Portugal: Calling for change

Author: | Published: 1 Oct 2010
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More than seven years after the entry into force of the current Portuguese Competition Act (Law 18/2003 of June 11 2003) the players in the economical and competition environment have decided that it is time to take stock on its application. Through this article, and after a brief description of the present legal framework on antitrust and competition law in Portugal, we propose to identify the insufficiencies of the same and summarize the proposals for an eventual new regime of competition in Portugal.

The present framework

The legal regime for competition in Portugal laid down in the following legislation:

Law 18/2003 of June 11 2003, the so called Lei da Concorrência (Competition Law) replaced Decree-Law 371/93 of October 20, which in turn had already replaced Decree-Law 422/83 of December 3 which had anticipated the accession of Portugal to the European Economical Community (ECC).

Law 18/2003 is the main Portuguese legal text on competition. It has been modified twice: first in November 2006 by the Decree-Law 219/2006; secondly on January 2008 by Decree-Law 18/2008.

Just shortly before the enactment of Law 18/2003, Decree-Law 10/2003 of January 18 2003 had created a Portuguese independent authority in charge of competition matters, ie the Autoridade da Concorrência (AdC), making public its Articles of Incorporation.

Moreover, completing this framework, two other diplomas have been adopted regarding Leniency: Law 39/2006 dated August 25 2006 and Regulation 214/2006 dated November 22 2006. Both establish and regulate the legal regime of the exemption and special reduction of the fine in cases of misdemeanor for infringement of national competition rules.

New competition regime?

Although we cannot deny that the key objective of the current legal framework for competition has been achieved regarding the defense and enhancement of competition in Portugal, it is also true that on account of the evolution of European and Portuguese case law as well as the development of best practices for the protection and the enhancement of competition, it has become necessary to readapt and improve the structural as well as the substantive and procedural aspects of the Portuguese legal framework for competition.

Accordingly, Portuguese competition law specialists, together with members of the Board of the AdC, launched a reflection and disclosed their analysis regarding what could be a new legal framework for competition.

In this article, we propose to compile and organise new ideas concerning a possible new legal framework for competition in Portugal through five main topics, as follows:

  • General Aspects: new structure of the eventual new diploma.
  • Regime of Merger Control
  • Sanctioning powers within the procedures of « Restrictive Practices »
  • Offenses and penalties
  • Judicial Appeals/Reviews

General aspects

Regarding its current structure, the Lei da Concorrência (Law 18/2003) separates the substantive issues from the procedural rules into two main blocks:

  • one chapter dedicated to the rules of competition including the definitions/concepts, criteria of determination and respective operation rules of (i) restrictive practices to competition (for example concerted practices with the purpose of preventing, distorting and restricting competition, abuse of dominant position, etc.) and (ii) control on Companies' merger, and
  • another chapter dedicated to regulatory standards applied by the AdC, according to its sanction, supervision and regulation powers. Such a chapter mixes procedural rules applying both to substantive definitions/concepts ((i) and (ii)) referred above.

Furthermore, each block treats simultaneously all areas of intervention of the AdC, namely the ones regarding the restrictive practices of competition and the others related to merger control.

The present structure of the Lei da Concorrência (Law 18/2003) as described above creates confusion and difficulties of interpretation as well as complexity in handling the referred law even for practitioners of the Competition rules. Therefore, several litigation cases have been initiated just for clarification purposes owing to difficulties in interpreting the law. These types of situation burden the courts unnecessarily.

Consequently, it has been suggested that the framework would be more efficient and clear if the three main powers of the AdC – ie sanction, supervision and regulation powers – were clearly separated into three separate chapters. Each chapter would contain the substantive notion of competition infringements (which correspond to one specific power of the AdC) and the procedural rules that apply to the correspondent substantive infringement. For example, in a case where someone is involved in a merger control procedure, the same person would only have to refer to a specific chapter of the competition law regarding one of the powers of the AdC, ie its supervision power as it is the one that applies in case of the merger control.

Another issue is the fact that in relation to some legal provisions – mainly regarding procedural rules- that apply to competition cases, the Lei da Concorrência makes reference to other laws such as: the Decree-Law 10/2003 regarding the articles of incorporation of the AdC (Estatutos da AdC), competition rules on leniency (Decree-Law 10/2003 and Law 39/2006 above) and specific procedural rules inserted in other Portuguese codes such as the Criminal Code and the Criminal Procedure Code.

