10-12-2012

Antitrust Regulations – Cartels – Abuse Of Dominance

Authors

  • Anastasios A. Antoniou, Advocate
    Managing Partner at Anastasios Antoniou LLC

Which are the basic prohibitions under Cyprus competition law?

The applicable provisions prohibiting anti-competitive practices and abuse of dominance are contained in The Protection of Competition Law 13(I)/2008 (the Law). Section 3 of the Law (which reflects article 101 TFEU) provides that all agreements between undertakings or associations of undertakings, all decisions of associations of undertakings and any concerted practices, having as their object or effect the elimination, restriction or distortion of competition within the Republic shall be prohibited and shall be void ab initio. Pursuant to Section 6(1) of the Law, any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it in respect of a product shall be prohibited, especially if it affects or may affect­

  • the direct or indirect fixing unfair purchase or selling prices or any other unfair, under the circumstances, trading conditions;
  • limitingproduction,distributionortechnicaldevelopmenttotheprejudiceof consumers;
  • applying dissimilar conditions to equivalent transactions, thereby placing certain undertakings at a competitive disadvantage;
  • making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Moreover, Section 6(2) of the Law provides that any abuse by one or more undertakings, of a relationship of economic dependence where an undertaking stands compared to that or those undertakings, which is either a client, supplier, producer, representative, distributor or commercial collaborator, shall be prohibited, even as far as a specific kind of products or services is concerned, and it does not have an equal alternative solution.

What is the objective of the above Law?

The objective of the above Law is to protect competition in the Cypriot as well as in the internal market, far from any anticompetitive distortions, as a means to boost public prosperity and social welfare by promoting the offering of higher quality goods and services at competitive prices.

Which persons are subject to Cyprus competition law?

The Law applies to ‘undertakings’, defined under section 2 thereof as including every natural or legal person that exercises economic or commercial activities, irrespective of whether these activities are profitable or not. It also includes every undertaking regulated by private or public law over which the state can have a decisive impact either directly or indirectly by virtue of ownership, economic contribution or the provisions regulating it.

Collaboration between undertakings forming a uniform economic entity, such as between a parent and a subsidiary company that does not enjoy real freedom of determination over its own activities or concerning the allocation of activities between the parent and the subsidiary company, or between two or more subsidiary companies, does not fall under the concept of collaboration prohibited by virtue section 3 of the Law.

How are collusive practices defined?

Section 3 of the Law (which reflects article 101 TFEU) provides that all agreements between undertakings or associations of undertakings, all decisions of associations of undertakings and any concerted practices, having as their object or effect the elimination, restriction or distortion of competition within the Republic shall be prohibited and shall be void ab initio. Section 3(1) of the Law specifies such prohibited agreements, decisions or concerted practices as including:

  • direct or indirect fixing of purchase or sale prices or other trading conditions;
  • limiting or controlling production, distribution, technical development or investment;
  • sharing markets or supply sources, geographically or otherwise;
  • applying dissimilar conditions to equivalent transactions; and• making the conclusion of contracts subject to acceptance by other parties of supplementary obligations that by their nature or according to commercial practices have no connection with the subject matter of such contracts.

Agreements, decisions and concerted practices prohibited under section 3(1) fall under the notion of ‘collusion’ defined pursuant to section 2 of the Law. Under the said definition, collusion can constitute any agreement, formal or informal, written or unwritten, executed by the law or not, the concerted practice of two or more undertakings or associations of undertakings or the decision of an association of undertakings. An ‘agreement’is further defined pursuant to section 2 of the Law as being any arrangement between at least two undertakings or associations of undertakings, by virtue of which one of the parties has willingly undertaken the obligation to restrict its freedom to act in respect of one of the other parties. Pursuant to section 2, ‘concerted practice’ is defined as a form of collusion between undertakings that, without having been taken to the stage where an agreement per se has been concluded, knowingly substitutes for the risks of competition. It should not be considered a straightforward task for the CPC to prove on the evidence of parallel behaviour on the market that a concerted practice exists, as this can simply be the natural commercial behaviour of undertakings that are trying to match the behaviour of their competitors so that their business does not suffer.

Are there any block exemptions?

