Legislative and sectoral developments
For the Polish Office of Competition and Consumer Protection (UOKiK), 2016 has brought about significant developments, mostly on the legislative front. First, with the adoption of the Act on counteracting unfair use of bargaining power in trade of food and agricultural products, UOKiK received new powers as the authority designated to enforce the applicable provisions. The law itself came as a reaction to a number of unfair trading practices which have been occurring in the food and agriculture supply chain. In order to effectively resolve disputes between suppliers and recipients of agricultural and food products, the Polish legislator introduced the concept of abuse of bargaining power. Bargaining power as such may be described as significant disparity in economic potential between two parties of a negotiation, with the weaker one lacking sufficient capacity for selling or purchasing products from other undertakings. According to the new legislation, when one of the parties of a transaction in the agriculture and food sector (both suppliers and acquirers) is subject to abuse by a commercial partner with bargaining power, UOKiK will be entitled to take action, whether it is on the basis of a complaint or ex officio. The powers and procedures of UOKiK will be similar to the ones specified in Polish competition law. Having established unfair use of bargaining power, UOKiK will be able to issue prohibition as well as commitment decisions, and impose a maximum fine of 3% of the company's turnover. The Act on counteracting unfair use of bargaining power in trade of food and agricultural products will enter into force on 12 July 2017. Implementation of the new law and application of the novel powers will be UOKiK's focal point in 2017 and for the years to come.
UOKiK has played a key role in legislative amendments in another sector: water and sanitation services. In 2016 the Polish Council of Ministers assigned UOKiK to draft the bill that will establish a water-sector specific regulator and form part of a major reform of the law on water. On 18 October 2016 UOKiK submitted the draft text of the law to the ministry responsible for the amendment of the water law. UOKiK's proposal provides the entity designated to perform the function of water specific-sector regulator will be approving water/sanitation tariffs and will be issuing opinions on regulations. The regulator will act locally, through established branch offices. It is important to emphasise that this entity will not be fixing the ultimate price for water and sanitation services. It will only ensure the prices are neither excessive, nor unjustified.
UOKiK also contributed to the creation of a competitive water market by means of an advocacy action. On 13 July 2016 the Office of Competition and Consumer Protection published the ‘Guidebook on the Water and Sanitation Services Market'. The aim was to raise awareness of applicable rules of competition law among providers, supervisors and users of water and sanitation services. The publication provided general information on competition protection law and policy, taking into consideration the specificity of the water-sanitation market. It outlined typical infringements committed in the water and sanitation services sector, covering irregularities in contract design and enforcement and the most problematic issue identified by UOKiK — building networks and connecting them to customers. In order to clearly illustrate the issues at hand UOKiK presented specific infringements that have been the subject of its decisions. The goal was for the guidebook to be as user-friendly as possible and accessible to a large audience, not to professionals only. Ever since the publication of the guidebook, UOKiK has been informed about new practices on the market. This shows that UOKiK' advocacy initiative was a success, as it not only spread knowledge on competition rules, but also pushed consumers to report illegal activity to UOKiK. UOKiK's publication was also recognized internationally by winning best implemented advocacy strategy at multiple levels in the competition advocacy contest, organized in 2017 by the ICN and the World Bank Group.
In the foreseeable future, as mentioned, UOKiK will devote much of its attention to the food supply chain. It will also exercise scrutiny over the telecommunications and digital sector, with in mind the uprising issue of big data and high-tech markets. In the legislative area, UOKiK intends to start working on the amendment of the competition and consumer protection act (discussion on the scope of proposed changes are still at early stages).
UOKiK'S activity in antitrust
Last year's UOKiK's enforcement portfolio includes a decision sanctioning the conclusion of an agreement for price-fixing of ski equipment. The Office established that the ski equipment wholesaler, Fordex, in cooperation with the Intersport store network, had been fixing minimum selling prices of ski equipment and accessories made by Nordica. Evidence obtained during an inspection at the premises of one of the entrepreneurs and through a leniency application submitted by Intersport, showed that the agreement lasted from 2007 to 2012 and was discussed mostly during a sporting gear fair in Munich and by email. Fordex was fined for having concluded an anticompetitive agreement, on the other hand Intersport, being the leniency applicant, was granted immunity.
A vertical agreement was also uncovered on the market for hygiene products. By means of an oral hearing held at the competition authority's premises, UOKiK established that since 2010, SCA Hygiene and SCA Hygiene Products, producers of cleaning cloths and hygienic materials, together with its distributors, had been fixing minimum resale prices for products sold to institutional customers such as companies, agencies, hotels, shops and restaurants. The total amount of fines imposed upon the parties to the proceedings exceeded 3.2 million Polish zlotys. One of the distributors, having submitted a leniency application, received total immunity.
