Vol. XVI No.3
March 2011

HERZFELD & RUBIN, P.C. LAWYERS PROFESSIONAL CORPORATION
IN ASSOCIATION WITH
RUBIN MEYER DORU & TRANDAFIR

INSIDE:
The Competition Council’s Recent Impact on Business

THE COMPETITION COUNCIL’S RECENT IMPACT ON BUSINESS

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 http://www.hr.ro/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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