If an undertaking (competitor) has significant power in a particular market, it can abuse its position, usually to achieve higher profits or maintain its position. Competition law deals mainly with agreements between competitors, abuse of dominant market position and concentrations of competitors.
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Competition rules are contained, in particular, in Act No. 143/2001 Sb., on the protection of competition (“Competition Protection Act”), and at the European level in the Treaty on the Functioning of the European Union (“TFEU”) (Articles 101–109). Compliance with these rules is supervised by the Office for the Protection of Competition (“Office”) and the European Commission (Directorate-General for Competition).
Anticompetitive agreements (cartels)
Anticompetitive agreements are agreements between competitors, decisions by associations of competitors and concerted practices which have as their object or effect the distortion of competition.
Cartels have a serious impact on both the economy itself and the end consumer. This is because cartels distort competition, whether in terms of prices or terms and conditions of competitors.
In particular, agreements that contain hardcore restrictions, e.g. agreements on prices, market sharing or application of different conditions, are prohibited. These agreements are prohibited always, without exception and without examining the actual effects on the market. Sanctions can be imposed even in a situation where the agreement is capable of distorting competition, regardless of the intent of the competitors.
An exception from the prohibition of cartel agreements is made for agreements that do not contain hardcore restrictions and whose impact on competition is negligible, referred to as minor cartels (“de minimis rule”), which are defined by the Office on its website as “Notice on agreements of minor importance” (https://www.uohs.cz/cs/legislativa/hospodarska-soutez.html). Other exemptions are legal exemptions (i.e. agreements that contribute to improving production, distribution of goods or to promoting technical or economic development, which do not impose restrictions on competitors or which do not allow the exclusion of competition on a substantial part of the relevant market) and, in the case of vertical agreements, block exemptions.
Abuse of dominant position
Furthermore, any abuse of a dominant position in the relevant market to the detriment of other competitors or consumers is prohibited (Section 11(1) of the Competition Protection Act, Article 102 of TFEU).
The basic condition for fulfilling the definition of abuse is the existence of a dominant position held by a competitor or several competitors together (joint or collective dominance), “whose market power enables them to behave independently to a significant extent of other competitors or consumers” (Section 10 of the Competition Protection Act). There is a rebuttable presumption that “a competitor or competitors in joint dominance shall be deemed not to be in a dominant position if its/their share in the relevant market achieved during the examined period does not exceed 40%”, unless proven otherwise pursuant to Section 10(2) of the Competition Protection Act, generally as a result of the competitor’s economic and financial strength or conditions on the relevant market.
If a competitor (or competitors) has a dominant position, it has the right to defend its position in the market, i.e. to behave competitively, provided that its conduct is not manifestly disproportionate to the particular circumstances. However, the competitor may not act so as to exclude other competitors or make it more difficult for them to participate in the competition.
Abuse of a dominant position (Section 11(1) of the Competition Protection Act) consists particularly of:
- direct or indirect determination of purchase or selling prices
- limitation of production, sales or technical development
- application of different conditions to business partners for transactions of the same nature
- making the conclusion of contracts subject to unrelated performance
Concentrations of competitors
A concentration of competitors originates from the merger of one or more independently operating competitors and also includes the situation when one or more entrepreneurs or one or more persons, who are not entrepreneurs but control at least one competitor, acquire the possibility to directly or indirectly control another competitor or part thereof (in particular by acquiring assets, shares, plants or by other means allowing them to control such competitor or part thereof) (Section 12 of the Competition Protection Act). Such a concentration may not result in a distortion of competition, in other words, the creation or strengthening of the dominant position of a competitor or concentrated competitors in any of the relevant markets in which the competitor or concentrated competitors operate.
If the intended concentration of competitors may distort competition, the merging companies must make commitments and only then the concentration (merger) is authorised.
A concentration is subject to the approval by the Office if the competitors:
- operate in the Czech market and the total net turnover of all competitors concerned exceeds CZK 1.5 billion and each of at least two of the competitors concerned achieved in the last accounting period a net turnover exceeding CZK 250 million
- have not yet operated in the Czech market and their net turnover for the last accounting period achieved worldwide exceeds CZK 1.5 billion and they concentrate with a competitor already operating in the Czech market whose net turnover in that market also exceeds CZK 1.5 billion
In the case of cross-border concentrations of large companies without a Community dimension, it is usually required to notify the competition authority in each EU state concerned (this process can be replaced by a single notification to the European Commission if notification must be made in three or more Members States).
Concentrations of competitors with a Community dimension are subject to review and approval by the European Commission. The criterion is the amount of annual worldwide turnover and Community-wide turnover.
The concentration cannot take place until it is approved, which is subject to a fine of up to CZK 10 million or 10% of the competitor’s net turnover in the last accounting period. Furthermore, the Office may impose an obligation on the entities concerned to sell the share(s), transfer the undertaking or part thereof or cancel the contract under which the concentration was effected.
What issues do we typically handle for clients in relation to competition?
- What are the competition rules?
- What are anticompetitive agreements?
- What are the exceptions to the prohibition of cartel agreements?
- When does a competitor have a dominant position in the market?
- When does a competitor with a dominant position in the market have the right to act competitively in the market?
- What is a concentration of competitors?
- When does a concentration of competitors distort competition?
- What are the conditions for a merger of competitors to avoid distortions of competition?