Furthermore, during the course of the year UOKiK continued to carefully monitor the market for possible bid-rigging practices. In 2016 the number of detected competition infringements in tender proceedings amounted to six. That is why UOKiK decided to further spread its advocacy efforts and organised a series of workshops for employees of public administration bodies (for the Polish Social Insurance Institution and the Supreme Audit Office) to equip them with knowledge on bid-rigging practices and give them practical tips for their detection. This advocacy measure was met with positive feedback. Therefore, in 2017 UOKiK intends to conduct more workshops on respecting competition in the process of public procurement.
When conducting antitrust proceedings, UOKiK relies a great deal on economic analysis. When needed, antitrust or merger case-handlers have at their disposal economic experts working in the Department of Market Analysis. As an example of this fruitful cooperation, a 2014 investigation was launched by UOKiK to assess a possible collusion on prices of vaccines against rabies for wild foxes. Within the course of conducted proceedings, UOKiK established that the supplier of one type of vaccine, Lysvulpen, and the supplier of another brand, Fuchsoral, had won nearly the same number of tenders, supplying similar number of vaccines, with comparable value. UOKiK's extensive analysis of public procurement proceedings in the period 2008-2012, showed that the price of Lysvulpen in Poland was significantly higher than in other member states. Moreover, while in other countries the price of the product was progressively decreasing, on the Polish market it was regularly being raised. In-depth economic assessment proved that the suppliers' behaviour was a textbook case of tacit collusion, facilitated by the way the tenders were organised. After pro-competitive changes in the organisation of the tenders were introduced, effective competition was restored and prices fell significantly. Consequently, UOKiK's proceedings were discontinued. This case shows how important it is for a competition authority to use economic tools when performing an assessment of market competition. They provide essential insight into the functioning of the market, which in turns permits the competition authority to carry out an accurate assessment of competition on the market.
In this light, UOKiK decided to launch a public discussion on the role of economics in competition law, planning workshops on this topic for 2017. The first meeting took place on 8 February 2017 and tackled practical use of economic analysis in antitrust cases. The second workshop was held on 25 April 2017 and focused on the newly adopted directive on private enforcement. More specifically, the participants debated on the use of economic tools when performing an assessment of damages incurred as a result of competition law infringements.
Turning to other last year's antitrust highlights, in 2016 UOKiK improved its communication with undertakings by making use of the newly introduced procedure of issuing ‘detailed justification of charges' in ongoing proceedings. This new instrument, equivalent to a ‘statement of objections', has not only increased the level of transparency of UOKiK's activities, but has also streamlined the antitrust procedure itself. The reaction from the stakeholders has been nothing but positive and UOKiK's efforts to increase the parties' rights to defence were much appreciated. In total in 2016 UOKiK issued detailed justification of charge in 11 cases.
In addition to UOKiK's hard enforcement are the soft measures applied by the competition authority. These measures contribute in great deal to the eradication of anticompetitive practices from the Polish market. By sending an official letter, UOKiK calls upon the parties to cease anticompetitive practices. This form of direct communication with undertakings enables UOKiK to swiftly react to market distortions and restore fair competition without the need to carry out a formal and usually time-consuming antitrust procedure. In times when the market environment alters fairly quickly, it is necessary for the competition authority to dispose of adequate tools, which will allow for a prompt intervention. In 2016 UOKiK sent 39 requests asking undertakings to withdraw competition restricting practices. In 23 cases the undertakings voluntarily abandoned challenged practices, proving efficacy of a competition authority may be achieved by other means as well. In the area of soft law, UOKiK also intends to publish new leniency guidelines, which will address all recent amendments to the Act on competition and consumer protection, including leniency plus, as well as the availability of the programme to individuals.
Apart from the case law of the competition authority, Polish antitrust law is also shaped by rulings of the judiciary. In 2016, the Polish Supreme Court rendered a very significant judgment, clearing rules on searches conducted by UOKiK and obligation of the parties to cooperate within the framework of this process. The case dates back to November 2011 when, after UOKiK's inspectors had commenced operations at the company's premises, a manager attempted to remove from a laptop a document that showed price-fixing practices. For the attempt, UOKiK had fined the undertaking for failure to cooperate during an inspection. Both the court of first instance - the Court of Competition and Consumer Protection (SOKiK) - and the Court of Appeal overruled UOKiK's decision. They argued the employee had not failed to cooperate during the inspection because the file was not permanently deleted, but moved to the trash folder, from which it was recovered and therefore readable. UOKiK filed a cassation appeal which in April 2016 the Supreme Court ruled as justified. In its ruling, the Court said that it was not important whether the file was deleted permanently or just moved to another location. The company is required to actively cooperate in an inspection and should therefore immediately furnish the document. The act of denying UOKiK access to data should be construed as lack of cooperation. As a result, the Supreme Court remanded the case for reconsideration by SOKiK.
