Change brings credibility for competition authority

Author: | Published: 1 Sep 2005
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The past two years have brought changes in the content and enforcement of Portuguese competition law.

A new independent Competition Authority, which took over the powers formerly entrusted to the Directorate-General for Trade and Competition (Direcção-Geral do Comércio e da Concorência) and the Competition Council (Conselho da Concorrência), was created by Decree-Law 10/2003 of January 18 and a new Competition Act was adopted (Law 18/2003 of June 11).

The new Competition Authority is an independent and financially autonomous entity. Contrary to the previous situation, in which the enforcement powers of the competition agencies were limited in certain sectors (for example, banking and insurance were not subject to merger control), the new Competition Authority has the power to apply any competition rules, in all economic sectors, within the limits of the Constitution, the law, and the competition policy principles approved by the government.

It may act upon its own motion or upon complaint by any interested party. If the case under appraisal relates to a sector subject to specific regulation, the Competition Authority will liaise with the relevant regulatory authorities (for example, the Bank of Portugal or the Securities Market Commission).

Anti-competitive practices

Since its inception, the Competition Authority has been active against anti-competitive practices. Portuguese competition law makes it clear that the term prohibited practices only refers to agreements and practices that appreciably restrict competition. Such prohibited practices classically comprise direct or indirect fixation of prices or of other transaction conditions; limitation or control of production, distribution, technical development or investments; sharing of markets or sources of supply; discriminatory prices or other conditions to equivalent transactions.

Decree-Law 370/93, on individual practices restricting trade, prohibits certain practices that are considered to prevent fair competition between companies, even though they do not affect competition on the market. These practices are: application of discriminatory prices or conditions of sale; sale below cost; refusal to sell goods or services; and abusive business practices.

The new Act also expressly determines that EC block exemptions may be applied to agreements and practices falling outside the scope of EC law (that is, not affecting trade between member states).

Prior notification

Companies suspecting that some of their agreements, decisions or concerted practices might be anti-competitive are able, under Portuguese law – contrary to the system under EC Regulation 1/2003 that does not allow prior notification – to notify such agreements, decisions or practices to the Competition Authority to obtain certainty as to their legality. A new Regulation on prior notification of prohibited practices (Regulation 9/2005) that revokes Ministerial Decree 1097/93 was published on February 3 2005. It allows undertakings or associations of undertakings to obtain confirmation that: (i) the practice falls outside the scope of the prohibition or that; (ii) although falling within its scope, it is exempted as justified by certain efficiencies. The Competition Authority's assessment is strictly limited to agreements of national/domestic effect (that is, those not covered by Article 81 of the EC Treaty).

Few prior notifications of agreements have been filed with the Competition Authority in the past two years. Prior notification by Banco Comercial Português, of an agreement for the management of financial assets with Eureko BV and F&C Group (Holdings) Limited, was filed under the previous Ministerial Decree 1097/93. So far, no prior notification has been made on the basis of the new Regulation. The expensive filing fees for assessment (between €7,500 and €25,000), the workload implied by the details requested in the filing forms, and the fact that the Competition Authority is not bound to issue a decision within a set timetable, might have a deterrent effect on companies wishing to obtain certainty as to the legality of their agreements in Portugal.

The fight against cartels

The Competition Authority has received, in the first year of its activities, around 100 complaints about potential anti-competitive practices. Forty-three proceedings were instructed in the past two years.

The fight against cartels has been considered a priority by the Portuguese Competition Authority, which is said to be dealing with 40 potential cartels. The cement and concrete market, the construction market and the market for public works are under particular scrutiny. The next step to be taken in the fight against cartels will be the adoption of a statute on leniency for companies who report cartels to which they have been part. At the time of writing, a draft statute is about to be put forward to the government.

In January 2005, the Competition Authority imposed heavy fines (€644,000 each, with a total amount of €3.22 million) to five pharmaceutical companies allegedly involved in a cartel within the context of a public bid for the supply of products for diagnosis and control of diabetes. An appeal has been lodged against that decision before the Lisbon Commercial Court.

