Estonia: economist perspective
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The past year has been a record high in the number of merger notifications in Estonia. However, the lawyers interviewed and the Estonian Competition Authority (ECA) note that the economic competition assessment of the investigations is often limited.
In Estonia, the implementation of the ECN+ Directive, designed to harmonise competition law enforcement within the EU, is yet to be completed. The key discrepancy is that cartels and other anticompetitive agreements have been criminal offences and abuses of dominance have been misdemeanour offences (quasi-criminal offences) in Estonia, unlike in many other jurisdictions. Hence, the implementation involves procedural difficulties in the process of stepping from criminal and misdemeanour proceedings to administrative investigations, which up to now has not enabled the imposition of fines. Once the implementation is completed, the administrative process is expected to result in an increasing number of cases due to a lower burden of proof. Economic evidence may play a larger role in administrative cases compared to criminal ones.
This article is based on interviews with the ECA and with prominent competition law practitioners from the COBALT, Ellex Raidla and Sorainen, conducted in May 2022.
Closure of cinema enabled merger despite prior concerns by the ECA
The number of merger notifications in Estonia in the second half of 2021 and the first half of 2022 exceeded the number observed in the previous years. As in other countries, the increased activity is likely related to the fact that many mergers and acquisitions were on hold during the first two years of the covid-19 pandemic. The increased number of merger notifications also led to multiple Phase II investigations in Estonia. Still, according to the interviewed lawyers and the ECA, the economic competition assessment of the investigations is often limited.
In April 2022, MM Grupp, the key owner of movie theatres in Estonia and a large film distributor for cinemas, purchased a theatre in Tallinn from Forum Cinemas. The acquisition was conducted without being reviewed, since in 2021 the target’s revenue fell below the notification threshold of €2 million. Post-merger MM Grupp has 80–100 per cent market share in film exhibition services in Tallinn according to the ECA’s assessment of the market prior to the merger. The acquisition was part of the wider merger between MM Grupp and Forum Cinemas OÜ, which the ECA was about to prohibit in early 2021 before the parties withdrew from the merger. The ECA concluded that the concentration would lead to price rises in the Tallinn and Tartu cinema market. The companies’ revenues reduced as a result of covid-related restrictions during 2020 and 2021 and, additionally, the Tallinn Coca-Cola Plaza cinema was closed at the end of 2021. This allowed the merger to be completed without involvement by the competition authority since the target company’s revenues fell below the notification threshold of the ECA. In relation to this development, the ECA expressed concern that the closure of the cinema might be a deliberate action to force the acquisition beneath the notification threshold. However, the ECA has not publicly opened an antitrust proceeding against the parties by August 2022 (when this article was written).
Proposed consolidation in the declining postal delivery sector
In March 2022, the state-owned postal delivery company Eesti Post notified its planned acquisition of the postal delivery company AS Express Post to the ECA. The investigation is still pending at the time of writing this article. The parties have reasoned the proposed merger based on a failing firm argument according to which an efficient continuation of deliveries in a declining market requires economies of scale, which can only be achieved through the merger.
Coincidentally, Eesti Post had recently filed a complaint of abuse of dominant position by AS Express Post regarding unequal pricing practices. The ECA had decided not to pursue an investigation reasoning that AS Express Post did not have any delivery network that could not be duplicated by a competitor, hence that AS Express Post did not have a dominant position. In March 2022, The Supreme Court came to the same conclusion when Eesti Post challenged the ECA’s decision. Based on our interviews with lawyers and the ECA, the case did not involve further economic assessment.
ECN+ implementation seems to head towards administrative fines, but procedural aspects are yet to be defined
The ECN+ Directive aims for the harmonisation and efficiency improvement in the monitoring of competition across EU jurisdictions. In Estonia, the implementation has been further delayed beyond the original target of early 2021. The key discrepancy is that cartels and other anticompetitive agreements have been criminal offences and abuses of dominance have been misdemeanour offences (quasi-criminal offences) in Estonia, unlike in many other jurisdictions. This has permitted the implementation of broad investigation tools for the relevant authorities but has also entailed a high burden of proof for the misconduct.
