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Competition Council’s decisions
Decision of the Competition Council of 29 April 2010 in case No p/09/05/12 (Rigas brivostas parvalde) on failure to comply with the obligations imposed by an earlier decision of the Competition Council
For the first time ever the Competition Council has resorted to its powers to increase a fine imposed on an undertaking due to its failure to comply with an obligation imposed by an earlier decision.
In March 2009, the Competition Council had fined the Riga Free Port Authority for abuse of dominant position by imposing unjustified technical requirements for the provision of tugboat services in the Riga Free Port, by requiring centralised applications for provision of tugboat services via shipping agency companies, by unjustifiably delaying permissions for tugboats to start providing the services, and by imposing an obligation on captains of tugboats to attend a three–month training at the Riga Free Port.
In addition to a fine, obligations were imposed on the Riga Free Port Authority to cease the unlawful practices and to discontinue the provision of tugboat services. Some of the obligations were fulfilled with delay, and some others were not observed at all. The Competition Council concluded that “the amount of the previously imposed fine has failed to attain its aim of individual prevention”, therefore it is necessary “to adopt a decision on […] an increase of the fine”.
The Competition Act allows an increase in the fine “up to 10 percent of the net turnover in the last financial year”. However, “having regard to the principle of proportionality in conjunction with the aim of the fine” the Competition Council decided to apply an increase of approximately 0,033 percent. Thus, the initially imposed fine of 45 000 LVL (approx. 64 000 LVL) was increased by 10 000 LVL (approx. 14 000 EUR).
Decision of the Competition Council of 1 April 2010 No 25 (Zn Metalapstrade / Baltic Zinc Technics) on predatory pricing
The Competition Council has adopted a decision in which a narrow definition of the market is adopted in order to warn an undertaking about the potential illegality of excessively low prices.
Zn Metalapstrade submitted an application to the Competition Council in which it complained that Baltic Zinc Technics was treating steel products in hot–dip galvanising process for prices which were below costs. Since only a dominant undertaking may not apply the so–called predatory prices, the Competition Council had to determine whether Baltic Zinc Technics held a dominant position. The applicant conceded that “clients from Estonia and Lithuania are using the services of Baltic Zinc Technics” and that steel products can be transported as far as 400 km for galvanisation. However, the Competition Council defined only Latvia as the relevant geographic market because “the previously mentioned companies using hot–dip galvanisation services for various steel products” – although no such companies had been named – “did not mention that they have been using the services of Estonian, Lithuanian or other foreign companies offering hot–dip galvanisation”. As the relevant geographical market was defined so narrowly, the Competition Council came to a conclusion that Baltic Zinc Technics occupied a dominant position. Therefore, it concluded that the company was bound by the classic predatory pricing rule: prices below average variable costs are always prohibited, while prices below average total costs and above average variable costs are prohibited only if there is an intention to eliminate competition. Having assessed the prices and costs of Baltic Zinc Technics, the Competition Council established that in some periods prices were below average total costs, however they always exceeded average variable costs. The Competition Council found that, “considering the decrease in volumes at a time of economic downturn, as well as the behaviour of the other competitor, there are no grounds to consider that the aim of [Baltic Zinc Technics] was to eliminate its competitor from the market” and decided not to initiate an investigation. However, it did provide a note of caution: “[Baltic Zinc Technics] has to realise that setting prices below total costs with an aim to foreclose competition could qualify as abuse of dominant position if it is practiced during a sufficiently long period of time.” Both the narrow market definition and the seemingly random warning again are indicative of the Competition Council’s willingness to retain, at least in principle, as much scope for controlling the competitive behaviour of undertakings as possible. Decision of the Competition Council of 25 March 2010 in case No 2822/10/0301/1 (Staburadze et al. / Daumants Vītols) clearing a conglomerate merger
The Competition Council decided to allow the merger as a result of which an individual, Mr Daumants Vitols, will acquire an indirect decisive influence and Nordic Partners FOOD Limited Malta will acquire a direct decisive influence over SIA NPG, AS Gutta, SIA NP FOODS, SIA Devanagari, AS Staburadze and SIA Detente. In its fairly brief decision, the Competition Council concluded that dominant position will not be created or strengthened and that significant lessening of competition is not expected after the notified merger as, firstly, the members of one merging group are not active on the markets where members of the other merging group have a significant market share, and, secondly, both groups are active on markets which are not vertically related. The absence of market share assessment in the decision seems to indicate that in practice the Competition Council is not keen to exercise any substantive review of conglomerate mergers. Decision of the Competition Council of 17 March 2010 No (Lattelecom / TV3 and Viasat) 20 on the “effect on trade concept” in the application of EU competition law
The Competition Council has refused to initiate proceedings regarding an alleged infringement of EU competition law relying on an inaccurate translation of European Commission’s guidelines.
