If you cant beat them by gdf57j


									If you can’t
beat them...
a guide to competition law in
central and eastern europe

      Preface                                                       3

      1.        BEING A DOMINANT MARKET PLAYER                      4

      1.1       Introduction                                        4

      1.2       Dominant position                                   4

      1.3       Dominant companies’ “special responsibility”        6

      1.4       Rebates and discounts                               7

      1.5       Incentive rebate schemes                            7

      1.6       Enforcement                                         8

                SOME PRACTICAL QUESTIONS                           10

      2.1       Introduction                                       10

      2.2       Exclusivity                                        10

      2.3       Foreclosure                                        11

      2.4       Exemptions from the prohibition                    11

      2.5       Risk analysis                                      12

      2.6       Resale price maintenance (RPM)                     14

      3.        CARTELS AND HOW TO DEAL WITH COMPETITORS           15

      3.1       Introduction                                       15

      3.2       Cartels                                            15

      3.3       Danger Areas                                       16

      3.4       Information Exchanges/Trade Association Meetings   16

      3.5       Contacts with competitors                          16

      3.6       Exemptions from prohibitions                       16

      3.7       Sanctions                                          17

Allen & Overy LLP 2009 I If you can’t beat them                         1
    4.    DAWN RAIDS AND LENIENCY                                                                 18

    4.1   What clients should know about procedural issues                                        18

    4.2   What is leniency?                                                                       18

    4.3   How to apply for leniency                                                               19

    4.4   Hypothetical application                                                                20

    4.5   European Commission or the national competition authority?                              20

    4.6   Why apply for leniency?                                                                 21

    4.7   Full immunity or a reduction in the fine?                                               21

    4.8   Useful information                                                                      22

    4.9   Legislation                                                                             23

    4.10 What does the term “dawn raids” refer to?                                                23

    4.11 What is the scope of the inspection?                                                     23

    4.12 What is the basis for carrying out inspections?                                          24

    4.13 What are the companies’ rights in relation to the dawn raid?                             24

    4.14 What are the companies’ duties?                                                          25

    4.15 Practical information                                                                    26

    Conclusion                                                                                    26

2                                                              Allen & Overy LLP 2009 I If you can’t beat them
      If you can’t beat them...
      World markets have been taking a pounding. Business conditions have deteriorated. The outlook is
      uncertain. At times like these, people will look for whatever means they can at their disposal to improve
      their position on the market and to win business. Companies may be tempted by the maxim: “if you
      can't beat them, join them”, and may co-operate to ensure that prices are high or that tenders are ‘left’
      to others. On the other hand, while it is one thing to cut prices to shift inventory and attract customers,
      it is another to abuse one’s position to the detriment of other market players (ie if you can’t beat them,
      beat them again – harder). In addition, your competitors will be on the alert, and will in harder times
      be much quicker to protest to the competition authorities that your conduct is uncompetitive; or, when
      they realise that they have actually been violating competition law (or it is clear that the game is up),
      to go and tell all to the authorities in exchange for leniency (ie if you can’t beat them, shop them).
      A number of these practices can amount to unlawful competitive conduct with severe and far-reaching
      negative consequences, including massive fines.

      We have set out to provide you with a flavour of what we view as the high level competition issues faced
      by companies in the CEE region and how Allen & Overy offices in the region can help your company
      to deal effectively with those issues. While we are aware that today’s businesses are familiar with the
      challenges posed by modern competition law and that such businesses frequently enjoy the advice of
      skilled competition counsel, we hope that you will feel that Allen & Overy approaches these topics in
      an innovative and dynamic way; focussing not only on the relevant law but also emphasising industry
      specific concerns and responding to our clients’ particular needs.

      This publication deals with a variety of competition law topics. Our objective is to discuss the
      topics that our clients deal with most frequently, and to present them in the light of the most recent
      developments in antitrust decisions and case law. In addition, we have tailored the publication to
      the CEE region and in doing so have combined the EU approach, on which all CEE competition rules
      are based, with the specific characteristics of the Czech, Hungarian, Polish, Romanian and Slovak
      competition rules.

      The publication is divided into four chapters, each of which deals with specific competition
      issues, namely:

      n     being a dominant market player and the issues of abuse of dominance explained in the light of
            the recent Intel case, including the application of rebates and discounts;

      n     the most common issues in commercial contracts with suppliers and distributors, focussing on
            exclusivity and resale price maintenance;

      n     cartels and contacts with competitors; and

      n     dealing with the competition authorities, including leniency and dawn raids.

Allen & Overy LLP 2009 I If you can’t beat them                                                                     3
                                   1. BEING A DOMINANT MARKET PLAYER
                                   1.1 Introduction
                                   A few decades ago, a small company was established by two enthusiastic friends and
                                   innovative engineers. They introduced some original product ideas and became pioneers in
                                   the production of semiconductors. As a result of excellent manufacturing capabilities and
                                   successful marketing strategies, the company started to grow and become stronger, opening
                                   new production sites and developing new distribution channels.

                                   Over the years, the company has become the world’s largest semiconductor manufacturer
                                   and the inventor of the x86 Computer Processing Units (CPUs), chips constituting the main
                                   hardware component of PCs, with a worldwide market worth around EUR 22 billion.

                                   In order to retain customers and to protect itself against potentially fierce competition, the
                                   company introduced a pricing policy and, in particular, conditional rebates and payments.
                                   Under this policy, the company required computer manufacturers to agree that it would be
                                   the supplier for all, or the vast majority of, their computer chip requirements and also started
                                   making payments to such manufacturers to halt or delay the launch of rival products. The
                                   European Commission (the Commission) began its investigation of these practices following
                                   a complaint by one of the company’s main rivals. The proceedings concluded with a
                                   EUR 1.06 billion fine being imposed on the company – Intel Corporation.

                                   In 2005, the Commission, together with national competition authorities, carried out dawn
                                   raids at Intel’s offices across Europe after having received a complaint by AMD, Intel’s
                                   biggest competitor, arguing that Intel was abusing its dominant position in the market
                                   for x86 CPUs by engaging in conduct which aimed to exclude AMD from the market. The
                                   Commission issued a statement of objections to Intel in July 2007, setting out its concerns
                                   about Intel’s conduct, which was reinforced and expanded by a supplementary statement
                                   twelve months later.

                                   The EUR 1.06 billion fine is the largest ever fine to be imposed on an individual company for
                                   a breach of the EC competition rules, making this a landmark decision by the Commission.
                                   Indeed it is double the amount of the previous fines imposed on an individual company for
                                   abuse of dominance – in 2004 Microsoft was fined EUR 497 million for abusive tying and
                                   bundling (although the total amount of the fine has now reached EUR 1.8 billion due to the
                                   imposition of penalties for non-compliance). However, it should be noted that Microsoft’s
                                   fine was calculated on the basis of the Commission’s old 1998 fining guidelines. Under the
                                   current 2006 guidelines, which were used by the Commission to calculate the Intel fine,
                                   fines will generally be much higher.
    “The same business
    practice is fully legitimate   The following part of this chapter discusses the practices that the Commission found that
    when employed by a small       Intel pursued. As you will see, the line between competitive behaviour and behaviour which
    company but may become         may be characterised as abuse of a dominant position prohibited under both EU law and
    prohibited if pursued by a     national laws of the CEE region is often a fine one. It is obvious that for the prohibition
    dominant player.”              to apply there must be two elements simultaneously present: (i) a company must hold a
                                   dominant position, and (ii) its conduct must be abusive.

                                   1.2 Dominant position
                                   Whether or not a company is dominant is a complex issue which depends on a range of
                                   factors. The test of dominance is of particular importance because the same business
                                   practice which is considered fully legitimate when employed by a small (ie not dominant)
                                   company may become prohibited if pursued by a dominant player.

                                   In principle, in all of the jurisdictions of the CEE region, the understanding of dominance
                                   revolves around two factors: (i) the non-existence of substantial competition; and

4                                                                                                     Allen & Overy LLP 2009 I If you can’t beat them
      (ii) the existence of economic power which enables a company to act independently of
      its competitors, customers and ultimately of consumers. Therefore, a company needs
      to achieve substantial economic strength or market power to be considered dominant.
      This power must allow the company, when making its strategic decisions on prices,
      product range, quality etc, to virtually ignore the potential for a competitive response
      by its rivals and any potential response of its customers. A dominant company is to a
      significant level unimpeded by standard market constraints that exist in markets where
      there is effective competition.

