Significant changes were made to the Hungarian Competition Act (Act LVII of 1996 on the Prohibition of Unfair and Restrictive Practices) in 2016, mainly in the field of merger control. The amendments entered into force in December 2016. In addition, by amending the Competition Act, the legislators have fulfilled their obligation to incorporate the provisions of the 2014/104/EU Directive ‘on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union' into the national law by the deadline of 27 December 2016.
As a result of the new regulations entering into force, proceedings opened upon request regarding the permission of the merger of undertakings will no longer be applicable, and only a notification of the undertakings will be required in the future if the merger exceeds the prescribed threshold limit, and the Hungarian Competition Authority (GVH) will open a proceeding ex officio to investigate its effects on competition. The authority must settle the notification within eight days. Regarding the notification procedure, an administrative fee of only 1 million forints must be paid when submitting the application, as opposed to the former fee of 4 million forints.
The threshold limits have also been modified: the former 500 million forint limit for ‘net turnover of each of at least two of the groups of undertakings concerned' has been increased to 1 billion forints. The 15 billion forints limit for aggregate net turnover of all the groups of undertakings concerned is unchanged. According to the act, only the Hungarian turnover (that is, inland sales) must be taken into account when calculating the combined net sales revenues. The GVH receives a new entitlement in connection with the raising of the threshold limits, since mergers under the threshold limits mentioned above can also be investigated, if the combined net sales revenues of the undertakings involved are above 5 billion forints, and the merger is likely to affect competition. In order to ensure that this law is enforced, undertakings involved in such mergers must notify the acquisition; in case of a failure to notify the authority is empowered to open a proceeding ex officio only within six months after the execution of the merger. In the context of all these changes, the amendment also enables onsite inspections (dawn raids) to be carried out based on a previously obtained judicial warrant in concentration cases, if a reasonable suspicion exists that the transaction in question would be implemented in the absence of the GVH's authorisation, or the notification of the concentration conceals essential information or contains misleading information.
There are many ways that undertakings can cooperate with the GVH to foster compliance. As a result of the amendment of the Competition Act, the GVH may now reward an undertaking under the framework of the settlement procedure with a fine reduction of 10-30% (as opposed to the previously available 10%). It is also possible to acquire full immunity or a fine reduction of as much as 50% in the case of vertical agreements aimed at resale price maintenance.
The largest legislative change is the new Administrative Procedure Act, which significantly reforms the general rules of the administrative proceedings and services. The Act will enter into force on 1 January 2018 and it will affect several aspects of the national competition rules. Due to the new principles and system, this new code will not allow a law enforcement as effective as its predecessor and cannot serve as the general legal background of the competition supervision procedure; therefore the procedural regulations of the Hungarian Competition Act must be revised and significantly altered. As a result of this modification, Hungarian competition law will have its own sui generis procedural system, based on the specific needs of the competition supervision procedure, thereby increasing the efficiency of the GVH.
Competition supervision activity
In 2016, a total of 112 competition supervision proceedings were initiated. As in previous years, the majority of these were consumer protection cases, although the number of merger cases rose to 58 (from 36 in 2014 and 54 in 2015). Nine cases were related to restrictive agreements and two to abuse of dominant position. Most of the market notices the GVH received relating to cartels were in connection with public procurement - particularly those supported by the European Union - and a significant amount of these notices, and the initiated competition supervision proceedings, were related to the market of medical diagnostic equipment.
In 2016, the ‘CartelChat' system was put into practice for the first time. This is an anonymous online contact platform for replying to questions about cartels and receiving information about alleged cartel infringements; it was developed and put into operation in December 2015. The CartelChat has fulfilled expectations and has become an important new source of information for detecting cartels, along other legal resources such as the leniency policy and the informant reward for the supply of indispensable evidence. In April 2016, the GVH was awarded an honourable mention for the CartelChat system by the International Competition Network and the World Bank Group in the 2015-2016 Competition Advocacy Contest.
The number of cases closed in 2016 was 130, broadly the same as in previous years (it was 125 in 2015; 124 in 2014; and 120 in 2013). The growth in the number of merger cases is significant; among the 130 closed cases there were 63 merger cases (compared to 49 in 2015), 53 unfair market practices cases, seven restrictive agreements cases and seven abuse of significant market power cases. The GVH imposed fines totalling 5,363,838,000 forints in 2015. The administrative time limit governing merger cases decreased from 30 days to eight days after the Amendment to the Act CLXXXVI of 2015 on the Reduction of Public Administrative Bureaucracy entered into force on 1 January 2016.