Once again, this situation complicates the interpretation of the referred law and some lawsuits, filed for the sole purpose of clarification, could be avoided.

Ideally therefore, the new legal framework for competition should be structured with more systematic coherence, taking into consideration a global planning that, starting from the nucleus that corresponds to the discipline of the Law 18/2003, also covers and projects the changes and specifications coming from (i) the articles of incorporation of the AdC, (ii) the system of exemption or special reduction of the fines that would apply for the breach of the competition rules – leniency (Decree-Law 10/2003 and Law 39/2006 above referred), as well as from (iii) those rules inserted in other Portuguese codes such as the Criminal Code and the Criminal Procedure Code, as referred to above.

In order to complete and reinforce our comments and suggestions above, we summarise the comments of the President of the Portuguese Competition Authority (AdC) below, that were disclosed during the first Portuguese and Spanish conference on competition dated on July 2 2010 regarding the new global organisation of the new legal framework for competition in Portugal:

Create a clear separation between the several areas of intervention of the AdC with separate chapters according to sanctioning powers, supervision and regulation powers of the referred authority and in each chapter, all applicable rules, substantive and procedural ones;

Reformulate the substantive chapters devoted to (i) Offences and penalties, and to (ii) judicial Review;

Better harmonise the provisions of the law with the principles of the European Union, particularly regarding the prohibited practices of competition and merger control; and

Insert and adapt some subsidiary rules in order to make the new legal framework for competition clearer, more autonomous and more intelligible.

Merger control regime

Criteria of the market share

As a reminder: (1) the market share, (2) the amount of the overall turnover of all companies involved in the merger and (3) the turnover of each company involved in the merger, are the criteria that determine whether or not of a merger operation is subject to the control of the Competition Authority (currently these are the criteria that oblige the prior notification of a merger to the AdC as per article 9, n.1 of Law 18/2003).

Within the scope of merger control, the law cannot pretend to cover every latest change that occurred in the market. Even if, ideally, every merger operation should be controlled, the truth is that the major part of such operations does not represent any problem from a competition point of view. Thus, to be focused only on merger operations that might have negative impacts on competition is essential.

Accordingly, and with the aim of reducing administrative procedures of control by the AdC of merger operations, a frequent suggestion for the new legal framework for competition is to eliminate the criteria of a market share. Moreover, such change would harmonise the Portuguese criteria with the European criteria that oblige the prior notification of merger's operations to the European Commission.

The AdC agrees with this change and also recommends that the amount of the individual turnover of each company involved in the merger should be increased (such amount is at the present moment fixed at €2 millions according to law 18/2003).

These proposed changes are based on the following observations: (i) the statistical analysis of merger operations that were subject to previous decisions of the Competition Authority; (ii) the concern to better focus the available resources in the evaluation of mergers that may raise anti-competitive issues and (iii) the developments occurred in most EU countries.

The dominance test

Additionally and still within the scope of the merger control, another significant change would be the replacement of the current dominance test by the test of the significant obstruction to effective competition.

At the moment, according to article 12 of Law 18/2003, a merger will not be authorised by the AdC in case such operation creates or reinforces an (individual) dominant position within a relevant market. To take its decision, the AdC submits the operations subject to its control to the dominance test which is constituted by several criteria arisen from the former practice of the European case law, such as the market share after the merger, the level of the market concentration measured by the Herfindahl-Hirschman Index, etc.

Such a dominance test does not entail the pursuit by the AdC with a view to condemning the abuse of collective dominant positions.

Since 2003 the concept of collective dominant position (ie practices created by the market operators to avoid the controls and condemnations of the European Commission) became stronger in the European case law, with the consequent disappearance of the dominance test. In fact, the dominance test has been progressively substituted by the test of the significant obstruction to effective competition, which allows coverage of more cases that could not be prohibited by the European Commission even if they constituted significant barriers to a healthy competition, such as abuses of collective position.

This progressive change has been formally transcribed in article 2 of the Regulation 139/2004 promulgated by the European Commission on January 20 2004.