      One of the factors usually used as a readily available screening device for measuring
      market power is market share. In general, high market shares are an indication, but not in
      themselves conclusive proof, of dominance. In the Intel case, the Commission’s investigation
      found that Intel held a dominant position in the global x86 CPU market, with a share of over
      70%. This clear-cut example of how market power is determined by a high market share was
      also enhanced by the fact that Intel’s only significant competitor was AMD.

      In general, it is very unlikely that a company will be seen to be dominant in cases where its
      market share is below 25%. As a general rule of thumb, the Commission has set a soft safe
      harbour for companies with a market share of below 40%, although the potential that this
      could be seen as a dominant market share cannot be automatically ruled out. A company
      having more than 50% of the market has to deal with the fact that dominance is very likely
      and companies holding more than 75% face a strong presumption of dominance which is
      usually difficult to rebut.

      There is a case where a company having above 60% of the market share in a homogenous
      product market was not found to be dominant. The situation in the market was aggravated
      by the fact that there were barriers to entry in the form of particularly high fixed entry costs,
      long-term overcapacity of supply, declining demand and a market practice that was based
      on the use of long-term contracts. However, the Commission decided that despite the fact
      that the market seemed rigid at first sight, no competitor was dominant due to the following
      factors: (i) buyers were significantly concentrated (the biggest three represented 70% of the
      demand side); (ii) sourcing strategies saw buyers switching between suppliers, which was
      possible in particular due to the homogeneity of the product market; and (iii) tenders for
      large projects were launched. Therefore, the existence of a high market share should only
      serve as the first indicator of dominance.

      TABLE: In some CEE jurisdictions, there are statutory thresholds with respect to market
      share that per se establish or exclude a presumption of dominance:

        Country                          Market share (MS)              Presumption
        Czech Republic                   MS < 40%                       Refutable presumption of
                                                                        non-existence of dominance.
                                                                        The burden of proof lies on the
                                                                        national competition authority

        Poland                           MS > 40%                       Refutable presumption of
                                                                        existence of dominance.
                                                                        The burden of proof lies on
                                                                        the company
        Slovakia, Hungary,               No statutory presumptions of dominance, analysis of
        Romania                          dominance is made on a case-by-case basis

Allen & Overy LLP 2009 I If you can’t beat them                                                           5
    1.3 Dominant companies’ “special responsibility”
    Dominant companies have a “special responsibility” not to abuse their position.
    A company can gain dominance in many ways. It can be inherited from the past or it
    can be achieved through organic growth or acquisitions. As established in numerous
    decisions and judgments of the Commission and the national competition authorities,
    a dominant position in itself is not problematic, but dominant companies are
    under a “special responsibility” to avoid any abuse of that dominance. Even during
    economically challenging times, such companies must therefore be careful to ensure
    that their conduct in the market does not harm the interests of consumers. The crucial
    question is what amounts to prohibited behaviour.

    Although most competition laws provide examples of abuses of dominant position,
    and further examples of abusing the dominant position are revealed in case-law, there
    is no exhaustive list. Any behaviour of a dominant player that can harm customers
    or negatively affect the existing market structure could be prohibited. It is irrelevant
    whether it was the dominant player’s intention to restrict competition. Even if the
    dominant company unintentionally restricts competition, it can be held liable for a
    breach of competition laws.

    The Commission found that Intel abused its dominant position in two specific ways,
    which together formed part of a “strategy designed to exploit Intel’s existing entrenched
    position in the market ” and exclude Intel’s only significant rival, AMD. “EX”-abuses
    may take various forms which are often combined in practice:

     EXploitative abuses                         EXclusionary abuses
     n   excessive prices                        n   predatory pricing
     n   excessive royalties for access to       n   margin squeezing
         intellectual property                   n   tying unrelated products
     n   discriminatory prices                   n   concluding long-term contracts without
     n   restrictive contractual terms               objective justifications
     n   refusing to supply or refusal to deal with business partners or customers

    (a) Conditional rebates and payments

         The Commission found that Intel’s abuse consisted of two particular types of conduct.
         First, Intel granted significant rebates to major computer manufacturers on the
         condition that they purchased all (or the vast majority of) their CPU requirements
         from Intel. Second, Intel made payments to a leading German retailer, Media Saturn
         Holdings (owner of the retail chain MediaMarkt), on the condition that it exclusively
         sold Intel-based PCs.

         The Commission found that the conditions attached to these rebates/payments
         excluded AMD from the market, impeded innovation and prevented customers (and
         ultimately consumers) from choosing rival products. This is because if a computer
         manufacturer opted to purchase CPUs from AMD, that manufacturer would have
         consequently lost all or a large part of its rebate from Intel. As computer manufacturers
         were reliant on Intel for the majority of their supplies, the value of the Intel rebate was
         so significant that they “had no choice but to buy from Intel ”. Further, AMD could
         not fairly compete with Intel’s rebate. The Commission found that a competing CPU
         supplier could only compete with Intel’s rebate if it supplied its CPUs at below cost.
         In one instance, AMD offered one million CPUs for free to a manufacturer, but
         the manufacturer declined to take up the full offer to ensure that it did not lose its
         rebate from Intel.

6                                                                      Allen & Overy LLP 2009 I If you can’t beat them
       (b) Payments to prevent sales of rival products

             In addition to the conditional rebates and payments, Intel offered stand-alone
             payments to computer manufacturers, unrelated to the purchase of Intel products,
             on the condition that the manufacturers postponed or cancelled the launch of
             AMD-based products as well as putting restrictions on the distribution of certain
             of these products.

             The Commission concluded that such payments had the effect of preventing
             competing products, for which there was a consumer demand, from being
             introduced to the market. Rivals were unable to compete on the merits of their
             products, giving an unfair advantage to Intel.

       1.4 Rebates and discounts
      Rebates and discounts are not of themselves illegal – the conditions attached are key.
      The Commission was clear in emphasising that it did not object to the Intel rebates
      themselves. Rebates can in fact be pro-competitive and can lead to lower prices for
      the ultimate consumer. However, the competition concerns arose from the conditions
      that Intel attached to these rebates. In particular, conditions based upon the customer
      purchasing less (or none) of a rival’s products will always constitute an abuse unless
      the dominant company can show that they are objectively justified.

      Dominant companies must therefore take care when proposing and implementing
      rebate schemes. The assessment of rebate schemes is complex, and will turn on the
      facts of a particular case. Companies should bear in mind that in the event of an
      investigation the Commission will look closely at whether a competitor which is “as
      efficient” as the dominant company would be able to match these rebates (ie it will
      look at the ability of a hypothetical competitor to compete, rather than the position
      of the actual competitors in the market). In the CEE region, this test has not yet been
      used. However, the CEE competition authorities usually tend to use the same methods
      of calculation as the Commission.

      1.5 Incentive rebate schemes
      Before you launch such a scheme, a prior analysis should be made in order to assess its
      actual or potential foreclosure effects.

       (a) Ask yourself the following questions:

            n     Are the rebates applicable on all sales or only those above the set targets?

            n     Are the criteria against which individual performance is measured objective
                  and transparent?

            n     Does the rebate lead to an effective price that can be matched by
                  equally efficient competitors?

       (b) Make sample calculations, following the price-based test used widely by the
           Commission in order to assess potential effects of the incentive rebate scheme
           and keep a paper trail of this analysis.

Allen & Overy LLP 2009 I If you can’t beat them                                                  7
                               TABLE: The price-based test is based upon the notion of an effective price, ie the
                               price a rival would have to offer in order to compensate the customer for the loss of
                               the conditional rebate if the customer switches part of its demand away from the
                               dominant company. In practical terms, it is the normal list price minus the rebate lost
                               by switching, calculated over the relevant range of sales in the relevant period of time.