The GVH prepared its report on its sectoral inquiry on the online accommodation booking market. Due to the positive changes that took place on the market during the sectoral inquiry, the GVH does not foresee a need for intervention. The sectoral inquiry focused on the so-called ‘price parity clause' (MFN) which could be found in the agreements of international and large domestic online travel agencies (OTAs), as well as online booking portals. Pursuant to such a clause, a hotel binds itself not to offer its rooms for prices that are lower than those given on the website of the OTA and on other distribution channels. However, as a member of the Monitoring Working Group in the framework of the European Competition Network, the GVH continues to monitor market developments. The GVH highlights that the use of a narrow MFN clause may be the correct solution to the current market issues, based on the market conditions and taking into consideration the danger of the free-rider phenomenon, since a narrow MFN may pave the way for accommodation providers (hotels) to be able to freely apply different price policies via certain sales channels. The full report on the sectoral inquiry and further information are available on the GVH website.1
In the scope of its competition advocacy activity the GVH received a total of 92 submissions and seven draft pieces of legislation for comments in 2016. The GVH sent its comments in 31 cases, in some instances initiating changes. Besides the submissions officially received by the GVH for comments, another 394 draft pieces of legislation uploaded on the government's homepage required the attention of the GVH. The comments of the Authority continued to focus on creating a more competition-friendly regulatory environment, reducing the administrative burden and improving the conditions of the consumer decision-making process. A smaller number of comments concerned improving the quality of codification. The suggestions were mostly aimed at creating a competition-friendly regulatory environment, reducing administrative bureaucracy and improving the decision-making among consumers. During the year, several draft pieces of legislation concerned the GVH itself as a public administrative body and required comments.
In 2016 the GVH intervened on several occasions when it experienced problems in a number of markets regarding competition or consumer protection in relation to certain provisions of the monopoly control or other state interventions (eg, the market for broker activities) or other regulatory problems such as the abolishment of competition on a previously fully competitive market through legislative means (eg, the market for sightseeing buses in Budapest). Through its intervention, the GVH made a number of proposals as to possible state action that could be taken in order to eliminate the identified competition problems. A number of interventions also took place as a result of the amendment of the Advertising Act (Act XLVIII of 2008 on Essential Conditions of, and Certain Limitations to, Business Advertising Activity), which entered into force in December 2016. This amendment established a number of new functions for the GVH, such as the supervision of advertising agencies. The GVH responded in 21 cases requiring knowledge of the powers and law enforcement practices of the GVH and was contacted by ministries and one public corporation, thereby enabling the experiences gained by the GVH to be put to use. However, some requests had to be rejected due to ongoing competition supervision procedures.
While the legal framework is provided by the applicable competition law, it is through actual competition cases that the contents of this law are elaborated upon. The GVH considers the promotion of law-abiding behaviour a priority and to this end formulates certain ‘soft law' types of legal instruments to influence the application of competition rules. Since 2010, the GVH has published 40 notices, guidelines and handouts, and has also published a commentary on the Competition Act. The GVH prepared two important notices in 2016. They were issued as:
- Notice No. 1/2017 of the president of the Hungarian Competition Authority and the chair of the Competition Council of the Hungarian Competition Authority (Notice) on certain questions regarding proceedings on investigating concentrations; and
- Notice No. 2/2017 on the criteria of the obligation to notify a concentration, the initiation of a competition supervision proceeding and the non-obvious feature of the turnover threshold applicable in case of a full proceeding.
Standing alongside competition supervision and competition advocacy, the development of competition culture is the third pillar of the GVH's activities for the purpose of protecting competition. The effectiveness of the GVH's operations cannot be solely measured by the amount of the sanctions it imposes, and the basic tasks of the GVH are to maintain public interest in fair competition and a culture of compliance with the law.
In 2016, the GVH also placed significant emphasis on the importance of organising professional events and being a key player in the execution of these events. In addition, it continued to pursue actions that foster competition (but not actions closely related to raising public awareness of competition law). Such actions are aimed, firstly, at inciting consumers to think through decisions before making transactions and, secondly, at encouraging undertakings to comply with competition law rules.
