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THE COMPETITION COUNCIL’S RECENT IMPACT ON BUSINESS |
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Introduction
The most recent fines levied by the Romanian Competition Council for
breaches of the competition law raise certain issues: Are businesses
aware of the legislation applicable to them in the competition area? If
so, are they aware of the role of the Competition Council in the
implementation of such legislation? Moreover, are they seeking legal
advice before undertaking measures which, if in non-compliance with the
law, might trigger severe punishment, i.e., large fines and the
cancellation of certain transactions? Recent experience implies that the
answer to these questions may be uniformly negative.
We should all agree anti-competitive practices in a market severely
affect the economic environment on both consumers and businesses.
However, the fact that significant players in the market place have
lately been sanctioned by the Competition Council with huge fines raises
doubts on how aware these companies are about Romania’s competition law
applicable to them or about the impact of non-compliance on their
business prospects.
The purpose of this article is not to provide any legislative overview
or to detail any legal provisions applicable in the competition field,
especially since we have provided such legal overviews on competition
legislation in the past. For more details, please visit our Digest
Archive at
/digest_archive.htm, i.e. the September 2010
article, “New Amendments to the Competition Law in a Troubled Economy”,
or the June 2010 article, “New Amendments in European Anti-Trust Law
Affecting Romania”. The purpose of this article is only to highlight
the potentially damaging consequences of doing business in breach of
competition legislation. |
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Recent Fines Applied by the Competition
Council |
Netmaster Communication v. Orange & Vodafone
Undoubtedly, the fines which raised the highest concern were the ones
recently rendered by the Competition Council with regard to the two main
players in the telecommunications field -- Orange and Vodafone.
On February 14, 2011, the Competition Council sanctioned Orange with a
fine of over €34 million, and Vodafone with a fine of over €28 million,
such amounts representing a little over 3% of the turnover of the two
major operators in the telecommunications field.
The Competition Council sanctioned the two companies for abuse of their
dominant position on the market, after having investigated the claim
initially submitted by Netmaster Communications, an alternative supplier
of fixed phone services. In 2006, Netmaster Communications claimed
before the Competition Council that these two operators in the
telecommunications field denied its resale right of interconnection
services, and, that, for this reason, the claimant had lost
approximately 30% of its clients in only a few months.
After investigating the matter, the Competition Council ascertained that
both Orange and Vodafone blocked the access of Netmaster Communications
to their network during the period 2004 – 2006. Moreover, the
Competition Council ascertained that during the same period, the two
operators applied an interconnection tariff higher than the one set by
the Romanian regulatory authority. Both Orange and Vodafone said they
will contest the decision of the Competition Council in court.
The legislation allegedly breached
 According
to the decision of the Competition Council, by denying Netmaster
Communications access to their network, and by establishing a higher
interconnection tariff, Orange & Vodofone abused their dominant position
on the market.
As provided in Law 21/1996 (the “Competition Law”), the abusive
use by one or more enterprises of a dominant position on the Romanian
market or on a substantial part of such market is forbidden. The
Competition Law provides for certain examples of such abusive practices:
(i) the direct or indirect imposing of inequitable sale or purchase
prices or of other inequitable conditions for trading and the refusal to
trade with certain suppliers or beneficiaries; (ii) applying to
commercial partners certain unequal conditions to equivalent services,
thus generating a competition disadvantage to some of them; and (iii)
conditioning the conclusion of agreements by the acceptance by the
partners of supplementary services which, by their nature or in
accordance with commercial practices, are not related to the object of
the respective agreements.
These are only three examples of abusive use of a dominant position.
Each company having a dominant position on the Romanian market must very
carefully assess, however, whether their practices may be characterized
as an abuse, according to the legislation applicable in the competition
field or if any exception as set forth in the Competition Law may be
applicable to the company. |
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Another Recent Decision of the Competition
Council |
Another significant decision recently issued by the Competition Council
was a fine of €24 million imposed on the Romanian Post. According to the
Competition Council, the Romanian Post granted preferential treatment to
certain companies by applying tariff deductions in a discriminatory
manner to beneficiaries.
In the Romanian Post case, as well as in the Orange and Vodafone cases,
the Competition Council ascertained an abuse of dominant position
exercised by the Romanian Post, and consequently it imposed a large fine
representing 7% from the turnover of the company for the year 2009 – a
very high percentage considering the fact that, according to the
Competition Law, the maximum percentage of the fine which may be applied
in such cases is 10% of the turnover of the respective company.