The recent decision of the Competition Authority fining the Ordem dos Médicos Veterinários (the association regulating the veterinary profession in Portugal) is the first time since EC Regulation 1/2003 entered into force that the Competition Authority has applied Article 81(1) of the EC Treaty. In that decision, the Authority considered that, because both national and foreign veterinaries were under the obligation to follow the prices indicated by the association, trade between member states was affected and competition restricted. It fined the Association €75,935 for fixing minimum prices for veterinary services.

The Competition Authority considers the question of investigating restrictive practices crucial. It has been much discussed in particular further to the dawn raid organized at Portugal Telecom in 2004 (the company filed an appeal against the Competition Authority's action and obtained the Authority's condemnation to return some of the apprehended documents). The Consultative Committee of the Procuradoria-Geral da República (Public Attorney's Office) recently issued an opinion concluding that the apprehension, examination and copy by the Competition Authority's agents of e-mails already opened and archived did not constitute a violation of Article 194 (2) of the Penal Code (violation of correspondence or telecommunications).

Abuse of dominance

Regarding abuse of dominance, the presumptions of dominance based on market share have been abandoned. According to the new statute, a dominant undertaking is one that does not face significant competition or enjoys supremacy vis-à-vis competitors on a particular market or a substantial part of it.

The new statute provides examples of practices that may constitute an abuse of dominant position that are not expressly referred to in Article 82 of the EC Treaty. Any behaviour that would be unlawful under the provisions relating to anti-competitive agreements would be considered abusive if adopted by a dominant undertaking. The Act expressly includes the denial of access to essential facilities.

The rules on abuse of economic dependence have been modified to cover only cases where such abuses have an impact on the structure of competition.

The new law provides examples of abuses of this kind: again, any behaviour that would be unlawful under the provisions relating to anti-competitive agreements will be considered abusive. Furthermore, the Act expressly prohibits the unjustified total or partial termination of an established commercial relationship.

The new Competition Act subjects public undertakings, undertakings enjoying exclusive or special rights and undertakings entrusted with the provision of services of general economic interest to a regime similar to that of Article 86 of the EC Treaty. As under EC law, application of national competition rules to such undertakings will only be possible if it does not constitute an obstacle to the fulfilment, in law or in fact, of the specific mission with which they have been entrusted.

Concentrations

The regime of control of concentrations has been amended. First, it now applies to the banking and insurance sectors. The rules on calculation of turnover of undertakings operating in these sectors follow closely the ones in the EC Merger Regulation.

Second, a turnover threshold for the target of €2 million in Portugal has been created so that transactions with little or no impact on the structure of the market cease to be caught by the merger control provisions.

Third, undertakings now enjoy one week after execution to notify the deal, but cannot, unless duly authorized, close the transaction before clearance is given. A waiver of the standstill obligation may be granted where the negative consequences of the suspension of the operation or of the exercise of the voting rights exceed the negative effects of the waiver to competition.

The creation or reinforcement of a dominant position restricting competition remains the substantive test for determination of the compatibility of a given concentration with competition. In making its assessment, the Competition Authority will consider a series of factors, in particular the structure of the relevant market, the position of the participating undertakings in the market, potential competition and barriers to entry, distribution networks and access to essential facilities.

So far, the Competition Authority has analysed 83 concentrations. In 2004 it reviewed 46: 39 of these were approved without conditions and 7 were not opposed after specific measures had been implemented. The Competition Authority analyses around five concentrations each month.

Two concentrations are worth mentioning due to the fact that in both cases a second phase or in-depth investigation has been ordered: (i) within the market of the daily written press (generalist and sports), the acquisition of Lusomondo (part of the Portugal Telecom Group) by Controlinveste through the purchase of all the shares previously owned by PT Multimédia – Serviços de Telecomunicações e Multimédia SGPS SA; and (ii) the acquisition by GALP of some of Esso Portuguesa's petrol stations.

Fines are now determined, as under EC law, with reference to the turnover of the infringing undertaking. This should have a greater deterrent effect than the penalties provided by the previous regime. In the case of the most serious breaches, fines imposed may amount to 10% of the global group turnover.