                                EFFECTIVE PRICE                                      EFFECT
                                Effective price > long-run average incremental       Normally OK
                                costs of dominant undertaking
                                Effective price < average avoidable costs            Problematic
                                Effective price between long-run average             To be further analysed – Do
                                incremental costs and average avoidable costs        rivals have realistic and effective
                                                                                     counterstrategies at their disposal?

                               (c) Define detailed and precise qualitative factors in terms of capabilities and execution
                                   in order to avoid controversy on their objective character and the measure of the
                                   customers’ performance in the incentive rebate scheme.

                               (d) Improve transparency of the incentive rebate scheme despite the business interest for
    “This area of                  individualised programs. Various options possibly available should at least be disclosed
    antitrust law is a key         to each individual customer.
    enforcement priority for
    the Commission.”           (e) Describe in detail elements regarding the efficiencies that the incentive rebate scheme
                                   generates for the company and for the customers.

                               (f) Ensure that your internal compliance programmes do not only concentrate on
                                   preventing anti-competitive contacts with competitors or vertical restraints, but also
                                   incorporate guidance in respect of abusive conduct.

                               (g) Be prepared to present documentary evidence to objectively justify your business
                                   strategies and conduct.

                               (h) If you face a competition authority’s investigation, use independent economic analysis
                                   as evidence showing that the competition authority’s view on your dominance is not
                                   crystal clear. In general, the national competition authorities in all CEE countries use
                                   economic analysis and are able to accept it from defendants as evidence. In Hungary,
                                   there is a pending amendment to the Competition Act which should result in one of the
                                   economic tests – the Herfindahl-Hirschman index test – becoming legally recognised
                                   as a calculation method. However, it is at the discretion of the national competition
                                   authority to assess the accuracy and independence of the document.

                               1.6 Enforcement
                               Abuse of a dominant position is an enforcement priority for the Competition Authorities.
                               The Commission’s Intel decision, and not least the size of the fine, highlights that
                               this area of antitrust law is a key enforcement priority for the Commission. It is also
                               increasingly focussed upon by the other competition authorities. The Commission notes
                               that it worked closely with the Federal Trade Commission in its Intel investigation and
                               the Commission’s decision also coincides with the announcement of a change in policy
                               by the US Department of Justice in relation to the provision of the US law equivalent
                               to Article 81 of the EC Treaty, known as “section 2”. The Department of Justice
                               announced that it “will be aggressively pursuing cases where monopolists try to use
                               their dominance in the marketplace to stifle competition and harm consumers”.

                               Also, the Commission’s publication of long-anticipated guidance on exclusionary
                               conduct, which outlines its economic and effects-based approach, gives a clear signal
                               of what the Commission’s enforcement priorities are going to be in the future.

8                                                                                               Allen & Overy LLP 2009 I If you can’t beat them
      The enhanced activity in this sector is also visible in the CEE region. Just a week before
      Intel was fined, the Czech competition authority had confirmed the record-breaking
      fine of EUR 9.07 million in a Czech case related to abuse of dominance (see the
      table below).

      TABLE: Which companies should exercise particular caution?

      In principle, companies active in all network industries and sectors which went or
      are going through the process of liberalisation, or industries where there are natural
      monopolies, or companies controlling essential facilities and intellectual property,
      should be aware that their position could lead to a suspicion that there is an abuse
      of dominance. Like the Commission, the national competition authorities in all CEE
      countries may impose fines of up to 10% of the dominant company’s turnover in the
      preceding financial year. To put this into context, Intel was hit with a record fine, but
      this still represented only 4.15% of its 2008 turnover.

        INDUSTRY                                  ABUSIVE CONDUCT AND FINE IMPOSED
        TELECOMMUNICATIONS                        The Polish competition authority imposed
                                                  a record fine of EUR 18 million on a
                                                  telecommunications operator for margin
                                                  squeezing and excessive pricing
                                                  Similarly, the Slovak competition authority
                                                  imposed a fine amounting to EUR 29.4 million
                                                  on a telecommunications operator for refusal
                                                  to allow access to essential facilities
        ENERGY                                    A fine of EUR 8.6 million was imposed on
                                                  a Czech dominant gas supplier for applying
                                                  dissimilar conditions to identical or
                                                  equivalent transactions
        TRANSPORTATION                            The Czech competition authority imposed
                                                  a record fine of EUR 9.07 million on a
                                                  dominant railway freight forwarder for
                                                  charging different prices to the same
                                                  category of customers
                                                  The Hungarian competition authority
                                                  imposed a fine of EUR 3.3 million on a
                                                  public transport company for excessive
                                                  pricing and refusal to supply
        MEDIA                                     The Polish competition authority imposed
                                                  a fine amounting to EUR 4.5 million on a
                                                  leading terrestrial radio and TV operator for
                                                  employing discriminatory practices

Allen & Overy LLP 2009 I If you can’t beat them                                                    9
                                           2. COMMERCIAL CONTRACTS AND COMPETITION –
                                              SOME PRACTICAL QUESTIONS

                                           2.1 Introduction
                                           Commercial contracts often include clauses and establish practices which are at the
                                           very edge of what is considered a normal and legally acceptable business practice,
                                           and which may be characterised as a violation of competition law. In practice, this
                                           differentiation can be quite complex and companies agree that there is lack of concise
                                           guidance from the competition authorities. In this section, we will focus on some of the
                                           practices which are frequently used – exclusivity clauses and retail price maintenance
                                           (RPM). We will briefly examine the use of exclusivity and RPM in commercial contracts
                                           between producers, suppliers and distributors, ie in commercial contracts between
                                           companies operating at different levels of the production or distribution chain. In
                                           a competition law context, these contracts are referred to as vertical agreements or
                                           agreements between non-competitors. Whilst vertical agreements do not constitute
                                           such a high risk for competition as cartel agreements, they have been examined on
                                           both a national and an EU level1 and can entail the risk that a fine will be levied or that
                                           the provision will be deemed to be unenforceable.

                                           2.2 Exclusivity
                                           The issue is whether the exclusivity provision falls foul of the prohibition on anti-
                                           competitive agreements. This could be at an EU level (Article 81 EC Treaty) or at
                                           a national level (each of the CEE countries has a competition regime for restrictive
                                           agreements, including vertical agreements). The substantive principles on the EU and
                                           the national levels are the same so it is not important for present purposes to consider
                                           which of them would apply. In any event, both can be applied by the national courts
                                           and the national competition authorities.

                                           Exclusivity can appear in different forms but very often its main feature is that the
                                           buyer is induced to concentrate his orders for a particular type of product with one
                                           supplier. Exclusivity clauses can take the form of a non-compete obligation, quantity-
                                           forcing obligation or an incentive scheme between the supplier and the buyer, which
                                           has the effect of making the buyer purchase certain products from one supplier only2.
                                           The main competition concern with such arrangements is that other suppliers in the
                                           market are not able to sell to the particular buyer and this may prevent them from
                                           competing with the exclusive supplier.

                                           The two main questions to consider in relation to any exclusivity clause in a commercial
                                           contract are as follows:

                                           n   First, does the contract appreciably foreclose competition?

                                           n   Second, if it does, does it nevertheless meet the criteria under which the
                                               prohibition is disapplied?

         On the CEE level, these include the Czech Kofola or Estée Lauder CZ cases or the Slovak Harry Potter distribution case.
         Paragraph 106 of the Commission’s Guidelines on Vertical Restraints.

