Croatia: Competition Agency
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The Croatian Competition Agency (CCA) is the competent body for implementation of the competition legislation, and is an independent legal entity with public authority that autonomously performs activities within its powers regulated by the Competition Act. Since the accession of Croatia to the EU on 1 July 2013, the CCA is also responsible for direct application of articles 101 and 102 Treaty on the Functioning of the European Union (TFEU).
Achievements in 2015 and 2016
The work of the CCA in 2015 and 2016 continued to focus on the most severe breaches of competition rules such as cartels. The turning point in this respect was receiving the ever first leniency application, even though the leniency programme has been available since 2011. Besides anti-cartel enforcement, the CCA’s efforts have been concentrated on abuse of dominance cases, which led to the closure of one complex case conducted with the application of both national law and EU law. Related to this, stronger and more unified commitments instrument was applied to abuse of dominance and vertical agreement cases. For merger control, a prevailing number of permitted concentrations and significant analysis of concentration notifications with an EU dimension was received by the European Commission in accordance with EU Regulation 139/2004 on the control of concentrations between undertakings. Competition advocacy involved intense work with more than 50 expert opinions issued, and several market investigations were opened. The CCA has been very active as regards international and European cooperation and it hosted the first regional conference on digital forensics. In addition, there were two new important CCA engagements. One relates to unfair trade practices in the food supply chain, where it is expected that the CCA will assume competence. The other is the role of the CCA in the preparation of the new law on damages claims for breach of EU and national competition law, with the aim of transposing Directive 2014/104 EU ‘on certain rules governing actions for damages under the national law for infringements of competition law provisions of member states and of the European Union’.
Prohibited agreements: cartels
The CCA’s enforcement practice in combating cartels was marked by several demanding and complicated dawn raids being conducted, the adoption of another cartel decision in the betting sector and the receipt of the first leniency application. The leniency programme is envisaged in the Regulation on Immunity from Fines and Reduction of Fines. Submission of the first leniency application is seen as an important step in uncovering and sanctioning cartels in Croatia and in providing assistance to the CCA in the discovery of cartels. The CCA believes that the first leniency application is a result of the significant fines it imposed on undertakings for cartels over the past two years. The combination of cartel decisions with severe fines and the leniency programme will further increase the deterrent effect in the case of hard-core restrictions with the most harmful effects on consumers and undertakings.
Cartel between betting shops
On 22 December 2015 the CCA established that the betting shops Bolus, Favorit sportska kladionica, Germania Sport, Prva sportska kladionica and Super Sport active in the gaming and betting sector had entered a cartel (prohibited agreement) and fined them a total of 9.7 million kuna for the hard-core infringement.
In the proceeding and based on direct evidence, the CCA established that the above-mentioned undertakings fixed the level of bookmaking commission fee in Croatia at the meeting of the Association of Pool Betting Shops on 26 March 2014. The direct evidence for the existence of collusive conduct were the minutes from the extraordinary meeting of the Assembly of the Association of Pool Betting Shops as well as the Notice on the change in the vigorish calculation method of 28 March 2014 communicated by the association to other betting shops in the market.
The agreement started to apply on 1 April 2014 and constitutes a prohibited agreement under the competition rules from March 2014 to November 2015.
The commission, handling fee or vigorish represents a constituent part of the price of the product within the betting price, whose level depends on the method by which it is calculated. This deduction from the bet as processing fee depends exclusively on the betting business owner when taking a bet from the gambler, where the bettor alone decides on the calculation method and the level of this cut, or even whether to charge this amount or not. The fact that vigorish is not regulated and that it is optional, makes it possible for betting shops to make their own decisions and compete in the market with different levels of commission fee, a possibility that was excluded on the basis of this agreement.
Besides, given that in this case the undertakings agreed on the constituent element of the price, the agreement constitutes a hard-core restriction. Moreover, a new method was agreed for the calculation of the handling fee which was less favourable for consumers than the one in force before 1 April 2014. Namely, the commission fee had been calculated as a bet percentage, whereas after the agreement at issue entered into force it became a percentage of the possible winnings. Given the fact that gamblers use the service of sport bettors for winning, the cut in the stake resulting from the change in the vigorish calculation method also leads to cuts in possible wins. At the same time, bettors’ revenues increased on the basis of the wager cuts based on the new calculation method for bookmakers’ commission fee.
Abuse of a dominant position
The CCA investigated several cases of abuse of a dominant position, some of which ended with the adoption of commitments, whereas in others the alleged abuse of dominant position was not sufficiently proved. One of these cases deserves particular attention owing to its complexity and the fact that it was initiated on the basis of a parallel application of the national competition law (the Croatian Competition Act) and article 102 of the TFEU.
CCA v Hrvatska pošta d.d.
In December 2015 the CCA issued a decision in the case of alleged abuse of a dominant position by Croatian Post (HP). The proceeding against HP was initiated ex officio in September 2013, following the complaint of City-Ex stating that HP was allegedly involved in predatory pricing. The proceeding was carried on the basis of the parallel application of the national competition law and article 102 of the TFEU. The CCA found that, according to article 102, there was no ground for further action, while under the article 13 of national competition law it was established that HP did not distort competition in the provision of postal services in Croatia.