UOKiK concluded a 2016 antitrust enforcement by launching two sets of proceedings into a possible collusion between sellers of industrial cattle feed. The undertaking Polmass and two of its competitors Ekoplon and Agro-Netzwerk Poland are suspected of engaging in market sharing practices. Before the investigation, in the 2015-2016 period, UOKiK carried out an extensive analysis of the animal feed market. However, it was the searches conducted at the offices of the undertakings, delivered information, which triggered formal proceedings. According to the evidence collected so far, it appears that Polmass concluded two anti-competitive agreements one with Ekoplon and the other with Agro-Netzwerk Poland. In both cases, UOKiK suspects that the undertakings have agreed to share the domestic animal feed market, in particular, with respect to the sale of milk replacers for cattle. In 2017 the investigation will follow its course.
This year, UOKiK will also continue its investigation into possible collusion between insurers. It has come to UOKiK's attention that insurers have significantly raised the prices for automobile civil liability insurance. That is why UOKiK decided to launch a market study to investigate the matter. The Office will not only examine current simultaneous insurance price increases, but will also verify whether earlier prices were also the result of an anticompetitive agreement concluded between insurers.
Looking ahead UOKiK's biggest challenge remains the prosecution and detection of cartels. In order to reach that goal, in April 2017 UOKiK launched a pilot whistle-blower programme. This new investigative instrument provides an anonymous channel to report illegal practices. Within the framework of the programme a dedicated hotline and email address have been set up for anyone who wishes to inform about a possible breach of competition law. UOKiK also intends to be working on legislative changes designed to ensure that the concept of a whistle-blower is incorporated into the provisions of antitrust law on a permanent basis.
To date, UOKiK received over 160 emails, out of which a number pertained to possible competition infringements. Same number of calls was made to the hotline, but again only a fraction concerned information on competition-restricting practices.
The usefulness of whistle-blower programmes was the topic of discussion at the International Cartel Workshop on Information Exchange and Leniency hosted by UOKiK in October 2016. The event was also dedicated to the concept of anticompetitive information exchange, including different forms of signalling. The event was a source for inspiration for the whistle-blower programme being tested at the moment.
Merger control - 2016 highlights
Summing up merger control in 2016, UOKiK reviewed 252 merger and acquisition (M&A) cases and issued 196 decisions. Average time for completing merger control proceedings was maintained at a very satisfactory level and for the first stage of the procedure amounted to 30 days. Within this period, no transaction was prohibited; 194 received the green light for their implementation; and two were cleared with conditions. Both concentrations involved the company Eurocash, engaged in the wholesale and retail sale of fast-moving consumer goods (FMCG) including the sale of alcoholic beverages, tobacco and press products, and franchise and partner networks management. The first case concerned the takeover by Eurocash of seven warehouses belonging to Polish Alcohol Distribution (PDA). UOKiK's review of the concentration showed that it would lead to a significant restriction of competition on one local market. As a result, UOKiK decided to grant its consent to the transaction, provided Eurocash abandoned the purchase of PDA's warehouse in that area. In the second case Eurocash applied for consent to acquire Eko Holding, a company dealing mainly with retail sale of fast moving consumer goods.
The collected material in the case showed that the concentration might have led to a restriction of competition in three local retail markets selling FMCG. UOKiK decided to greenlight the concentration provided specific conditions were fulfilled. First, Eurocash was to sell the Eko Holding shops in those three local markets. Second, the buyer was not to belong to the Eurocash capital group, nor to be linked with it by means of a franchise agreement. The buyer was also to guarantee that the existing activity of the shops would be continued, and that he possessed organisational and economic facilities to pursue this activity. Lastly, the potential buyer was to be accepted by UOKiK.
It is worth underlying, that when imposing such conditions, UOKiK expects their swift implementation. If the parties fail to abide by those commitments, they risk being charged with non-compliance with the decision of the president of UOKiK, which in turn may lead to the imposition of a fine.
As a rule, UOKiK strives to make the process of merger control as smooth as possible and to openly communicate with the parties to the transaction. Hence, where there is reasoned probability that competition will be significantly impeded by the notified transaction, UOKiK makes its reservations known by means of a competition concern. In 2016, UOKiK expressed such reservations towards seven transactions. As a result, two cases were cleared with conditions (described in detail above); two received the green light to go ahead with the concentration; and in three cases the parties withdrew from the transaction altogether. These three cases constituted the planned takeover of Silicate Group by Xella Poland, producer of cellular concrete and silicate; a transaction between owners of shopping centres in Warsaw (Unibail/Rodamco); and the construction of the Nord Stream 2 pipeline by Gazprom. Here, six undertakings submitted to UOKiK their intention to set up a company which would design, finance, construct, and operate an offshore twin pipeline system running from the Russian Baltic coast to an exit point near Greifswald, Germany. Following an extensive market study, UOKiK raised objections towards the transaction. It argued that because Gazprom holds a dominant position on the Polish market of gas supply, the concentration could strengthened the company's bargaining power with regard to users in Poland. In light of UOKiK's objections, the parties decided to withdraw their merger application, which resulted in UOKiK discontinuing merger control proceedings in this case.