10                                                                                                                  Allen & Overy LLP 2009 I If you can’t beat them
      2.3 Foreclosure
      In relation to the first question, the EU or national laws on vertical restraints do not
      define the term “foreclosure” but some guidance can be taken from the Article 82
      Communication, which states that:

      “the term “anticompetitive foreclosure” is used to describe a situation where
      effective access of actual or potential competitors to supplies or markets is hampered
      or eliminated as a result of the conduct of the dominant undertaking whereby the
      dominant undertaking is likely to be in a position to profitably increase prices.”3

      Exclusivity requirements and their negative impact on competitors were investigated by
      the Commission in the Coca-Cola case, which concerned distribution channels including
      in Hungary and Poland4. The Commission was, in particular, concerned about the
      practice of requiring supermarkets to reserve a large part of the shelf space dedicated to
      carbonated soft drinks for Coca-Cola branded products as well as attaching exclusivity-
                                                                                                                    “The issue of whether
      related restrictions on the installation of sales equipment such as drinks coolers,
                                                                                                                    the contract comes
      fountain dispensers or vending machines. Following its investigation, the Commission
                                                                                                                    within the prohibition
      adopted a decision and imposed a number of commitments on Coca-Cola. The main
                                                                                                                    needs to be analysed on a
      commitments accepted by Coca-Cola included the obligation that there will be no
                                                                                                                    continuous basis.”
      exclusivity provisions and retailers will be free to buy and sell any carbonated soft drinks
      from any third party. Coca-Cola may, however, bid for contracts containing exclusive
      supply obligations which are awarded by competitive tender by large private sector
      customers or public authorities.

      If a commercial contract has a foreclosure effect in relation to other competitors, it is
      very likely that it would be prohibited under competition law. The prohibition could be
      disapplied if a number of criteria are met, which are briefly mentioned below.

      2.4 Exemptions from the prohibition
      There is a safe harbour for vertical restraints. Commercial contracts which meet
      the terms of that safe harbour regulation (known as the vertical agreements block
      exemption (VBER)) do not infringe the prohibition provided that:

       n     the parties to the commercial contract are not competitors;

       n     market share accounted for by the supplier (or in case of an exclusive supply
             obligation, that of a buyer) does not exceed 30%: differences exist under CEE
             national law block exemptions, and these are summarised in the graph at the end
             of the section; and

       n     the other terms of the agreement meet the VBER terms.

      The imposition of exclusivity for five years will generally not infringe the prohibition.
      That does not mean that exclusivity for longer than five years is necessarily a problem –
      it simply means it has to be analysed in its market context. It is possible that at
      some point during the five years this arrangement would come to be regarded as part
      of a network of arrangements which had the combined effect of falling within the
      prohibition. Legally, the agreement would then fall within the prohibition at that
      time. The key point to note is that the issue of whether the contract comes within the
      prohibition is analysed on a continuous basis, and commercial contracts which are
      initially safe can cease to be characterised as such, as a result of other changes in the
      market or other agreements.

           Paragraph 19, Article 82 Communication.
           The case concerned abuse of dominant position by Coca-Cola through commercial contracts containing, iner alia, exclusivity and rebates
           provisions with retailers.
Allen & Overy LLP 2009 I If you can’t beat them                                                                                                     11
      Vertical Restraints – List of Exemptions
      De minimis exemption
      n    vertical restrictions imposed by a firm having a low market share in the relevant
           market are “pardoned” under competition law. Low market share means that
           neither party’s (whether it is a distributor or a supplier) market share exceeds
           10% in Slovakia, Hungary, Romania, Poland and 15% in the Czech Republic
      n    condemned (hard-core) restrictions are illegal regardless of the market share of
           the firm
      Individual exemption
      This covers restrictions which:
      n    contribute to improving the production or distribution of goods or to promoting
           technical or economic progress, while
      n    allowing consumers a fair share of the resulting benefit, and which
      n    do not: (a) impose on the undertakings concerned restrictions which are not
           necessary; and (b) afford such undertakings the possibility of eliminating
           competition in respect of a substantial part of the products in question
      Block exemption
      National laws set out more detailed conditions under which certain restrictions are
      considered legal (see also the graph at the end of the section)

     2.5 Risk analysis
     In practical terms, the principal concern should be enforceability and fines. (Third
     party damages actions are also a possibility, but are unlikely to present a serious
     risk unless the competitive damage is acute.) If a national court were to find that a
     clause were in breach of the prohibition, it is likely that it would substitute the clause
     with a less restrictive provision although in some jurisdictions it can strike out the
     clause entirely. However, this would need to be considered in relation to the specific
     commercial contract. Whenever the exclusivity clause goes beyond the safe harbour
     established by the VBER, the following needs to be considered:

     n    the chances that at some point the clause will be deemed to constitute
          anti-competitive foreclosure (probably in combination with other contracts
          and arrangements);
     n    the strength of the justifications for the disapplication of the prohibition under the
          individual exemption; and
     n    the practical effect of a possibly unenforceable clause.

12                                                                    Allen & Overy LLP 2009 I If you can’t beat them
                                                            Vertical agreements

        Supplier’s/Distributor’s                                                      Supplier’s/Distributor’s
             market share:                                                                 market share:
         SK, PO, HU, RO: ≤10%                                                          SK, PO, HU, RO: >10%
               CZ: ≤15%                                                                      CR: >15%

       “De–minimis”                                                                          Individual
                                                               Block exemptions                                           No exemption
        exemption                                                                           exemptions

                                                   SK, CZ              PO                 HU                      RO

         All Community Block                   General vertical        General vertical            The agreement                General vertical
         Exemptions directly                     agreements           block agreements              contributes to                agreements
              applicable                          exemption             Motor vehicle             (i) improving the           Maritime transports
                                                Motor vehicle                                production/distribution/         Technology of know
                                             Technology transfer                              technical or economic              how transfer
                                                Specialisation                                     progress, while                 Insurance
                                               or research and                              (ii) allowing consumers a            Motor Vehicle
                                                development                                 fair share of the resulting         Specialisation,
                                                                                              benefit, and does not:             research and
                                                                                                 (1) impose on the               development
                                                                                            undertakings concerned
                                                                                              restrictions which are
                                                                                              not indispensable, and
                                                                                                    (2) afford such
                                                                                                  undertakings the
                                                                                            possibility of eliminating
                                                                                            competition in respect of
                                                                                             a substantial part of the
                                                                                               products in question.

             Not restrictive
      (unless hardcore restrictions)                          Prohibited

Allen & Overy LLP 2009 I If you can’t beat them                                                                                                     13
                                         2.6 Resale price maintenance (RPM)
                                         Until recently RPM has been consistently viewed as a hard-core restriction, prohibited
                                         by competition law in the US as well as in the EU (including the CEE jurisdictions).
                                         This is no longer the case. In its June 28, 2007 decision in Leegin Creative Leather
                                         Products, Inc. v. PSKS, Inc., the U.S. Supreme Court established the rule of reason as
                                         the prevailing standard for assessing the legality of vertical agreements to set minimum
                                         resale prices. This decision expressly overturned, by a five-to-four margin, the 1911
                                         decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911),
                                         which consistently had been interpreted as creating a per se rule against a vertical
                                         agreement between a manufacturer and its distributor to set minimum resale prices.
                                         As a result of the ruling in Leegin, vertical agreements to fix minimum prices now are
                                         accorded the same treatment as other forms of vertical restraints, including vertical
                                         non-price restraints and maximum price-fixing agreements.

                                         EU law continues to adhere to the Dr. Miles approach, condemning fixed and minimum
                                         price agreements as per se unlawful. According to EU regulations the buyer has to
                                         be allowed to determine freely the price for resale of goods and services. Fixed and
     “RPM structures have                minimum price agreements constitute “hardcore restrictions” (which can be defined
     attracted a lot of                  as serious restrictions to competition that cannot produce any beneficial effects
     attention from the                  and which cannot be exempted) whilst maximum and recommended resale price
     national competition                agreements do not.
     authorities in the                  At the most basic level, RPM can be achieved through directly fixing the minimum
     CEE region.”                        resale price, but there are also other less obvious means of applying RPM. Examples
                                         include the following:

                                         n   fixing the distribution margin;

                                         n   fixing the maximum level of discount the distributor can grant from a prescribed
                                             price level;

                                         n   making the grant of rebates or reimbursement of promotional costs by the supplier
                                             subject to the observance of a price level; and

                                         n   imposing warnings and penalties in relation to observance of a given price level5.

                                         RPM structures have attracted a lot of attention from the national competition
                                         authorities in the CEE region, which is evidenced by a number of decisions issued in
                                         this area including:

                                         n   The Slovak competition authority’s imposition of a fine on a publisher that required
                                             distributors of Harry Potter books to sell the books “only at a recommended
                                             retail price” and made failure to do so subject to a penalty6. This case was a
                                             classic example of a situation where an arrangement that appears to relate to a
                                             recommended price was actually strictly enforced by the publisher, and thus in
                                             practice amounted to a fixed price.