SIA TV3 Latvia (TV3) and VIASAT AS Latvia Branch (VIASAT) applied to the Competition Council alleging an infringement of the prohibition to abuse dominant position by SIA Lattelecom (Lattelecom). TV3 and VIASAT considered that Lattelecom had been imposing unfair trading conditions in violation of the Latvian Competition Act. It was also alleged that Lattelecom’s practices have an effect on trade between Member States of the EU, and the complainants requested the Competition Council to initiate proceedings under Article 102 of the Treaty on the Functioning of the European Union (TFEU) as well. The Competition Council assessed whether the pre–conditions for initiation of a case under Article 102 TFEU are present. However, as conceded by the Competition Council, that was done “without precisely defining the relevant market”. According to Paragraph 18 of European Commission’s Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (Guidelines), “in the application of the effect on trade criterion” three elements in particular must be addressed: a) the concept of “trade between Member States”, b) the notion of “may affect” and c) the concept of “appreciability”. The Competition Council observed that Lattelecom operated on the relevant market of public transmission of TV signal via land transmitting equipment only in Latvia. Also, Lattelecom’s business as a paid TV operator covers only Latvian territory. Based on the above, the Competition Council concluded that the activities of Lattelecom cannot affect competition on the said relevant product markets in other Member States or trade between Member States. Unfortunately, it seems that this conclusion was based only on an incorrect translation and incomplete reading of the Guidelines. The Competition Council asserted that “Para. 94 of the Guidelines, which states that “[…] trade between Member States is capable of being affected where the potential offender exports to or imports from other Member States and where it also operates in other Member States” [emphasis by the Competition Council omitted] is taken into consideration. Thus, considering that SIA Lattelecom is active on the market of the alleged infringement, as well as on the market influenced by the alleged infringement only in one Member State – Latvia – the Competition Council concludes that the criteria of Para. 18 of the Guidelines are not met”. In fact, Paragraph 94 of the Guidelines refers to the “targeted undertaking” rather than the “potential offender”. The Competition Council also failed to notice that, according to the same Paragraph 94 of the Guidelines, if a dominant undertaking regularly engages in exclusionary practices aimed at domestic undertakings, it may have a negative impact on the willingness of foreign undertakings to compete aggressively on the domestic market, and that can have an impact on trade between Member States. This aspect has not been considered in the decision. The Competition Council decided not to open proceedings under Article 102 TFEU. However, it appears that the Competition Council continues to investigate whether the actions of Lattelecom infringe Article 13 of the Competition Act. Laws and Regulations
Amendments to the Public Procurement Act
At the beginning of June, amendments to the Public Procurement Act were promulgated. The amendments, i.a. define which “substantial infringements of competition law” will be grounds for disqualification of a bidder from participation in a public procurement procedure.
According to the amendments, henceforth the following practices will qualify as substantial infringements of competition law for the purposes of application of disqualification provisions under the Public Procurement Act: vertical agreements aimed at restricting purchaser’s ability to determine resale price and horizontal cartel agreements, with the exception of cases in which the respective authority, after having established an infringement of competition law, has nevertheless released the bidder from a fine. There will no longer be a requirement that a court or the competent authority (the Competition Council) issue a separate decision specifically stating that a particular infringement is substantial and that the respective bidder should be disqualified from participation in a procurement procedure. A decision of the competent authority or a court’s judgment which has come into effect and may no longer be contested, will be sufficient. As before, competition law infringements will cease to be the grounds for disqualification if on the date of submission of a tender more than 12 months have passed since the effective date of the court’s judgment or the authority’s decision.
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ZAB RAIDLA LEJINS & NORCOUS
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www.roschierraidla.com The Competition law newsletter is a periodic publication of RAIDLA LEJINS & NORCOUS and should not be construed as legal advice or legal opinion on any specific facts or circumstances. We have used reasonable efforts in collecting, preparing and providing the information in the Competition law newsletter, but we do not warrant or guarantee the accuracy, completeness, adequacy or currency of the information contained herein. The contents are for general informational purposes only, and you are urged to consult a lawyer concerning your situation and any specific legal questions you might have. |
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