The dominance test is still used in Portugal as a result of the application of article 12 of the Law 18/2003, but is becoming obsolete, as it only allows the AdC to control the creation or reinforcement of an individual dominant position. Therefore the suggested change of the dominance test for the test of the significant obstruction to effective competition test would allow the AdC to go after and convict more cases of prohibited mergers, mainly regarding the new figure of non-collusive oligopolies (ie non official but similar and simultaneous behavior undertaken by different market operators which constitute cases where the operation does not create a dominant position, but creates harmful effects on competition).

This amendment would also allow the harmonization with the test now used in notifications submitted to the European Commission, as referred above, and in most EU countries. It would also respond more effectively in cases where a concentration/merger does not directly create a dominant position, but causes adverse effect to competition.

Finally and still regarding merger control, it has been suggested that the establishment of commitments as a condition of non opposition to a merger should be subject to a particular/proper legal regime, with the purpose of clarifying the rights and duties of the notifying party as well as the procedural aspects related to the proposal of commitments and their evaluation by the AdC.

Sanctioning powers

As regards the sanctioning powers in respect of restrictive practices competition, five possible changes may be identified:

1) A substantive change in order to clarify and harmonise the Portuguese concept of abuse of dominant position with the rules under the Treaty on the Functioning of the European Union (TFEU).

2) Changes on the procedural plan, such as:

  • Rules that clarify the way that the AdC exercises its powers,
  • Rules that define the rights and duties of the defendant in the procedures of restrictive practices, currently settled/resolved through the application of subsidiary legislation, such as provisions of the Criminal Procedure Code, and
  • Rules to improve the treatment of the procedures that come under the control of the AdC, with more efficiency regarding the performance of the AdC, resulting in a decrease in litigation.

3) A provision which contemplates the possibility of closing the procedure of offence (contra-ordenação) through the establishment of conditions, ie through the acceptance of the commitments proposed by the defendant that may eliminate the harmful effects on competition arising from the practice under investigation.

Such a possibility would have the effect of replacing the imposition of a fine, (which is usually followed by a long period of litigation), by an immediate decision, without subsequent litigation proceedings.

4) Creation of the possibility of closing the investigation of a misdemeanor (processo de contra-ordenação) when it results in a declaration of anti-competitive practice, by enunciating structural measures, when other behavioral measures are ineffective in solving the competition issue in cause.

5) Possibility of opting for a more complete regime applicable to proceedings relating to restrictive practices of competition – both in terms of access to proceedings documentation by third parties with a legitimate interest therein, and in terms of regulation of access to the proceedings documentation by the defendant.

Such suggestions of change in the new legal framework for competition come from the difficulties and uncertainties resulting from the current application of the provisions of the Criminal Code, Criminal Procedure Code as well as of the Law on Access to Administrative Documents, as laws subsidiarily applicable to Competition Proceedings.

Offenses and penalties

Regarding offences and penalties, a specific chapter should be dedicated to such issues. The changes would establish a more transparent system and more objectivity regarding the quantification of the fine, namely through a better standardization of the behaviour that constitute offenses and of the criteria for determining the concrete extent of the fines.

Regarding the standardisation of the offenses, shortcomings of the current legislation must be overcome and adapted in the new legal framework for competition.

For example, the current Lei da Concorrência (Law 18/2003) does not determine the infringement of articles 101 and 102 of the TFEU as an offense. Considering that EC Regulation 1/2003 of December 16 2002, directly applicable into the national legislation of the Member States of the European Union, allows the National Competition Authorities to apply the articles 101 and 102 of the TFEU to individual proceedings, referring to national laws to punish such offenses, it will be required to insert the breach of articles 101 and 102 of the TFEU in the index/list of the offenses.

As regards the determination of the fine, it would be useful to specify the criteria that the Competition Authority may take into consideration when determining the fine.

Another suggestion is to think about a solution when the defendant waives the exercise of right of appeal after the notification of the statement of illicit behaviour (nota de ilicitude).

The list of criteria to be taken into consideration for the amount of the fines would be essentially composed by: a) the severity and the duration of the infringement; b) the economical situation of the defendant and c) the existence of previous offenses regarding infringement of competition rules.

The last two criteria illustrate the way that a new legal framework on competition may waive the need of the subsidiary application of other legal provisions/frameworks.