As regards conferences, the GVH and the Hungarian Competition Law Association jointly organised a competition law conference entitled the first Hungarian Competition Law Forum, with the aim of establishing a longstanding tradition. The intention of the Forum was to gather all competition law stakeholders (ie, judges, attorneys, legal counsels, representatives of companies, academia and public administration) for a day to discuss the hottest and most relevant issues. Based on the participants' feedback the event was a major success, in particular due to the participation of Professor Richard Whish and several Hungarian competition law experts, who took part in panel discussions and contributed actively as participants. The Authority has created an independent page on its website dedicated to the event, where all the background materials are available. The Versenytükör, the official journal of the Authority, has compiled a special edition of discussed topics (‘Information Exchange and Intermediaries'; ‘The Codification of the Administrative Judicial Procedures'; ‘Competition Law Compliance - MOL Plc's Experience of Competition Law Compliance'; ‘The Importance of Competition Law Compliance'; and ‘Some Questions on the Transposition of the Antitrust Damages Directive').
Based on the success of the competition law history exhibition in September 2015, presenting the background behind the enactment of Act Nr. XI of 1931 on Agreements Regulating the Economic Competition, in March 2016 the GVH organised a law history exhibition on its national and international background, the Cartel Commission, the Cartel Court, and cases from the 1920s and 1930s on cartel agreements.
As part of its continued efforts to promote competition law compliance, the GVH initiated a web campaign to popularise its leniency policy, featuring the slogan, ‘It cannot be kept secret'. The slogan was also used on offline communication tools, for example, as illustrations on trays in office canteens and restaurants; on posters at Budapest Airport; on lockers at thermal baths in Budapest; and as illustrations projected on the monitors of regional buses. All these offline methods became part of the public discourse, which also shows their effectiveness. The campaign popularises the leniency policy, the aim of which is to convince cartel participants to break their silence and to cooperate with the Authority, in order to receive total immunity from fines or a reduction of the fines that the GVH would otherwise impose on them.
As regards the results of the campaign the following details should be highlighted. The awareness of leniency among SMEs increased by a significant number - from 27% to 39%, which represents 3,600 undertakings. It was also successful in that the heads of the SMEs supporting the leniency campaign increased by 25%. As regards facilitating law-abiding behaviour, it is important to state that after closing the campaign, the number of occasions on which suspicious situations were reported grew by one-and-a-half times, to a total of 2,100 occasions.
The OECD-GVH Regional Centre for Competition in Budapest (RCC) organised six seminars in 2016. The events focused on some important core competences of competition authorities, as well as on best practices in the area of competition law. In addition to its regular seminars, the RCC continued with its special initiatives: a seminar organised in one of the beneficiary economies, which in 2016 was held in Serbia, and a seminar organised jointly with the FAS Russia.
The Competition Policy Advisory Bureau Network continues its operation in five big cities (Debrecen, Eger, Szeged, Pécs and Győr) in Hungary. The Network assists the GVH in the area of consumer protection and enhances the messages/principles of the GVH through its communication activity.
As part of the Cultural Heritage Days project, the GVH opened its building to the public for the first time in 2015. Due to the positive feedback, the Open GVH programme was organised again in 2016. This attracted more visitors than the year before; they showed an interest in the history of the building and the daily work of the GVH, and were also able to ask its staff informal questions.
Focus for 2017-2018
On their reappointment in November 2016, the highest-level personnel of the GVH stated that they wished to continue the work that they had already started in the spirit of transparent and predictable law enforcement, and the enhancement of the Authority's client-friendly nature. Consequently, the following are considered the GVH's priorities for the next six years:
- the fast and efficient conclusion of merger authorisation proceedings, in order to lessen the risks associated with transactions;
- to facilitate the law-abiding behaviour of market operators by carrying out its activities in a transparent and predictable manner and by publishing notices and the decisions and position statements of the Competition Council;
- to ensure that in the majority of cases, access to the file is available remotely via a secure data connection, without the physical presence of the concerned parties;
- to introduce the possibility for electronic administration in the procedures;
- to develop the competition awareness of small and medium-sized enterprises, and also the development of programmes supporting competition compliance and targeted communication; and
- to analyse the online consumers and markets. The GVH realised that alongside the increasing advantages that the internet provides for consumers in terms of better information and choice, new sources of consumer drawback have been emerging. The GVH recently established a working group focusing on digital topics among others big data, online consumer behaviour and online reviews. The working group aims to conduct in-depth research on online markets and online consumers' behaviour. This will help the team to develop ideas of how to quickly and efficiently assess cases related to the digital economy, and how to analyse the most recent digital developments and trends from a consumer protection point of view. This will serve as a basis for launching antitrust proceedings in the future.