The Authority's recommendations

The Competition Authority has also conducted various studies (relating to the energy, telecommunications, distribution and media sectors) and issued recommendations to the government, some of which have been turned into legislation. For example, further to a recommendation from the Authority of November 2004 that said the prohibition of petrol stations next to hypermarkets and supermarkets was a restriction on competition, the Portuguese government amended the regulation relating to the construction and operation of petrol stations to allow them to be installed in such places.

In July 2005, the Competition Authority issued, on the basis of the Report by the European Commission named "European Electronic Communications Regulation and Market 2004," a recommendation on the "form and place of indication of prices for the terrestrial mobile service" that proposed measures to facilitate the choice of the best tariff for mobile telecommunications. In practice, such measures would permit the consumer, through simulators on the sites of each operator, to calculate their monthly expenses, to compare the tariffs between different operators and/or other advantageous or penalizing conditions. In Portugal, contrary to most EU member states, the price of mobile communications increased between 2003 and 2004.

Raising awareness

Lastly, the Competition Authority has attempted to raise the public's awareness as to the benefits of free and fair competition and its efforts in developing contacts with professional bodies should be praised.

A conference for magistrates of the Public Ministry co-organized with the Procuradoria-Geral da República (Public Attorney's Office) held at the beginning of June 2005 and the First Forum of Competition Lawyers to be held on 19 September 2005 are worth mentioning. On 3 and 4 November, the Competition Authority will also host the Lisbon Conference on Competition Law and Economics, which well-known competition professionals will attend (Neelie Kroes will give the opening address to the Conference).

The Portuguese Competition Authority, which has recently been awarded three stars by the specialist international publication Global Competition Review in the worldwide ranking of competition law regulators, has increased its efficiency in the enforcement of competition law, thereby gaining credibility (although controversial) in the public opinion and among competition law practitioners.

Author biographies

José Luís da Cruz Vilaça

PLMJ

José Luís da Cruz Vilaça is head of the EU and competition department.

He is a graduate of the University of Coimbra Law School (1966) and was admitted to the Portuguese Bar Association in 1969. He also holds a postgraduate degree in political-economic sciences (1968) and a doctorate in international economics from the University of Paris I (1978).

Among his many academic posts, José Luís da Cruz Vilaça was head professor at University of Coimbra Law School (political economics and financial economics) from 1972 to 1985 and was a professor at the Centre for European Studies at the Law School (external economic relations of the EEC) from 1983 to 1985. He was also professor of international economics and international economic organizations and director of the Institute of Economic Studies at the Lusíada University Lisbon Law School from 1988 to 2000.

José Luís da Cruz Vilaça was a member of parliament from 1980 to 1986, in which time he acted as Secretary of State of Internal Affairs (1980); Secretary of State of the Prime Minister's Office (1981); and Secretary of State for European Integration (1981 to 1982).

He was advocate general at the Court of Justice of the European Communities (1986 to1988); president of the Court of First Instance of the European Communities (1989 to 1995); general secretary of the Portuguese Association of European Law (APDE) (1998); is chairman of the Disciplinary Board of the European Commission; and was resident of the Commission for the Revision of Legislation on Competition.

He is a member of the Academy of European Law – European University Institute of Florence (advisory board); Europaische Rechtsakademie, University of Trier (advisory board); European Air Law Association (directive committee); Foundation for European Studies, Maastricht (guidance committee); Academic Committee of the Máster en Estudios de la Unión Europea – University of Corunha; Portuguese Association of European Law (secretary general, since 1998); and the Permanent Delegation of the CCBE (Council of the Bars and Law Societies of the European Union) to the Court of Justice and the Court of First Instance of the EC and the EFTA.

He speaks Portuguese, English, French, Spanish, and Italian.

Dorothée Choussy Serzedelo

PLMJ

Dorothée Choussy's main practice areas are EC and competition, and intellectual property law.

She graduated from Rennes University in 1995 and was admitted to the Paris Bar Association in 1997; the England and Wales Bar Association in 2002; and the Portuguese Bar Association in 2003. She also holds a masters in competition law from the University of Paris (1996) and a masters in intellectual property law from the University of London (1999).

She speaks Portuguese, French, and English.