                                         n   The Czech competition authority’s decision to impose a fine on Kofola Holding, a.s.
                                             (which, after reduction, amounted to 13.5 million CZK) for RPM. Companies in the
                                             Kofola group (a producer of non-alcoholic beverages) entered into forbidden vertical
                                             agreements on RPM with their wholesale customers between the years 2001 to
                                             2008. These customers were bound to apply unified prices on resale7.

                                         Pricing policies, including RPM, raise some of the most complex antitrust issues and
                                         we would strongly advise to have them reviewed by an antitrust expert to avoid the risks
                                         of potential fines and unenforceability.

         Paragraph 47 of the VBER.
         Decision of the Slovak competition authority no. 2008/KV/1/1/053 dated 30 June 2008.
         Decision of the Czech competition authority no: S 095/2008/KD-14495/2008/810, dated 25 July 2008.

14                                                                                                           Allen & Overy LLP 2009 I If you can’t beat them

      3.1 Introduction
                                                                                                              Three facts about
      This chapter considers so-called horizontal agreements. Horizontal agreements are                       horizontal agreements:
      agreements between actual or potential competitors, that is, undertakings operating at
                                                                                                              n   there is no need for
      the same level of the production or distribution chain.
                                                                                                                  an agreement to be
      3.2 Cartels                                                                                             n   there is no conceptual
      Some types of restrictions are prohibited by their very nature and it is unnecessary                        difference between
      to prove that the agreement would have an anti-competitive effect. In consequence,                          an ‘agreement’ and a
      they almost always infringe competition law. These agreements are called “hardcore                          ‘concerted practice’ –
      restrictions”. Price fixing and market sharing are the typical hardcore restrictions.                       they relate to different
                                                                                                                  forms of the same
          PRICE FIXING                  Price fixing refers to situations in which companies directly             conduct; and
                                        or indirectly fix the prices of products and, in doing so, apply      n   it is sufficient to
                                        a price different from that which would exist in a competitive            prove the existence
                                        environment. It is not just direct, actual price fixing that              of an ‘agreement or
                                        is caught by the prohibition; prior consultation between                  concerted practice’ –
                                        competitors regarding price lists, agreements on terms and                there is no need to be
                                        conditions which limit price competition, agreements on                   specific about whether
                                        recommended prices and maximum pricing can also be caught                 it is an agreement or
                                        The fact that a company does not respect prices agreed with               concerted practice.
                                        competitors is not a defence

                                        Mere silent participation in a cartel meeting can also amount
                                        to a breach of competition law

          MARKET                        Market sharing refers to an arrangement in which companies
          SHARING                       agree to apportion particular markets between themselves.
                                        Market sharing agreements include not only the division of
                                        territories (for instance that company A sells products only in
                                        territory A and company B sells in territory B), but also division
                                        of products (producer A and B agree which products each of
                                        them will supply) and customers (for instance company A sells
                                        only to trade customers and company B only to retailers). Market
                                        sharing practices lead to the elimination of competition within
                                        the allocated territories or with respect to allocated customers,
                                        and can harm customers through, for example, driving up prices

          BID RIGGING                   Bid rigging is a particular form of co-ordination between
                                        firms which can adversely affect the proper conduct of the
                                        tender process. For example, firms may agree their bids in
                                        advance, deciding which company will submit the lowest bid.
                                        Alternatively, they may agree not to bid or to rotate their bids by
                                        number or value of contracts. Again, such practices eliminate
                                        competition among tender participants and may lead to bids
                                        with uncompetitively high prices

          OUTPUT                        Output restrictions refer to arrangements where firms agree
          RESTRICTIONS                  to restrict their output, limiting production in order to restrict
                                        supply and cause a price increase

Allen & Overy LLP 2009 I If you can’t beat them                                                                                          15
                                 3.3 Danger Areas
                                 There are certain key principles which should be followed to avoid breaching
                                 competition law when dealing with competitors, along with some prohibited activities
                                 of which companies must certainly be aware. As a general rule, it is not advisable to
                                 discuss or agree with competitors any of the following: prices, discounts, timing of
                                 price changes, allocation of customers or region capacity, supply terms or output.
                                 Black-listing or boycotting of competitors, suppliers or customers, and bid-rigging are
                                 also activities which are highly likely to breach competition laws.

                                 3.4 Information Exchanges/Trade Association Meetings
                                 Exchange of information can raise serious antitrust issues. While certain information
                                 exchanges may increase the efficiency of the market (for instance an exchange of
                                 information relating to methods of accounting, stock control, book-keeping, standard
                                 form contracts, benchmarking, etc) other types of information, in particular that which
                                 is commercially sensitive and may affect competitors’ business strategies or lead to
                                 market collusion, should not be exchanged.
     “The contacts between
     competitors could be
     justifiable but need to     3.5 Contacts with competitors
     be considered carefully.”
                                 Contacts with competitors may lead to two serious anti-trust issues:
                                 n   First, the exchange of sensitive information in itself infringes competition law. The
                                     question of whether a particular information exchange qualifies as a prohibited
                                     information cartel must be decided on a case-by-case basis. In general terms,
                                     the exchange of aggregated and historical data may be allowed, but all exchanges
                                     beyond that are prohibited because they help eliminate the unpredictability of
                                     competitors’ behaviour in the market. To avoid running the risk of breaching
                                     antitrust law, a case-by-case assessment by a competition lawyer of the company’s
                                     planned information exchanges is a must.

                                 n   Second, in a given situation a sole incident of contact between competitors may in
                                     itself be sufficient evidence that such companies concerted their practices.

                                 Accordingly, it is advisable to be wary about talking to competitors. The contacts
                                 between competitors could be justifiable (eg legitimate trade association business,
                                 reciprocal trades, customer relationships, existing social relationships), but need to be
                                 considered carefully. It is helpful to consider how documents and communications with
                                 competitors could be perceived by regulators or third parties. One has to be particularly
                                 careful about language used in documents, including emails, and avoid using terms
                                 such as “fix/control prices”, “share the market”, “control the market”, “eradicate/
                                 squash competition”, “boycott”, “drive out of the market”, “prevent imports/exports”.

                                 3.6 Exemptions from prohibitions
                                 Certain activities, such as price fixing or market sharing, are considered to be so
                                 anti-competitive that they are condemned by competition law as hard-core restrictions
                                 and there is little chance that arguments can be made to support their use. Nonetheless,
                                 competition law recognises the potential positive effects of certain of the restraints that
                                 horizontal agreements place on consumers and, in consequence, there are a limited
                                 number of exemptions to anti-competitive agreements.

16                                                                                              Allen & Overy LLP 2009 I If you can’t beat them
          “Pardoned” Restrictions

          De minimis exemption

          Horizontal restrictions imposed by a firm which has a low market share in the relevant market are “pardoned”
          under competition law

          In order to qualify for the “low market share” exemption, the following thresholds are applied: in Hungary and
          the Czech Republic, the combined market share of the parties to an agreement cannot exceed 10%; in Slovakia,
          the combined market share or market share of each party individually cannot exceed 10%; in Poland the
          combined market share cannot exceed 5%; in Romania, the total turnover of the relevant entities cannot
          exceed EUR 4,000,000 and the combined market share of the companies involved cannot exceed 5%

          Condemned (hard-core) restrictions are illegal regardless of the market share of the firm

          Individual exemptions

          Restrictions which:

          n    contribute to improving the production or distribution of goods or to promoting technical or economic
               progress; while

          n    allowing consumers a fair share of the resulting benefit; and which

          n    do not: (a) impose on the undertakings concerned restrictions which are not considered necessary; and (b)
               afford such undertakings the possibility of eliminating competition in respect of a substantial part of the
               products in question

          Block exemptions

          Under certain conditions, specialisation agreements and research and development agreements are exempted in
          the Czech and Slovak Republics, Hungary, Poland and Romania

       3.7 Sanctions
       Companies involved in cartels or other restrictive agreements can be sanctioned with fines. In determining the basic
       amount of the fine, the national competition authorities can fine up to 10% of the value of the company’s sales of
       goods or services in the relevant geographic area to which the infringement directly or indirectly relates, which have
       been made during the last full business year during which the infringement took place. However, this amount may be
       further adjusted with respect to aggravating and mitigating circumstances. In Hungary the maximum amount of fine
       imposed may be up to 10% of the global turnover of the corporate groups of the undertakings concerned.

