Major competition law changes – greater powers for the Czech NCA, clearer rules for fining associations, anonymous reporting of anti-competitive behavior, tighter criteria for settlement
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Very soon, a long-awaited amendment to the Czech Act on the Protection of Competition will become law, implementing (after a long delay) the requirements of what is known as the ECN+ Directive (an EU directive designed to give greater powers to competition authorities).1 The primary objective of the amendment is to provide the competition authority with the requisite set of tools for the efficient enforcement of EU competition rules. It is also a response to experience with the application of the law thus far. Aside from a substantial strengthening of the powers of the Czech Office for the Protection of Competition (the "Office") and individual changes to the leniency program and to proceedings on infringements committed by public authorities, the amendment adds new protection for the anonymity of whistleblowers reporting potential anti-competitive practices, and generally tightens the criteria for being eligible for settlement.
In this client alert, we provide a brief summary of the most important changes:
1. Confidentiality regarding the identity of whistleblowers
The amendment establishes a new concept of promising anonymity to informers who wish to report anti-competitive behavior if their legitimate interests may be jeopardized or harmed by revealing their identity. This extends to both natural persons and legal entities (in contrast to the Act on the Protection of Whistleblowers, which only protects natural persons). The option to make use of an anonymous report is designed to defuse, e.g., situations in which suppliers are afraid of blowing the whistle out of fear of retaliation in the form of cancelled business. The identity of the informer will be protected throughout the investigation of the report prior to the opening of proceedings, during the proceedings, and after proceedings have been closed. Measures will be taken to ensure that the whistleblower cannot be identified, e.g., on the basis of documents that form part of the administrative file.
2. Stricter rules for settlement (which will now become available also to public administration bodies)
The amendment stipulates more precise (and simultaneously more stringent) conditions for the application of settlement, a legal institution whose rationale is to facilitate simpler and faster proceedings. Settlement remains unavailable for parties to cartel agreements, which are considered the most serious threat to competition. However, public administration authorities may now request settlement as parties to the proceedings. The amendment emphasizes the fact that there exists no legal claim to the award of a settlement. Among other things, the Office will now have greater discretion when determining penalties. It may decide to reduce a penalty by only 10-20%, compared to the previous blanket reduction of 20% (whereas the decisive criteria to be considered are the cost savings associated with the avoidance of full-fledged proceedings and the severity of the anti-competitive behavior in question).
3. New & more detailed rules for the leniency program
The amendment adds separate provisions to the Competition Act regarding the leniency program. As in the case of settlements, the previous legal framework was highly fragmentary, with most of the rules taking the form of "soft" law (notices and communiqués published by the Office on its website). In this particular area, the biggest change is the extension of the leniency program to now also include vertical agreements. The leniency program was originally developed to help competition authorities combat cartels by facilitating their exposure and investigation. Most EU Member States do not use such program for vertical agreements (i.e., in buyer-supplier relations). It will be illuminating to see whether the leniency program proves helpful in this particular area, and what approach the Office will take toward its practical application.
Further, the amendment sets out the basic legal criteria for using markers, i.e., for reserving a place in the queue when asking for leniency, so as to allow the applicant to collect the necessary information before formally submitting an application. Moreover, in compliance with the ECN+ Directive, the Competition Act will now recognize the concept of summary applications, which play a similar role but with respect to conduct which affects the territories of several Member States and to which EU competition law is applied. The summary application will allow an applicant who has already filed an application in the same matter with the European Commission to secure a place in the queue in case the Office decides to open proceedings on the national level.
4. Admissibility of wiretapping
The Office will now be able to use wiretapping records obtained by the Czech police in the course of criminal investigations in competition matters (i.e., in matters of secret horizontal agreements or concerted anti-competitive practices). Telecommunication records, telecommunication traffic data, recordings made as a part of surveillance of persons and items in criminal proceedings may all be used as evidence (if obtained after the amendment has come into force). Note that the Office may not itself procure such evidence; instead, it may strictly use such evidence in the position of a passive beneficiary who received records that were produced by the police.