Under section 7 of the Law, agreements that refer to salaries and conditions of employment and undertakings that are responsible for the administration of services of general economic interest or that have the nature of a public monopoly are excluded from the prohibition of section 3. Block exemptions can be granted pursuant to section 5(1), which provides for the issuing of an order by the Council of Ministers to that effect, following a justified opinion by the CPC. Even before the enforcement of the 2008 legislation, under the previous regime, orders covering various industry sectors and providing for exemptions subject to the satisfaction of certain conditions had been enacted. Such exemptions in force under the present legislative framework include, inter alia, the following:

  • certain categories of agreements relating to technology-transfer;
  • certain categories of agreements relating to research and development;
  • certain categories of franchising agreements;
  • certain categories of agreements, decisions and concerted practices in the insurance sector;
  • certain categories of agreements relating to distribution, service and sale of motor vehicles;
  • certain collaborations in relation to technical cooperation in the field of air transport and electronic systems for seat reservations;
  • agreements, decisions and concerted practices in relation to the production or trade in agricultural products; and
  • conferences in maritime transport. Moreover, the Cypriot legal order is subject to the provisions of the relevant EU Regulations in force providing for various block exemptions in particular industry sectors.

How is abuse of dominance defined?

Section 2 of the Law defines a dominant position as being a position of market power that an undertaking enjoys, making it capable to obstruct the maintenance of effective competition in the relevant market and allowing it to act to a substantial degree independently of its competitors and its customers and ultimately independently from consumers. Pursuant to Section 6(1) of the Law, any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it in respect of a product shall be prohibited, especially if it affects or may affect­

  • the direct or indirect fixing unfair purchase or selling prices or any other unfair, under the circumstances, trading conditions;
  • limitingproduction,distributionortechnicaldevelopmenttotheprejudiceof consumers;
  • applying dissimilar conditions to equivalent transactions, thereby placing certain undertakings at a competitive disadvantage;
  • making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Moreover, Section 6(2) of the Law provides that any abuse by one or more undertakings, of a relationship of economic dependence where an undertaking stands compared to that or those undertakings, which is either a client, supplier, producer, representative, distributor or commercial collaborator, shall be prohibited, even as far as a specific kind of products or services is concerned, and it does not have an equal alternative solution. Such an abuse of the economic relationship of dependency may consist especially of the imposition of arbitrary terms of transaction, discretionary treatment, the discontinuance of commercial relations by the assumption or transfer of the activities developed in a way which substantially influences competition, or the sudden and unjustified discontinuance of long term commercial relations.

Which cases fall outside the scope of the law?

According to section 7(1) of the Protection of Competition Law 2008 the provisions of the Law shall not apply to

(a) agreements relating to wages and terms of employment and working conditions;

(b) undertakings entrusted with the operation of services of general economic interest or having the character of state monopoly, in so far as the application of these provisions obstructs the performance in law or in fact, of the particular tasks assigned to them by the State.

Which are the competition enforcement authorities in Cyprus?

The Law provides, inter alia, for the determination of the CPC as the national competition authority of the Republic responsible for the application of the Law, of Regulation 1/2003 and of articles 101 and 102 TFEU (ex 81 and 82 EC Treaty), where necessary. Specifically, it should be noted that the Law provides for the CPC’s competences and powers in line with article 5 of Regulation 1/2003.

What is the structure of the Cypriot CPC?

The CPC consists of five members, namely the chairperson and four members who are appointed by a decision of the Council of Ministers on a proposal of the minister of commerce, industry and tourism. The chairperson must be a lawyer of high standing and is appointed on a full-time basis. The members, at least two of whom must come from the private sector, must have specialist knowledge and experience in law, economics, commerce or industry and are appointed on a full-time basis for a five-year term that is renewable once. The CPC is assisted in the execution of its duties by its Service, which is composed of the secretary, the officers and the secretarial staff.

Which are the potential sanctions for infringement of the law?

Criminal sanctions

Any person who omits to comply with or acts contrary to an issued decision of the CPC regarding an infringement of section 3 of the Law, including interim measures, shall commit a criminal offence punishable with imprisonment of up to one year or with a pecuniary penalty not exceeding €430,000, or both. An undertaking that intentionally or negligently produces incomplete books or professional documents, refuses to comply with a request for information by the CPC or destroys, falsifies or withholds books or records shall be liable on conviction to a term of imprisonment not exceeding one year or a fine of up to €85,000, or both. Criminal sanctions provided under the Law can be directed not just against the undertaking concerned but also against all members of its board of directors, including its managing director.

