and thus an abuse of its market-dominant position. Consequently, the Cartel Court imposed a fine of €5 million on Europay. The appeal by Europay to the Supreme Cartel Court was dismissed, whereas the appeal lodged by the Federal Cartel Prosecutor led to the fine being increased to €7 million.

Mergers

The Austrian Cartel Act provides for a mandatory notification system for mergers, if certain conditions are fulfilled. In addition to the acquisition of control, the merger between previously independent undertakings and the formation of a full-function joint venture, the Cartel Act also includes as a concentration:

  • the acquisition of 50% (or more) of the shares in another undertaking (irrespective of whether the transaction confers control upon the acquirer); and
  • the creation of interlocking directorships between formerly independent undertakings.

A concentration within the meaning of the Cartel Act is also being established by the conclusion of contractual obligations by banks within the meaning of Section 30 of the Banking Act.

A concentration has to be reported to the FCA if the following accumulative thresholds are fulfilled:

  • the combined worldwide turnover of all undertakings concerned exceeds €300 million; or
  • the combined Austrian turnover of all undertakings concerned exceeds €30 million; and
  • the individual worldwide turnover of each of at least two of the undertakings concerned exceeds €5 million.

For media undertakings and media support undertakings, turnover figures are multiplied for the purpose of assessing a filing obligation.

For the calculation of the turnover, all undertakings that are linked by at least a 25% share of the undertakings concerned have to be included with 100% of their turnover in the calculation (except for the seller).

However, according to the exemption in Section 9 of the Cartel Act, there is no obligation to notify, if (notwithstanding the above thresholds):

  • the Austrian turnover of only one of the undertakings concerned exceeds €5 million; and
  • the combined worldwide turnover of all other undertakings concerned does not exceed €30 million.

Furthermore, a transaction does not require notification if it has no domestic effect: that is, if the target is not generally active in Austria (or a larger market that Austria is a part of) and the transaction is also not apt to enhance the acquirer's market position in Austria (or a larger market that Austria is a part of). So far, the Cartel Court has been reluctant to deny an obligation to notify by applying the effects doctrine. However, with regard to the acquisition of a Czech and a Slovakian savings bank with purely local businesses by the Austrian Erste Bank, the Cartel Court of Appeal overturned the decision of the Cartel Court, ruling that a strengthening of resources alone, such as an increase of the financial power of Erste Bank in Austria, would not suffice to establish an effect on the Austrian market if the target undertaking is active in a different limited geographic market (not including Austria) and has no turnover in Austria.

Another exemption from a filing obligation concerns financial institutions: the Competition Act provides for important exemptions that follow the European Merger Control Regulation and therefore excludes (under certain circumstances) the acquisition of interest in an undertaking by a bank for the sole purpose of reselling such undertaking, restructuring the undertaking the interest is acquired in or serving as a guarantee for a claim against the respective undertaking or managing and commercialising the interest acquired (investment fund or financing of capital business).

There is no deadline for reporting a merger, but implementation before obtaining formal clearance is impermissible. Phase I lasts a maximum of four weeks from notification. Earlier clearance can be obtained under certain circumstances by requesting a waiver from the Official Parties from their right to apply to the Cartel Court for a Phase II examination (see the respective FCA guidelines on their website). Phase II must be completed within five months after the Official Parties have requested an examination by the Cartel Court.

For an infringement of the prohibition of implementation before clearance, the same fine of up to 10% of the implicated undertaking's worldwide turnover may be imposed. According to the leniency handbook, the FCA may also in these cases refrain from applying a fine under certain circumstances. We are not aware, from public sources, of a case where such immunity from fines has been granted.

As of July, two concentrations have been cleared in 2008 subject to conditions. One related to the acquisition of Tele2 Austria's mobile phone business by the incumbent Telekom Austria. The other concentration that was conditionally cleared involved the acquisition of Splash Line, a Vienna-based travel agency, by tourism and services group TUI/First Choice. In order to alleviate the FCA's concerns, TUI/First Choice accepted commitments to prevent coordination between Splash Line and its biggest competitor.

Within the banking industry, arguably the most significant national transaction of the last few years was the merger of Erste Bank with 34 savings banks in relation to a cross-guarantee scheme. The scheme, among other things, foresaw economic influence over the savings banks participating in it. Thus every accession by a savings bank amounted to a merger under the Cartel Act. All 34 accessions were cleared in Phase II after the FCA found that the transactions would not result in the creation or strengthening of a market-dominant position.

Foreseeable developments

A draft law aiming at the reorganisation of the Austrian competition authorities is under consultation. The draft law will, among other things, establish the FCA as a decision-making body and abolish the FCP as the second Official Party.

Author biographies

Stefanie Stegbauer

Schoenherr

Stefanie Stegbauer is an associate with Schoenherr in Vienna, where she focuses on Austrian and European competition law. Her main areas of practice are merger control and antitrust proceedings, both before Austrian competition authorities and the European Commission, as well as the implementation of antitrust compliance programmes. Stefanie advises national and international clients in a wide range of industries, including undertakings active in the banking industry. Before joining Schoenherr, she practised competition law with another leading Austrian law firm after graduating from law school in 2004. She is the author of numerous articles on Austrian and European competition and regulatory law.

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.