Competition Newsletter - April 2021

Dentons

This month we invite you to Poland, where the competition authority has announced a definite tightening of its fines, a tightening that should particularly affect the Polish subsidiaries of foreign groups.

Upcoming amendments to Polish competition law and new guidelines increase the antitrust risk for companies and trade associations

Poland is currently implementing the ECN+ Directive, which is set to harmonize the powers of the national competition authorities in the EU. As the deadline to implement has already passed, the amendment should be adopted soon. The legislation will greatly boost the fining powers of Poland’s competition authority (“UOKiK”). Meanwhile, UOKiK also adopted new fining guidelines, which expand its fining potential even further.

Multinationals pay more

Under EU law, a parent company’s liability for an antitrust violation committed by its subsidiary is not a new concept. In Poland, however, this is big news. Currently, UOKiK can only fine the company directly involved in an antitrust infringement. After the amendment, parent companies will be liable for infringements of their subsidiaries if they had “decisive influence” over them. “Decisive influence” exists if the subsidiary “generally follows” its parent’s instructions, which will be presumed if the parent controls “all or almost all” shares in the subsidiary. Importantly, the notion of decisive influence does not require the parent to be involved in the wrongdoing. 

The key implication is that UOKiK will account for the corporate group’s turnover when calculating fines. Thus the maximum fine will now be 10% of the group’s annual turnover instead of 10% of the Polish subsidiary’s turnover. For multinational groups this will be a game-changer.

And trade associations pay more

Another big change concerns the liability of trade associations and their members. Today, a fine imposed on a trade association cannot exceed 10% of that association’s annual turnover. After the amendment, the ceiling will be 10% of the sum of annual turnovers of the trade association’s members active in the market concerned. What is more, if the trade association cannot pay, members who had their representatives in the association bodies can be required to pay in its stead. 

Everyone pays more!

To add insult to injury, UOKiK recently also updated its fining guidelines, increasing its fining potential even further.

Firstly, UOKiK extended the “very serious infringements” category. The base fine of 1%-3% of a company’s annual turnover will now apply to all anticompetitive agreements between competitors, and not only the most serious ones.

Secondly, UOKiK changed the way it accounts for the duration of the infringement. It will now multiply the base fine by the number of years the infringement lasted, and it will do so irrespective of whether the infringement’s duration impacted its negative effects. Therefore, the role of an infringement’s duration in calculating the fine will increase dramatically. For example, in its latest RPM case UOKiK increased the base fine by 160% because the practice lasted 8 years. Under the new guidelines, that base fine would be increased by 800% (subject only to the overall 10% of turnover cap). 

Thirdly, UOKiK will now be able to extraordinarily increase the fine if the one determined under the guidelines would be "too low to meet its objectives". Interestingly, this power is entirely arbitrary and not subject to any ceiling (other than the 10% of turnover cap).

These amendments align the guidelines with previously adopted guidelines concerning fines imposed on managers.

What to do about it?

The key takeaway for companies doing business in Poland, and especially for multinationals, is that their antitrust risk will soon increase significantly. The reasonable response is to make sure that your Polish subsidiaries adopt appropriate antitrust policies and that their people are well-trained and alert to antitrust risks. It would also be worthwhile to update compliance programs, as the changes to the law which we present above are just the tip of the iceberg which is the very extensive amendment currently under discussion.

French Competition Authority imposes highly dissuasive fines in the industrial sandwich sector

On March 24, 2021, the French Competition Authority sanctioned an anti-competitive agreement between three main players in the market of manufacturing and marketing sandwiches sold under retailer’s brand in supermarkets and gas stations.

The case had been referred to the Authority following a leniency application from Rolland Monterrat. Based on the information provided by the company, the Authority carried out dawn raids in the premises of two other parties to the anti-competitive agreement: Snacking Services (Daunat) and La Toque Angevine (LTA). These two companies asked in turn to benefit from leniency by providing additional information to help the Authority identify the practices in which the three players engaged.

The practices sanctioned - and implemented over six years - were intended to define a volume and client-sharing strategy between these companies, as well as to agree on prices and obtain price increases, to put an end to the “price war'’ they were fighting before. In tenders launched by large and medium-sized food stores and gas stations, the companies concerned had developed a strategy to designate in advance the company that would win the bid and would file deliberately unattractive bids, thus distorting the award of the tender. They had also coordinated their bilateral price negotiations with these same players to arrive at a significant price increase during the performance of the contract. Concretely, the three companies had organized secret multilateral meetings and shared information on prices by telephone and emails, before contacting the retailers organizing the invitations for bids.

Rolland Monterrat alone benefited from a total exemption thanks to its position as first leniency applicant. LTA and Daunat were still able to benefit from a partial exemption from their fines from 35% to 30% and were fined respectively €15.5 million and €9 million. The Authority thus confirmed that defensive cartels, even against very powerful mass distributors, are prohibited.

The European Commission has published its guidelines on the criteria of referral to the Commission of certain mergers, even if they are under the national control thresholds

For the record, the Commission recently changed its approach on the referral of Article 22 of the merger control regulation, now encouraging national authorities to refer operations (i) that affect the trade between Member States and (ii) threaten to affect significantly the competition on their national territory, even when they do not exceed the national notification thresholds. This is what allowed the Commission to examine for example the Apple/Shazam operation, even though it was not notifiable according to national thresholds. 

On March 26, the Commission published its guidelines on the implementation of these referrals, specifying that they might be revised based on future developments. This document sets out the criteria that the Commission will use to accept the referral requests made by Member States and gives examples of companies likely to be included. Concretely, are included startups and new entrants with a strong competitive potential that have yet to implement or develop a business model generating significant revenues. Are also included innovative companies as well as those with competitively significant assets (such as raw materials, infrastructures or data) or providing products or services that are key components for other industries. The list and the sectors likely to be included are not exhaustive. 

It should be noted that the referral may concern an operation already implemented (within a maximum period of six months, save exceptional circumstances), even though the Commission states that it will take into account the time elapsed since the closing of the operation to accept or refuse a referral. This could encourage the parties to an operation potentially covered by a referral to consult informally the competent national authorities before the closing to assess the risk of a referral... 

The Member State will send its request within 15 business days following the date on which it becomes aware of the operation and has sufficient information to refer the operation. Other Member States can join the initial request within 15 days following the date on which they are informed thereof. The Commission will then have 10 days to decide whether to examine the operation. 

The French Competition Authority did not wait for the publication of the Commission’s guidelines to make a referral request on the acquisition of a startup in the medical sector. It will be interesting to read the Commission’s decision on this referral request.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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