Civil and administrative sanctions

Upon finding an infringement of section 3 of the Law or article 101 TFEU, or both, the CPC has the power to impose the following sanctions:

(i) impose an administrative fine, according to the gravity and duration of the infringement, not exceeding 10 per cent of the combined annual revenue of the undertaking concerned or not exceeding 10 per cent of the revenue of every undertaking member of the association of undertakings, in the year within which the infringement took place or in the year that immediately preceded the infringement;

(ii) require that the undertakings or association of undertakings bring the infringement to an end within the set time period and avoid repetition in the future. Where the infringement has been brought to an end before the decision of the CPC, the CPC may condemn the undertakings with a reconnoitring decision;

(iii) impose terms and behaviour or structural remedies, or both, according to the infringement necessary to bring the infringement to an end;

(iv) where the infringement continues by the participating undertakings or association of undertakings, the CPC may impose and administer a fine of up to €85,000 for every day the infringement continues;

(v) where the Commission intends to adopt a decision requiring that the infringement is brought to an end and the undertakings concerned provide commitments to meet the concerns expressed to them by the CPC in its preliminary assessment, the CPC may decide to make those commitments binding on the undertakings. Such a decision may be adopted for a specific period and shall conclude that there is no longer action by the CPC; and

(vi) in the event of refusal or by negligence of the undertakings or association of undertakings concerned to comply with the measures set by the CPC pursuant to points (ii) or (v) above, the CPC may impose an administrative fine up to €85,000 for every day the infringement continues.

Sanctions for cartel activity can be civil and criminal and can be pursued for the same activity under the procedures, conditions and circumstances described above. The CPC is competent to decide which sanctions to pursue.

Does a leniency or immunity programme exist?

An immunity and leniency programme exists, providing for the procedures entailed in applying to the CPC for immunity from fines or reduction of fines in cartel cases (the Leniency Programme). The Leniency Programme, which takes the form of subsidiary legislation issued pursuant to the provisions of the Law by a relevant Decision of the Council of Ministers, was published as such in the Official Gazette on 11 November 2011. The Leniency Programme is based on the assumption that some undertakings that participate in cartels wish to end their participation and provide evidence for its existence and operation, but are concerned over the sanctions they will suffer. As per the CPC’s 2009 Annual Report, the CPC holds the view, which is enshrined in the provisions of the Leniency Programme, that ‘rewarding’ undertakings involved in a cartel and willing to end their participation and provide evidence over the concerned cartel is necessary towards serving the public interest and that it will urge such undertakings to cooperate with the CPC and contribute to the investigation and establishment of an anti-competitive practice. The Leniency Programme is currently in full force. The Leniency Programme is largely based on the European Competition Network Model Leniency Programme. The CPC is able to grant immunity and may exercise its power in that direction if the applicant is the first to come forward and submit evidence that, in the CPC’s view, may enable it to either commence an investigation in connection to a potential infringement of section 3 of the Law or enable the CPC to establish an infringement of section 3 of the Law in connection with an alleged cartel within the legislative provisions. The CPC’s power to grant immunity to an applicant or reduce the fine that would normally be imposed upon the applicant should a cartel be found to exist will be decided (or vary in the case of a potential reduction of the fine), according to and depending on the time each applicant has approached and provided evidence to the CPC. However, no provision of the Programme should be expected to affect or prejudice the discretion of the CPC in the exercise of its competence and powers under the Law.

What are the private enforcement rules?

A person suffering loss as a result of the conduct of a cartel has a right of action for damages for the losses suffered as a result of the cartel conduct. Such claims can be raised within the context of a civil action before the competent district court in Cyprus. The Law provides that the decision of the CPC finding an infringement of section 3 and therefore the existence of the cartel in relation to which any such claimant intends to claim damages constitutes rebuttable evidence in that regard. A claimant pursuing damages for loss suffered as a result of a cartel the CPC has adjudicated on may apply to the competent court for an injunction to stop the continuance of such cartel. Class actions are not expressly provided under the Civil Procedure Rules, but any such actions could be joined under leave of the court upon a relevant application.

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