       Individuals involved in restrictive practices face the risk of criminal sanctions. In Hungary and Poland only bid rigging
       can be punished by imprisonment, while in the Czech and Slovak Republics participation in unfair competition is
       a criminal offence. In addition, as of 1 January 2010, entering into prohibited cartel agreements and bid rigging
       will become explicitly recognised as criminal offences in the Czech Republic8. In Romania, individuals who act with
       fraudulent intent and in a decisive manner in creating, organizing or performing restrictive practices can be punished
       by imprisonment.

       In addition to the increasing level of the fines imposed by the national competition authorities, companies are
       increasingly likely to find themselves in court defending themselves in actions for damages by those harmed by their
       anti-competitive behaviour (competitors, consumers, etc). In Hungary, for example, there are two pending damages
       actions against participants of bid-rigging cartels.

       Please note that in the Czech and Slovak Republics a criminal offence can only be committed by natural persons, ie mainly managing and
       executive directors and/or members of companies’ boards might be found liable.
Allen & Overy LLP 2009 I If you can’t beat them                                                                                                 17
                               4. DAWN RAIDS AND LENIENCY

                               4.1 What clients should know about procedural issues
                               After reading the previous three chapters you will have hopefully developed an
                               overview of some of the key competition law issues and of how they can impact upon
                               your business. This section deals with certain procedural matters which are common
                               in modern competition enforcement and which therefore deserve the attention of
                               companies. These are:

                               n   leniency procedures, and

                               n   dawn-raids.

                               The two topics mentioned above are not necessarily related, although it is often the
                               case that companies consider filing a leniency request when a dawn-raid has been
                               carried out by a competition authority. In consequence, we deal with these topics
                               separately in this chapter.

                               4.2 What is leniency?
                               Leniency (in a competition law context) means an approach by a company to a
                               competition authority, with information and evidence in relation to an anti-competitive
                               practice in which that company is involved (along with another company or other
                               companies, with a view to either receiving full immunity from any fines for violation of
                               competition law or at least a reduction of any fine levied if the authority decides to open a
                               formal case.
     “The leniency systems     It should be noted that it is only possible to apply for leniency in those countries which
     that apply in different   have adopted leniency legislation. This is the case in nearly all EU Member States.
     EU Member States are      Leniency legislation has not been adopted in Malta or Slovenia.
     not uniform.”
                               Having said this, it should also be noted that the leniency systems that apply in different
                               EU Member States are not uniform. In fact, it is often the case that there are more
                               differences than similarities. Probably the most notable disparity lies in the scope of the
                               leniency laws themselves. In Slovakia and Hungary, leniency laws are only applicable
                               in the context of hard-core cartel cases, in Poland they are relevant in respect of any
                               anti-competitive practices, whereas in Romania leniency rules have a more general
                               applicability, ie for offences relating to anti-competitive practices, abuse of a dominant
                               position and economic concentrations which result in the creation or consolidation of a
                               dominant position leading to a distortion of competition.

                               Although the leniency system in the Czech Republic has very similar characteristics to
                               the EC leniency model in that it covers only hard-core cartels, the Czech Anti-monopoly
                               Office has recently started applying a specific settlement procedure in vertical restraint
                               cases. This procedure permits a company which agrees that it has violated competition
                               law to obtain a reduction in the fine of an amount which is at the discretion of the Czech
                               Anti-monopoly Office. In practice, the reduction has been up to 50% of the fine imposed.

18                                                                                              Allen & Overy LLP 2009 I If you can’t beat them
      4.3 How to apply for leniency
      To apply for leniency companies usually must file a so-called leniency request with
      the relevant competition authority. In recognition of the delicate nature of leniency
      requests there are specific rules in place in all CEE countries which are designed to give
      companies who provide the competition authorities with useful information regarding
      anti-competitive practices as much comfort as possible when communicating with
      officials on an informal basis.

      In particular, national laws in CEE countries regulating leniency procedures offer
      companies the possibility to apply for a “marker” or make a formal application for
      immunity straight away.

      The “marker” system allows a company wishing to apply for immunity to establish
      its status as the first “whistleblower”, buying it time to gather together the necessary
      information and evidence to qualify for immunity at a later date agreed by the
      national competition authority. If the applicant submits a full application within
      the set time period, the application will be deemed to have been submitted on the
      date when the marker was granted. In order to be eligible to secure its status as the
      first “whistleblower”, the applicant must provide the relevant national competition
      authority with the following information at the outset:

      (i) the name(s) of the other companies participating in the anti-competitive practice;

      (ii) the affected products and/or services;

      (iii) the affected territories;

      (iv) the estimated duration of the anti-competitive practice; and

      (v) the object of the practice or details of how the anti-competitive practice functioned.

Allen & Overy LLP 2009 I If you can’t beat them                                                    19
                                             4.4 Hypothetical application
                                             Generally if a company decides to make a formal application, it should provide all
                                             the information and/or evidence required at the outset. However in certain CEE
                                             jurisdictions the company may present the required information in hypothetical
                                             terms by submitting a so-called hypothetical leniency application9. In such cases the
                                             application should include a detailed list of evidence which the applicant proposes to
                                             disclose to the relevant national competition authority within an agreed period of time.
                                             Although certain information may be disclosed at a later stage (for example the identity
                                             of the applicant), the company should at the very least identify the relevant product or
                                             service sector, the geographic scope of the alleged practice and the estimated duration
                                             of the anti-competitive practice.

                                             4.5 European Commission or the national competition authority?
                                             In cases where the anti-competitive behaviour has an effect in three or more EU
                                             Member States the company may apply to the European Commission for immunity.
                                             However the company should also consider the need for individual leniency
                                             applications in specific jurisdictions, as there is still a risk that the infringement in
                                             question could be investigated by the competition authority in individual Member
                                             States. In order to reduce the burden of making multiple applications, the company
                                             making an application for leniency to the European Commission can file summary
                                             applications to national competition authorities in certain countries which may be
                                             affected by the anti-competitive practices (including Poland, the Czech Republic,
                                             Slovakia and Hungary). Summary applications only need to contain limited information,
                                             such as information on:

                                             (i) the companies participating in the anti-competitive practice;

                                             (ii) the affected products and/or services;

                                             (iii) the affected territories;

                                             (iv) the estimated duration of the anti-competitive practice; and

                                             (v) the object of the practice.

                                             Leniency or immunity applicants may think that the European Commission’s leniency
                                             programme is a one-stop-shop procedure and covers all member states within the EU.
                                             This is sometimes only true to a certain extent. If cartel activity preceded the accession
                                             of the given country to the EU, the relevant national competition authority will have
                                             competence to investigate the cartel and impose a fine for the pre-accession period
                                             under the relevant national competition rules. The Czech and Slovak Republics, Poland,
                                             Hungary and Romania had their own anti-trust regulation before their accession to the
                                             EU. The territorial coverage of the European Commission’s leniency will depend on the
                                             territory which is subject to the European Commission’s investigation. Consequently, it
                                             does not cover all EU member states automatically.

                                             In order to facilitate and accelerate the submission of all of the required information,
                                             some national competition authorities in CEE have provided that leniency applications
                                             can be made orally, by fax or by e-mail10. However a company submitting an application
                                             by fax or by e-mail should provide the relevant national competition authority with
                                             either an original or a certified copy of the application within a prescribed time limit (in
                                             Poland and Slovakia within three days, in the Czech Republic within five days). Failure
                                             to do so could lead to a company forfeiting the benefits conferred by the application.

          Hypothetical application is not available in Hungary.
          In Hungary, it is not possible to file a leniency/immunity application via fax or email. In Romania, the law is silent about possibilities of
          filing a leniency application via e-mail or fax.