During the proceeding the CCA found no evidence that after 1 January 2013, the date of the full liberalisation of the letter post services market in Croatia, HP implemented a predatory pricing policy with the exclusionary abuse objective or anticompetitive foreclosure. In other words, there was no evidence that it was engaged in predatory conduct with the objective of excluding the existing competitors from the relevant market and preventing entry of new operators. The CCA analysed cumulative criteria used to prove the evidence of predatory pricing. First, the prices of letter post services charged by HP as a dominant undertaking were not below benchmark costs deliberately incurring losses or foregoing profits in the short term (‘sacrifice’), based on the price cost test applied by the CCA. Secondly, there was no direct or indirect evidence on the existence of a plan to engage in certain conduct in order to exclude competitors. Thirdly, the CCA also established that HP did not apply a selective pricing policy or discriminate between its customers based on unilateral conducts. Rebate rates were granted in accordance with publicly available price list. Finally, over almost three years from January 2013 HP did not raise prices in order to compensate losses of the short-term low price period. The decision of the CCA particularly took into account the fact that the provision of postal services concerning letter post services, and the universal postal service as a part of this market, is ex ante regulated by the national regulatory authority for postal services.
The CCA continued following the reports of the trustee on the fulfilment of measures and conditions from earlier conditionally allowed concentrations (HT/Optima, Agrokor/Mercator). Recent practice in merger control dealt mostly with permitted concentrations and the analysis of the notifications of concentrations with an EU dimension received by the European Commission. Part of the work included the sanctions imposed for the failure to notify media concentrations. Notably, the CCA carried out several proceedings for setting fines on undertakings involved in transactions in the electronic media sector that had not been notified and had not received prior CCA approval within the meaning of the relevant merger control rules. Given that implementing a transaction that has not received the clearance foreseen under the Competition Act constitutes a serious infringement, the CCA imposed symbolic fines on several media undertakings. These fines should send a clear signal that breaches of competition rules cannot be tolerated and by imposing symbolic fines the CCA believes it is raising awareness about mandatory rules under the merger control system. Although in recent years the CCA has urged undertakings in the media and electronic media sector to notify transactions regardless of the aggregate turnover thresholds of the parties to the concentration, the negative trend is reflected in cases opened by the CCA involving the proceedings for setting fines for publishers in the media sector that ignored the ‘standstill obligation’. To prevent infringements and avoid the imposition of sanctions the CCA called on the undertakings to comply with the obligatory notification of concentrations in the media and electronic media sector regardless of the turnover threshold at issue. The media sector is an exception to the general rule according to which the notification obligation exists for transactions between participants in a concentration where the realised aggregate turnover exceeds the legal threshold.
During 2015 and continuing in 2016, the CCA fully made use of the commitments instrument and terminated several cases with the adoption of commitments proposed by the parties.
CCA vs Peugeot Hrvatska d.o.o., Zagreb
The CCA initiated proceedings against Peugeot Hrvatska d.o.o. Zagreb for the establishment of alleged abuse of a dominant position in the markets for the provision of repair and maintenance services of Peugeot motor vehicles and the sale of Peugeot spare parts in Croatia. This was based on the indices that Peugeot Hrvatska, which holds a dominant position on the said markets, applied the selective criteria for authorised Peugeot repairers in a non-transparent manner when deciding whether to accept or to retain a certain repairer in the network after 31 December 2013, placing them at a competitive disadvantage by unjustifiably denying access to the relevant market to the Auto Maksimir d.o.o business. The CCA adopted a decision on an interim measure and ordered Peugeot Hrvatska to give Auto Maksimir access to the authorised Peugeot repairers network and ensure that it enjoy all the rights and obligations under the agreement. Furthermore, Peugeot Hrvatska was ordered to inform in writing all buyers, leasing and insurance companies that Auto Maksimir remains the authorised repairer of the Peugeot car make. The proceeding revealed that in December 2011 Peugeot Hrvatska terminated the agreements for the purchase, sale or resale of new motor vehicles and spare parts and authorised repair with all the members of its distribution network with a two-year cancellation period, meaning that all the agreements expired on 31 December 2013. Peugeot Hrvatska claimed that the cancellation of the agreements concerned was the result of a new business policy and its distribution strategy in Croatia. This meant that the conclusion of new agreements would depend on whether the members would respect the obligations and selection criteria set under the agreements in force until 31 December 2013; whether they would comply with the standards and methods imposed by Peugeot Hrvatska; as well as whether they would undertake to comply with the obligations and the selective criteria that would enter into force on 1 January 2014. In addition, Peugeot Hrvatska claimed that a new repair and maintenance services agreement for Peugeot motor vehicles had not been concluded with Auto Maksimir because Auto Maksimir allegedly had not installed new brand identity elements until 1 January 2014 when the new agreements had entered into force.