The implementation of the Directive into Estonian law – and thereby the transition to administrative procedures – has proven complicated. The procedural complexities stem from the level of cooperation of the investigated firms and the authority’s investigation tools. The interviewed practitioners expressed concerns that there is less legal protection for the companies under the administrative process. Some of the lawyers we interviewed mentioned the misdemeanour approach as an alternative. This approach would combine parts of the criminal and administrative processes. Both the ECA and the interviewed lawyers were concerned about the procedural handling of the ongoing cases if practices change in the middle of the investigation. The interviewed lawyers expect that in the first two years after the implementation of the ECN+ there will be procedural loopholes in the investigations that can lead to procedural disputes.
The ECN+ implementation has taken a toll on ECA’s resources, and all interviewed lawyers are looking forward to getting the new legislation in place. The change will be fundamental regarding the sufficient proof of abuse of dominance and cartel cases and, hence, regarding the claim of damages from them. The ECA expects that economic evidence will play a larger role under the administrative procedure, compared to the current situation. In a criminal process, the misconduct must be proved against the individuals, rather than with regard to the impact of the antitrust act on the market. Hence the implementation of ECN+ is expected to increase the application of economic evidence in competition matters in Estonia.
While still uncertain, some of the interviewed practitioners expect that the new legislation will be approved by the parliament by the end of 2022, although some expect the process to be prolonged even further.
The ECA actively investigates potential abuse-of-dominance cases, but many are closed
The ECA has actively investigated matters concerning potential abuse of dominance and anti-competitive agreements. The ECA’s investigations have included domestic cases in the digital markets, in which the ECA notes that there are no standard proceedings. By way of an example, the ECA investigated a case of a narrow price parity clause against the delivery company Wolt Eesti OÜ. More specifically, Wolt had a clause in its contracts with restaurants according to which the price in the restaurants and on the platform had to be equal regardless of the service fee of the platform. Wolt changed its clause during the procedure, and hence the ECA terminated the procedure with no in-depth assessment into the effects. Hence, new case law is not generated often, since parties frequently settle, or processes are terminated without substantive assessment of competition concerns. The ECA explained that some still unpublished abuse of dominance cases are under investigation, so it seems that the ECA continues to be active in this field of competition enforcement.
Sustainable coordination could materialise in the energy sector
The European Commission launched the draft version of the Horizontal Guidelines in March 2022. The new guidelines allowed cooperation in sustainability and innovation issues in cases in which the advantages were not achievable without a horizontal agreement. The interviewed lawyers and the ECA were somewhat sceptical as to whether such agreements would materialise in Estonia in the near future, but some mentioned the energy sector as a potential candidate for such cooperation.
Rather than the Horizontal Guidelines, the interviewed lawyers and the ECA commented that the Guidelines on Vertical Restraints have had more practical implications. Some lawyers mentioned that the exemption on dual pricing of online and offline sales in some cases has been a helpful revision in the Guidelines.
 The ECA’s public decision of the case MM Grupp/Forum Cinemas on 19 February 2021: https://www.konkurentsiamet.ee/sites/default/files/Koondumised/24-2020_arakiri_19.02.2021_otsus_nr_5-5-2021-013.pdf.
 See for example news article in ERR November 2021: https://news.err.ee/1608420938/competition-authority-looking-at-tallinn-cinema-closure-anti-trust-aspects.
 The ECA’s announcement on Surpreme Court decision based on Eesti Post complaint March 16, 2022: https://www.konkurentsiamet.ee/en/news/supreme-court-did-not-satisfy-complaint-eesti-post-against-estonian-competition-authority.
 ECA’s notice regarding the Wolt investigation was published in March, 2021. Available online: https://www.konkurentsiamet.ee/sites/default/files/juhtumid/2021/teade_menetluse_lopetamisest_wolt_eesti_ou_19.03.2021_ilma_ak.pdf.
 European Commission’s draft Horizontal guidelines published March 2022: https://ec.europa.eu/competition-policy/public-consultations/2022-hbers_en.