20                                                                                                                        Allen & Overy LLP 2009 I If you can’t beat them
                                                                                                        “Regardless of the
      4.6 Why apply for leniency?
                                                                                                        actual reasons behind a
      There are various reasons underlying a company’s decision to submit a leniency application.       company’s decision to
      For some, it is just a matter of compliance with the law when it comes to light (often            apply for leniency, one
      with the help of external lawyers) that they have breached competition rules. Others are          thing is certain – it is a
      prompted by dawn-raids or anti-monopoly investigations. There are also companies which            very complex decision.”
      decide that the benefits stemming from applying for leniency set against those that are
      gained out of violation of the law are greater. But regardless of the actual reasons behind
      a company’s decision to apply for leniency, one thing is certain – it is a very complex
      decision, and, in light of the potential disruption to a business, it should be taken on the
      basis of a thorough analysis of each given case. That analysis must include, among other
      things, consideration of whether the company will be granted the benefit of full immunity or
      whether a reduction in a fine is more likely.

      4.7 Full immunity or a reduction in the fine?
      Under the leniency rules applicable in Poland, whether a competition authority grants
      full immunity or a reduction in the fine depends upon a set of conditions which should
      be considered by a company applying for leniency. Conditions for full immunity are
      much stricter and they require a company to:

      n     be the first leniency applicant to provide the competition authority with sufficient
            evidence to enable the authority to open the case (or to be the first applicant that,
            on its own initiative, provides the authority with sufficient evidence to enable the
            authority to issue a decision that competition law has been breached); and

      n     cease participation in the illegal practice either prior to or at the time it submits the
            leniency application; and

      n     prove it is not an instigator and/or coercer of the anti-competitive practice; and

      n     cooperate fully with the authority in the proceedings.

      It is possible for a company to secure a reduction in any fine levied if it can only meet
      the first two conditions listed.

      The above conditions are more or less the same under the leniency programmes of
      other CEE states.

      In addition to the conditions described above, in order to obtain full immunity or a
      reduction of a fine in the Czech Republic, the applicant must:

      (i) neither reveal directly nor indirectly the facts or any of the contents of the immunity
          application to third parties; or

      (ii) destroy, falsify or conceal evidence of the alleged cartel when making its application
           to the Czech competition authorities. Specific conditions and practices exist in all
           CEE countries and these should be discussed with local antitrust experts.

Allen & Overy LLP 2009 I If you can’t beat them                                                                                      21
                                 Reduction in fines as a result of a successful leniency application
                                 CEE Member            Amount of fine generally imposed            Reduction in the fine
                                 State                 for breach of competition law

                                 Czech Republic        10% of the company’s gross turnover Full immunity for the first
                                                                                           successful applicant, and
                                                                                           reductions of up to 50% of the fine
                                                                                           for other applicants
                                 Hungary               10% of the company’s gross turnover         Full immunity for the first
                                                       or, where the company is a member           successful applicant, and
                                                       of a group of companies, 10% of the         reductions of up to 50% of the fine
                                                       group’s turnover                            for other applicants
                                 Poland                10% of the company’s gross turnover Full immunity to the first
                                                                                           successful applicant, and
                                                                                           reduction up to 5% or 7% of the
                                                                                           company’s gross turnover,
                                                                                           to successful subsequent
                                                                                           leniency applicants
                                 Slovakia              10% of the company’s gross turnover Full immunity for the first
                                                                                           successful applicant, and
                                                                                           reductions of up to 50% of the
                                                                                           fine for other applicants
                                 Romania               10% of the company’s gross turnover Full immunity for the first
                                                                                           successful applicant, and
                                                       The profits derived from the anti-
                                                                                           reductions of up to 50% of the fine
                                                       competitive acts can be confiscated
                                                                                           for other applicants
                                                       by the authorities

                                It should be noted that in spite of the rules, the national competition authorities still have a
                                certain discretion when deciding whether to grant full immunity or a reduction in the fine(s).
                                The critical questions are whether a leniency applicant provides the competition authority
                                with sufficient evidence to enable the authority to open the case or to issue a decision on the
                                case. The question of what constitutes sufficient evidence is decided on a case-by-case basis
                                supported by a full understanding of the facts.

     “The question of what        4.8 Useful information
     constitutes sufficient       The competent authority:
     evidence is decided on a     Czech Republic                     Poland                               Slovakia
     case-by-case basis.”         Office for the Protection of       Office of Competition and            Anti-monopoly Office of the
                                  Competition                        Consumer Protection (Urząd           Slovak Republic (Protimonopolný
                                  (Úřad pro ochranu hospodářské      Ochrony Konkurencji i                úrad Slovenskej republiky)
                                  soutěže)                           Konsumentów)                         Division of Agreements
                                  tr. Kpt. Jarose 7                  Division of Competition Protection   Restricting Competition,
                                  604 55 Brno                        Plac Powstańców Warszawy 1           Drieňová 24,
                                  Tel +420 542167233                 00 950 Warsaw                        826 03 Bratislava,
                                  Fax +420 542167288                 Tel + 48 22 55 60 555                Tel + 421 2 43334 045
                                  E-mail posta@compet.cz             Fax + 48 22 826 10 33                Fax + 421 2 48297 365
                                                                     E-mail leniency@uokik.gov.pl         E-mail (to consult) leniency@
                                  Hungary                            Director – Monika Bychowska          antimon.gov.sk
                                  Hungarian Competition Authority,                                        Director – Ing. Ján Šufliarsky
                                  Cartel Group (Gazdasági            Romania
                                  Versenyhivatal, Kartell Iroda)     Competition Council (Consiliul
                                  Alkotmány u. 5                     Concurentei)
                                  1245 Budapest 5, PO Box 1036       Piata Presei Libere 1, corp D1,
                                  Tel (36 1) 472 8871, 472 8872      013701, Bucharest
                                  Fax (36 1) 472 8905                Tel + 40 21 223 00 24
                                  E-mail kartell@gvh.hu              Fax +40 21 222 26 12
                                                                     E-mail juridic@
                                                                     Director – Bogdan Marius Chiritoiu

22                                                                                                        Allen & Overy LLP 2009 I If you can’t beat them
      4.9 Legislation
        Czech Republic: (i) the Act No 143/2001 on the Protection of Economic Competition;
        and (ii) Leniency Guidelines 2007

        Hungary: Act LVII of 1996 on the prohibition of unfair and restrictive market practices

        Poland: (i) the Act of 16 February 2007 on the Protection of Competition and
        Consumers; (ii) the Regulation of the Council of Ministers of 26 January 2009 on the
        procedure to be applied when undertakings have applied to the President of the Office
        of Competition and Consumer Protection for renouncement or reduction of a fine; and
        (iii) Leniency Guidelines issued by the President of the Office of the Competition and
        Consumer Protection regarding leniency applications

        Romania: (i) the Competition Law No. 21/1996; and (ii) Instructions of 22 April 2004
        regarding the conditions and the criteria for applying the leniency policy in accordance
        with article 56 paragraph (2) of the Competition Law 21/1996 as further amended

        Slovakia: (i) Act No. 136/2001 Coll. on Protection of Competition and on Amendments
        and Supplements to Act of the Slovak National Council No. 347/1990 Coll. on
        Organisation of Ministries and Other Central Bodies of State Administration of the Slovak
        Republic as amended; and (ii) the Guidelines on not imposing or reducing a fine in some
        types of agreements restricting competition pursuant to article 38 par. 11 and par. 12 of
        the Competition Act; issued by the Anti-monopoly Office of the Slovak Republic

      4.10 What does the term “dawn raids” refer to?
      In order to prove the existence of illegal anti-competitive practices, national
      competition authorities in the CEE region have wide powers to require disclosure of
      all necessary information from companies. The power of investigation also includes
      the power to conduct inspections of companies. Inspections which are carried out by
      officials without prior notice to the companies involved are informally referred to as
      “dawn raids”.

      4.11 What is the scope of the inspection?
      The general purpose of the power to carry out the inspection is to enable the relevant
      competition authority to verify the factual and legal situation of the company suspected
      of participating in anti-competitive behaviour by obtaining evidence directly through its
      own officials.