A way to innovate on issues concerning fines when the defendant expressly acknowledges the charges that are made against him in the statement of illicit behaviour (nota de ilicitude) ie the defendant waives the right to appeal against the decision of the AdC would be the possibility of reducing the maximum fine. It could be considered as a way to introduce an additional incentive to reduce the number of litigation cases in the system.

Judicial review

Finally, in terms of judicial review, and taking as a basis once again, the words of the President of the AdC during the 1st Portuguese and Spanish Conference on Competition dated on July 2 2010, there are two types of change that should be analysed, both in order to introduce additional elements of consideration in appeal decisions and consequently to help to reduce the level of litigation in the system.

The changes under discussion are as follows:

The court, when considering the appeals against the decisions of the AdC, should be able to increase the fine applied by the AdC, and not just maintain or reduce it, as presently happens according to the current legal framework.

The payment of interest at the legal rate by the defendant should also be established in case the same defendant starts an appeal against a decision of the AdC, and such decision is totally or partially confirmed by the court.

No doubt that Portuguese Institutions like the Autoridade da Concorrência, lawyers and economical players of the market are more and more interested in antitrust and competition law. What was a theoretical European matter far from Portuguese concern, is now becoming a source of concrete interest, resulting in a need for evolution and of adaptation of the current legal framework.

A new legal framework for competition will certainly emerge in the next few years: ultimately, the competition authorities and competition lawyers share the common goal of helping to create greater predictability and legal certainty in all matters related to competition rules, with the purpose of generating the lowest level of litigation.

About the author

Mathilde Sucena Argentier has been a senior associate at Gouveia Pereira Costa Freitas & Associados since January 2009.

Ms Argentier has a law degree fromthe University of Paris X Nanterre, 1999. She became a member of the Paris Bar Association (Ordre des Avocats de Paris) in 2005 and registered with the Portuguese Bar Association (Ordem dos Advogados Portugueses) in 2009. Her other qualifications include a postgraduate degree in International and European Commercial Law, from the University of Toulouse UT1, in 2000.

From 2006 until 2009, Ms Argentier has been an associate at the law firm Avodire in Paris (France) and completed her French Bar internship in the law firm Landwell & Associés in Paris (2005). She was  also a legal advisor at the law firm Armstrong La Banca & Associados in Rio de Janeiro (Brasil) between 2000 and 2002.

Acting mainly in corporate and competition law, Ms Argentier has published  articles on corporate and competition domains in specialist newspapers with national coverage in Portugal and in France concerning the commercial relationship between the two countries.

Contact information

Mathilde Sucena Argentier
GPA LAW Firm (Gouveia Pereira Costa Freitas & Associados)

Palácio Sottomayor
Rua Sousa Martins, 1-6º Dto
1050-217 Lisbon
Portugal

Tel: +351 21 312 1550
Fax: 351 21 312 1551
Email:gpa@gpasa.pt
Web:www.gpasa.pt

About the author

Margarida Lino Santos has a law degree from the Faculdade de Direito da Universidade Lusíada de Lisboa, 1995. She has been a member of the Portuguese Bar Association (Ordem dos Advogados Portugueses) since 1997.

She has a post-graduate degree in Corporate Law from the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, 2001 and in Securities Law from the Instituto de Valores Mobiliários da Faculdade de Direito da Universidade de Lisboa, 2002. She completed a course in Financial and Economic Criminality and Cybercrime by the Portuguese Bar Association (Ordem dos Advogados Portugueses), 2002.

Ms Santos has specialised in civil Law, corporate law and labour Law, from 1995 to 2000.

She practised in the correspondent Portuguese law firm of Landwell (correspondent law firm of PwC), from 2000 to 2005.

She has been a founding Partner of the law firm Gouveia Pereira & Associados, Sociedade de Advogados, R.L.  since 2005.

Contact information

Margarida Lino Santos
(GPA LAW Firm) Gouveia Pereira Costa Freitas & Associados

Palácio Sottomayor
Rua Sousa Martins, 1-6º Dto
1050-217 Lisbon
Portugal

Tel: +351 21 312 1550
Fax: 351 21 312 1551
Email:gpa@gpasa.pt
Web:www.gpasa.pt