5. Fines imposed on associations of undertakings
The Office may impose a fine on associations in an amount of up to 10% of the aggregate net turnover of the association members for the most recent complete financial year. Under the current rules, all members of such an association are jointly and severally liable for the payment of such fine, but this is about to change. The primary parties responsible for an unpaid fine will be those members who are part of the decision-making body of the association, who may be held liable for up to the amount of 10% of their own turnover. Only if they fail to pay the fine will the other members be subject to liability. The amendment also stipulates certain conditions under which association members will not be held liable for a fine (e.g., if they expressly rejected the relevant decision adopted by the association, or if they were not a member at the time at which the wrongdoing was committed).
6. Joint and several liability for offenses of persons forming a single undertaking
If an undertaking is formed by several persons who participated in (or to whom responsibility may be attributed for) anti-competitive conduct, then these persons will be jointly and severally liable for payment of the penalty (e.g., a parent company and its subsidiary, or several subsidiaries). Up until now, in the case of groups of undertakings, punishment was always directed at one specific person to whom the offense was attributed. In line with the new joint and several liability, it will be easier to also sanction the other persons within the group (who will also have the status of participants to the proceedings) by imposing fines or a ban on participation in public procurement. The goal of these rules is to improve the actual enforcement of competition law and to close loopholes in the form of restructurings or asset transfers within corporate groups that allowed perpetrators to escape sanctions.
7. Stiffer fines
The amendment also affects the area of fines – above all, it raises the upper limit for administrative fines to 10% of the net turnover of the given undertaking. According to the explanatory memorandum for the amendment, this will better align the amounts of administrative fines and penalties for infringements so as to avoid a situation in which it is preferable for undertakings not to cooperate in administrative proceedings. They may have to pay an administrative fine for such non-cooperation, which is, however, smaller than the penalty for an infringement they thus escaped. The amendment also introduces a coercive fine in the event that non-monetary obligations imposed by the Office are not fulfilled. This fine may be repeatedly imposed in an amount of up to CZK 300,000 (or based on the turnover criteria) per day unless and until the obligation has been fulfilled. The total limit for the coercive fine has been set at a very high amount of CZK 10 million, or 10% of the undertaking’s net annual turnover (compared to the current highest fine of CZK 100,000 pursuant to the Code of Administrative Procedure).
8. Better specification of the ban on participation in public procurement
Further, the amendment clarifies the conditions under which a ban on participation in public procurement (or "ban on the performance of a public contract" in Czech competition law language) may be imposed. Previously, this particular punishment could not be imposed if the Office agreed to a settlement and a moderation of the fine to be paid by the participant. This will no longer be the case. Even in such cases, the Office may now impose a ban on participation in public procurement, but only for one year (as opposed to up to three years under standard conditions). By contrast, the ban on participation in public procurement cannot be imposed on an applicant whose request for leniency was accepted. In this way, the amendment seeks to remove the illogical preferential treatment previously given to settlement as a procedural institution over the leniency program, which is better suited to exposing and prosecuting anti-competitive practices.
9. International cooperation
In the course of implementing the ECN+ Directive, the Competition Act has been enhanced with a new, comprehensive set of rules for international cooperation between EU competition authorities in enforcing EU competition law. Major new concepts include the procedure for collecting penalties imposed by foreign competition authorities on Czech territory and the rules of international cooperation with respect to service of process. The chief guarantor of international cooperation is the Office, through which all international communication (requests for assistance) will be channeled. As in the case of fines imposed by the Office, for penalties imposed by foreign competition authorities the body in charge of collecting outstanding payments will be the Customs Office for the Region of South Moravia.
The above summary is only a brief overview of the important changes resulting from by the amendment to the Competition Act. In addition, the Act on the Competencies of the Office for the Protection of Competition will also be amended to comply with the ECN+ Directive’s requirement that Member States ensure the independence of national competition authorities.
1 Directive (EU) 2019/1 of the European Parliament and the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market (the "ECN+ Directive").
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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