      The national competition authority may authorise its officials to:

      n     enter and search buildings, premises, land and means of transport, including the
            homes of directors, managers and other members of staff of the relevant company;

      n     require that the companies produce books and other business records related to the
            business, including the copies or extracts from such books or records, and other
            corporate or legal documents;

      n     ask any representative or member of staff of the company for oral explanations
            of facts or documents relating to the subject-mater of the inspection, including
            making an audio recording of an oral explanation;

      n     make copies of, including physical back-up copies (mirror image) and notes from
            the documents or request their officially certified translations.

Allen & Overy LLP 2009 I If you can’t beat them                                                     23
                                   4.12 What is the basis for carrying out inspections?
                                   In most of the CEE countries, inspections may be carried out by officials only with
                                   authorisation from the national competition authority in a prescribed form. Before
                                   carrying out the inspection, the authorities are required to present the company or any
                                   person authorised by the company with an authorisation which, in most CEE countries
                                   should indicate the following:

                                   n   the date the inspection is to begin;

                                   n   the subject-matter of the inspection (the scope of the information that is to be
                                       provided or documents to be disclosed);

                                   n   the purpose of the inspection;

                                   n   the deadlines for complying with the obligation; and

                                   n   the company’s rights and duties, including the penalties which may be imposed for

                                   Under Czech and Romanian law the company must be informed of: (i) the legal basis
                                   of the investigation; (ii) its purpose; and (iii) instructions in respect of failure to provide
                                   documents and information requested. Under Slovak law, the officials may enter
                                   the business premises on the basis of an authorisation without any specific content.
                                   However, stricter rules apply in relation to inspections of premises not directly related
                                   to the business activities of a company.

                                   It is important to note that in all of the CEE jurisdictions, in cases where officials intend
                                   to conduct a search of personal premises (eg home, car), the simple authorisation is
                                   not enough and the officials must obtain the authorisation of the national court which
                                   should also be presented to the company before the inspection starts.

                                   4.13 What are the companies’ rights in relation to the
     “The authority’s powers            dawn raid?
     of investigation are
     limited to a certain extent   As noted above, whilst carrying out “dawn raids” the competition authorities have
     in all CEE countries.”        wide powers to request all necessary information, including the power to search for
                                   documents containing that information and the power to enter the premises in which
                                   the companies may have concealed such information.

                                   The authority’s powers of investigation are limited to a certain extent in all CEE
                                   countries in that the companies have legal guarantees to protect them against
                                   unreasonable and disproportionate searches.

                                   The power to obtain information may be subject to the protection given to the
                                   companies by two legal privileges, namely the privilege against self-incrimination and
                                   the attorney/client privilege for communications between lawyers and their clients.

24                                                                                                   Allen & Overy LLP 2009 I If you can’t beat them
      (a) Privilege against self-incrimination

            In all of the CEE countries, the inspected person may refuse to provide requested
            information or to cooperate in the course of the inspection if there is a risk that by
            providing information or cooperating with the competition authority the inspected
            person would expose himself or his closest relatives to criminal liability.

      (b) The attorney/client privilege

            Companies should be able to obtain independent legal advice from a lawyer without
            any restraint whatsoever. Communications between external lawyers and their
            clients (the companies) are confidential and in principle should not be examined by
            the officials carrying out the inspections.

            In the CEE jurisdictions there is no specific legal provision that would expressly
            protect the confidentiality of communications with independent lawyers in antitrust
            proceedings. However, given the community case law and the fact that in all of
            the CEE jurisdictions a lawyer is normally obliged to keep the affairs of a client
            confidential, there is a strong legal basis for companies to refuse disclosure of their
            communications with external lawyers.

      4.14 What are the companies’ duties?
      To the extent that privilege does not apply, once the inspection is launched, the
      company is bound to cooperate with the authorities by: (i) giving all the required
      information; (ii) enabling the officials to enter premises, land and means of transport
      which are subject to the inspection; and (iii) producing the requested books and other
      business records.

      In Poland, failure to cooperate during the inspection exposes the company to liability
      for a fine of up to 10% of the company’s turnover and, to an individual who fails to
      cooperate during the inspection, or who produces misleading or untrue information, to
      a penalty of up to a maximum of 50 times their average remuneration.

      In other CEE jurisdictions the penalties for companies’ lack of cooperation are
      calculated differently and may vary:

      n     In Czech Republic, Hungary and Slovakia, a fine of up to 1% of the company’s
            turnover may be imposed;

      n     in Romania the penalties for companies’ lack of cooperation, either by obstructing
            an investigation, omitting to provide the requested information or by providing
            incomplete or false information to the competition authority may amount to 1% of
            the gross turnover made by the company in the previous year.

      In the Czech Republic and in Slovakia, the fines can be imposed repeatedly.

Allen & Overy LLP 2009 I If you can’t beat them                                                       25
                              4.15 Practical information
                              Given the fact that “dawn raids” are by their very nature unannounced it is important
                              that representatives of the company subject to inspection react in a proper way.
                              Inevitably there will be some tension in understanding whether representatives should
                              protect themselves by not incriminating themselves and protect legal privilege, while
                              at the same time not exposing themselves to sanctions for not cooperating. Below we
                              provide certain practical information that may serve as a shortened version of guidelines
                              in this respect.

                              Before the inspection starts the companies’ representatives should:

                              n   contact their competition lawyer;

                              n   check the identity and investigation documents produced by the investigators,
                                  including the investigators’ names, and the purpose of their visit; and

                              n   establish the nature and scope of the investigation.

                              During the inspection the companies’ representatives should:

                              n   identify documents requested by the investigators and make sure that documents
                                  are within the subject matter of the investigation;

                              n   be careful not to obstruct the investigation by destroying or shredding documents, or
                                  informing competitors of the existence of the investigation;
     “It is important that
                              n   produce the documents falling within the scope of the investigation;
     representatives of the
     company subject to       n   make copies of documents upon request and assist investigators in the photocopying
     inspection react in a        (each document should be copied in duplicate, with copies for the investigators and
     proper way.”
                                  the company);

                              n   refrain from discussing/having any informal conversation with the investigators; and

                              n   note all files inspected, documents requested, saved and/or copied and the order in
                                  which they were requested.

                              As you can see, competition law is complex and some of the distinctions about
                              what is acceptable competitive conduct and what is not are subtle. The penalties
                              for not complying, however, are severe and the competition authorities have
                              wide-ranging powers. Therefore, even though business conditions may be trying,
                              it is important to make sure that you are not tempted to stray into any of the
                              prohibited behaviours described in this publication. It is also prudent to be
                              constantly monitoring your business practices to ensure that you are not, even
                              inadvertently, violating competition laws.

                              We hope that this guide is useful and wish you the very best of luck in your business
                              in CEE.

26                                                                                           Allen & Overy LLP 2009 I If you can’t beat them
Key office contact details

Bratislava                                           Budapest                                              Warsaw
Allen & Overy Bratislava, s.r.o.                     Morley Allen & Overy Iroda                            Allen & Overy,
Carlton Savoy Building                               Madách Trade Center                                   A. Pędzich sp. k.
Mostová 2, 5th Floor                                 Madách Imre út 13-14                                  Rondo ONZ 1
811 02 Bratislava                                    H-1075 Budapest                                       34 floor
Slovak Republic                                      Hungary                                               00-124 Warsaw
Tel +421 2 5920 2400                                 Tel +36 1 483 2200                                    Poland
Fax +421 2 5920 2424                                 Fax +36 1 268 1515                                    Tel +48 (0)22 820 6100
bratislava@allenovery.com                            budapest@allenovery.com                               Fax +48 (0)22 820 6199

Bucharest                                            Prague
Radu Tărăcilă Pădurari Retevoescu SCA                Allen & Overy (Czech Republic) LLP,
in association with Allen & Overy LLP                organizační složka
60 Dacia Boulevard                                   V Celnici 4, 5th Floor
020061 Bucharest 2                                   110 00 Prague 1
Romania                                              Czech Republic
Tel +40 31 405 7777                                  Tel +420 222 107 111
Fax +40 31 405 7778                                  Fax +420 222 107 107
bucharest@rtprallenovery.com                         prague@allenovery.com


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