Auto Maksimir challenged the legality of the cancellation of the agreement in December 2011 and insisted that it fulfilled all the criteria, that the setting-up of the new brand identity elements did not arise from the selective criteria for authorised Peugeot repairers and that not all the network members fulfilled all the criteria concerned on the stated date. However, Peugeot Hrvatska did sign the new agreements with these undertakings and they were allowed to postpone the actions necessary to comply with the said conditions.
On 28 September 2015 the CCA adopted a decision whereby it accepted the commitments proposed by Peugeot Hrvatska as adequate to eliminate competition concerns and restore effective competition in the provision of repair and maintenance services for Peugeot motor vehicles. The measures proposed by Peugeot Hrvatska at least ensured that Auto Maksimir, as a long-term Peugeot authorised dealer, remains in the network of authorised repairers of Peugeot vehicles after it stopped being the authorised dealer of new vehicles.
Competition advocacy and market investigations
The CCA makes every effort to promote competition principles among different stakeholders and in that respect, the work on preparation of legal opinions on the draft laws and on existing legislation is crucial. The analysis of legislation by the CCA has a preventive effect and diminishes the danger of adopting laws and regulations with anti-competitive provisions that could indirectly harm consumers and the economy as a whole. Moreover, the CCA considers market investigations valuable sources of information on the functioning of markets, which can serve as a means of correcting the behaviour of undertakings on the market.
Therefore, in 2015, the CCA issued 51 opinions on the existing legislation, draft laws and on the regulatory impact assessment. Advocacy activities were complemented by some training and education held by the CCA for representatives of the business community, or other public administration bodies. Market investigations included, in particular, the oil derivatives market, grocery retail and wholesale, insurance and the press.
CCA opinion on Croatian Health Insurance Fund (HZZO) Guide for the new referral model
Based on the complaint made by the Croatian Employers’ Association – Pharmaceutical Manufacturers Association, Innovative Medicines Initiative and Generic Drugs Manufacturers Association, in 2015 the CCA carried out a legal analysis of the HZZO Guide for the new referral model identifying the basic drugs reimbursement list and the criteria for prescribing prescription drugs. Besides the legal analysis of the document in question, the CCA also took into account the comparative practice of some EU member states in the area concerned. It was the CCA’s opinion that the adoption of any new rules in the area of prescription drugs or any revisions thereof should be carefully studied and alternative solutions found in the drug prescription plan so that access to the basic drugs reimbursement list is ensured to all undertakings specified under the valid basic list which were to some extent being excluded from the market. Although the Guide seems to constitute a recommendation and therefore it should not be binding, the CCA stated in its opinion that it nevertheless defines the behaviour of GPs when prescribing drugs that indirectly may affect the medicines market. The CCA held the view that the application of the Guide may have exclusionary effects on medicine manufacturers whose products are placed on the basic drugs reimbursement list but are not the cheapest within their particular therapeutic group. This leads to the final consumer not having the right to choose medicine from the basic drugs reimbursement list even if they might wish to pay more for it. Furthermore, this medicine cannot at the same time be placed on the supplementary drugs reimbursement list where it is only available to the final consumer by his or her direct or indirect contribution on the basis of the supplementary health insurance plan. Consequently, such a situation significantly diminished the final consumer’s freedom of choice relating to medicines on the basic drugs reimbursement list. The CCA also pointed out that the financial benefits and optimisation of the drug prescription system may be achieved by removing the barriers that, regardless of the regulated industry concerned, may lead to a strengthening of competition. The undertakings would be able to compete within the regulated market while the consumers would be ensured a fair amount of benefit thanks to a wider choice of products.
Work on the implementation of EU Directive 2014/104
For the purpose of transposing the EU Directive 2014/104, the new law on damages claims for the breach of competition rules must be adopted. The relevant Ministry of Economy transferred its power to the CCA to take control and coordinate the preparation of the new legislation. To that end, the CCA formed a working group for the preparation of the draft law consisting of experts from different relevant institutions (Ministry of Justice, Ministry of Economy, commercial courts, the Administrative Court, lawyers, associations of employers, etc). The CCA representatives are chairing the working group and coordinating work on a new draft law that needs to be adopted before the end of 2016.
Future priorities in 2016/2017
Depending on the allocated financial resources and the human resources available, the CCA will in the near future continue to strive to eliminate any legal or factual barriers to market entry that impede or restrict competition in the market. In that respect, the actions will remain concentrated on the most harmful practices in the market – restrictive agreements, cartels. In order to have even more successful cartel enforcement, the CCA needs to encourage more leniency applications. The fact that several cartels were established within the associations of undertakings clearly still shows insufficient recognition of competition rules and thus, the need for further and constant efforts in promoting competition advocacy. There were, however, some good results on the basis of opinions the CCA has been issuing regarding compliance with competition rules of draft proposals for laws and other legislation. One of the future activities will be the completion of a draft law on damages claims for the breach of competition rules. Last but not least, the focus in the upcoming period will be on unfair trade practices; more precisely, work on legislation regulating unfair trade practices in the food supply chain and assuming the new competences in that area.