The recent practice of the Competition Council actually attests a more
rigorous control by the Council over businesses, since higher fines have
been imposed. Although the Competition Council was created in 1996,
large fines started to be imposed after 2005. Most companies were
sanctioned with regard to their understandings for tender participation
with fake offers, as well as with regard to understandings for concerted
fixing of prices, and with regard to the omission to notify the merger
operation to the Competition Council. Moreover, according to the
information provided by the Competition Council, most of the sanctioned
companies were active in the food industry, construction,
pharmaceuticals, and telecommunications.
Regardless of their area of activity, however, anti-competitive
practices, or the abuse of a dominant position, disfavor both the final
consumer, who must pay in the end a higher price than the one
established on a lawfully competitive market, and other companies as
well, which find it impossible to survive on a market where key players
conclude understandings with regard to sale prices or other types of
agreements.
In times of crisis, the role of the Competition Council is even more
important. As the national authority responsible for the implementation
of the Competition Law, the manner in which the Council undertakes its
“safeguarding” role of the competitive environment directly affects both
consumers, as well as companies. Although the maximum level of fines
which may be levied by the Competition Council is 10% (and, in practice,
it does not exceed 8%), the amounts of such fines may be very high. In
troubled economic times, companies which are obliged to pay such fines,
especially those already experiencing financial problems, may face the
risk of insolvency. The Romanian Post has also appealed the decision of
the Competition Council to a court of law. |
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Immunity to Fine based on the Leniency
Policy |
 If you are a participant in a cartel, ask for leniency from the
Competition Council, and you can be exonerated or your fine may be
reduced. Following leniency reform by the European Commission in 2006,
the Romanian Competition Council adopted the Guidelines on the
Conditions and Application Criteria of a Leniency Policy, in force since
September 7, 2009.
The Guidelines apply to cartels, which are defined as horizontal
agreements and/or concerted practices between two or more competitors
aimed at and having as effect the coordination of their competitive
behavior on the market and/or influencing the relevant parameters of
competition, by fixing the purchase or selling prices and the commercial
terms, the allocation of production or sales quotas, market-sharing,
restrictions of imports or exports, and/or other anticompetitive deeds
against some competitors. The Guidelines also apply to vertical
agreements and/or concerted practices among undertakings regarding the
conditions in which the parties may purchase, sell or re-sell certain
services and products that have as their object the restriction of the
freedom of the purchaser to determine its sale price and/or the
restriction of the territory or of the clients.
Basically, the leniency policy offers companies involved in a cartel -
which self-report and hand over evidence to a competent authority -
either total immunity from fines, or at least a reduction of fines which
the Competition Council would otherwise have imposed upon them.
On January 17, 2011, the Competition Council published on its website a
press release about the first immunity to fines granted based on its
leniency program. This immunity from fine was granted to the company
Radio Taxi, after an investigation performed on the market of public
transport services under a taxi regime in the Timisoara Municipality. As
a participant in a cartel, Radio Taxi was the first company applying for
the leniency program and the first company to inform the Competition
Council about anti-competitive practices in which it had been engaged.
Consequently, Radio Taxi benefited from a total immunity from fine. The
second company that informed the Council about the cartel, Power Up,
benefited from a reduction of 50% from the amount of the fine, based on
the leniency program as well.
These first cases of immunity from fine should encourage other
participants in cartels to denounce them to the Competition Council.
Regardless of whether the understanding refers to the local or national
market, cartels actually represent the most severe infringement of
competition, since consumers are often severely damaged by being obliged
to pay higher prices or tariffs for purchasing assets or services.
Therefore, those participants to cartels which cooperate with the
Competition Council, instead of trying to develop a business in a
continuous breach of the law, do have the possibility to be exonerated
in full from the payment of fines. |
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Conclusion |
 The
latest practices of the Competition Council demonstrate a very active
national authority. The large fines applied to the key players in
telecommunications raised concern among businesses. It is not enough to
be focused on developing your activity and your market share. On the
contrary: once the activity is developed and a substantial market share
conquered, one has to watch closely that one’s position on the market
does not negatively affect competition and, especially, not make use of
such position as to distort normal competition. The development of a
significant position on the market also triggers a certain liability
towards the other participants in the market, i.e. other competitors
active in the same area of business and, in the end, consumers. The fact
that the Competition Council is currently performing other significant
investigations, initiated ex officio by the Council, should alert
businesses to watch more closely their compliance with competition
legislation. Should they hold a dominant position on the market, or
should they be participants in cartels, they must be aware of the legal
provisions applicable to them so that they can develop their business in
full compliance with competition law. Awareness should be at its peak
among businesses concluding agreements which include certain competition
restrictive provisions, such as exclusivity and non-compete clauses. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2011 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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RUBIN MEYER DORU & TRANDAFIR
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