Law on Protection on Competition
These days there is a public debate on possible solutions in the area of protection of competition, in order to further harmonize this area with the European Union`s and domestic regulations. The currently applicable Law on Protection of Competition (“Official Gazette of the Republic of Serbia”, No. 51/09 and 95/13) (hereinafter: the Law), has been aligned with the Merger Regulation 1/2003 on the implementation of the rules on competition1. The European Union has recently adopted totally new piece of legislation – Directive 1/20192, which will help national bodies to more effectively implement the rules contained in Regulation 1/2003.
This text will explain some of the basic terms and institutes of protection of competition.
The Commission for the Protection of Competition (hereinafter: the Commission) is an independent body established in 2005 with the aim of monitoring the application of the Law and the state of competition in the market on the territory of the Republic of Serbia.
The Law applies to a wide range of legal entities, all legal and natural persons involved in the trade of goods or services, regardless of their headquarters (domestic and foreign companies and entrepreneurs). It also applies to state authorities, territorial autonomy and local self-government bodies; other natural and legal persons and forms of association of participants in the market (trade unions, associations, sports organizations, holders of intellectual property rights); public companies and other market participants performing activities of general interest.
Also, the Law stipulates that the rules apply not only to the acts and actions performed on the territory of the Republic of Serbia, but also to the acts and actions performed on the territory of other states, which have an effect on competition on the territory of the Republic of Serbia. Such extraterritorial application of competition rules, for example, implies that an international company operating in Serbia through a subsidiary and carrying out some form o f merger or acquisition outside the territory of the Republic of Serbia, must report to the Commission this statutory change, if it exceeds the specified concentration thresholds prescribed by the Law (so called, notification of concentration explained later in the text).
Free market and competition infringements may occur by:
1. restrictive agreements,
2. abuse of a dominant position,
Restrictive agreements concluded between market participants have the purpose or effect of significant restriction, distortion, or prevention of competition on the territory of the Republic of Serbia. From 2016 cartel is criminalized in Serbia (the one in a business entity who concludes a restrictive agreement that set prices, restricts production or sale or shares market will be punished cumulative with an imprisonment from six months to five years and a monetary fine.
However, not all restrictive agreements must be established as a breach of competition rules. Under certain conditions exemption from the prohibition is possible, if such agreement contributes to the improvement of production and trade, or to the promotion of technical or economic progress. There is a possibility of individual exemption or by category of agreement. It is important to emphasize that parties to a restrictive agreement should apply for an individual exemption on their own initiative. If the Commission initiates ex officio investigation procedure, prior of which the restrictive agreement is not exempted from the prohibition in the procedure for an individual exemption, the fulfillment of the conditions for an individual exemption will only constitute a mitigating circumstance, but no exemption from a payment of a fine will be granted.
Regarding block exemptions, the Government of the Republic of Serbia has adopted a number of regulations, which prescribe conditions for exemptions of certain categories of agreements from the prohibition of competition infringement3. Concerning these agreements, participants of the agreement should not apply for an exemption.
On the other hand, certain agreements are prohibited by their nature (“hard core” agreements), given that their aim is to distort competition, and as such, are legally null and void. For example, a collusion on a minimum price between bidders in a public procurement is a per se prohibited contract.
The Law also defines agreements of minor importance, concluded between market participants whose total market share in the relevant market for products or services on the territory of the Republic of Serbia is not higher than the prescribed percentages Such agreements cannot threaten free competition on the market and should not be notified to the Commission.
Another way to jeopardize competition is an abuse of a dominant position. It is considered that there is a dominant position if the market share of a market participant exceeds 40% on the relevant market. If a market participant with such a market power misuses the power, a distortion of competition on the market may happen, same as in case of restrictive agreements.
Competition may be restricted, impaired or prevented (both in the concept of abuse of a dominant position and restrictive agreements) by the following actions:
- set the purchasing or selling prices or other conditions of trade;
- limit and control production, markets, technical development or investments;
- apply dissimilar business conditions to equivalent transactions with respect to variety of undertakings, by which undertakings are placed in unfavorable position against competitors;
- conditioning the conclusion of a contract or agreement by accepting additional obligations which, given their nature and trading customs and practices, are not related to the subject of the agreement;
- share markets or sources of supply, which occurs only in restrictive agreements.
Finally, market concentration occurs in three situations:
1. mergers and other statutory changes in which the market participants are merging;
2. acquisition of direct or indirect control by one or more market participants, over one or more market participant, in whole or in part;
3. a joint venture by two or more market participants in order to create a new undertaking or to gain joint control over the existing market participant.
Compared to the concentration control thresholds set in the European Union, the thresholds in the Law are set low. For example, one of the situations for which the Law provides for a mandatory notification of the concentration is when total annual revenue of all concentration participants generated on the international market in the preceding financial year exceeds 100 million EUR, provided that at least one concentration participant revenue generated on the market of the Republic of Serbia exceeds ten million EUR. On the other hand, the EU Merger Regulation stipulates that the merger falls under the rules when the total annual revenue of all participants in the international market exceeds 5000 million EUR, provided that at least two participants generate revenue on the territory of the European Union more than 250 million EUR.
Also, in addition to the obligation to report the concentration, the parties to the concentration are obliged to suspend all activities until a decision is taken in the procedure for approval of the concentration.
The Commission may, ex officio, initiate investigation of infringement of competition if it reasonably assumes that the combined market share of concentration participants on the territory of the Republic of Serbia is at least 40%.
The Commission has the authority to:
- conduct an inspection;
- conduct a dawn raid;
- conduct a sectoral analyses (for example, sectoral analysis in the markets for oil derivatives, baby equipment, etc., while one of the most well- known sectoral analyzes of the European Commission is in the energy market in 2006, which resulted in a whole set of new legislation
If the Commission finds that an infringement of competition is occured, it shall determine the measure for protection of competition in the form of the obligation to pay a monetary fine in the amount of no more than 10 % of the total annual revenue generated on the territory of the Republic of Serbia. Moreover, it can enact a measure to eliminate competition infringement, for example adoption of the new pricelist for goods or services, if it is determined that a dominant market player had abused its position, by setting an unreasonably high prices.
Participants in the restrictive agreement may be fully or partially relieved from the obligation to pay the monetary fine through a leniency policy. A participant in a restrictive agreement that first reports to the Commission on the existence of an agreement or delivers evidence on the basis of which the Commission initiates or ends the proceedings, may obtain full immunity from the payment of a fine. Those parties to a restrictive agreement that have not addressed the Commission first, but have key evidence regarding a restrictive agreement, may receive partial relief from paying a fine. This program is initiated by the participants of the restrictive agreement. Additionally, the Commission shall impose a procedural penalty measure in the amount of EUR 500 to EUR 5,000 for each day of conduct contrary to the order of the Commission given in the proceedings or total failure to act according to that order.
An investigation of the competition infringement can be adjourn, if a party proposes commitments that is voluntarily willing to undertake, in order to eliminate possible competition infringement. The Commission is not obliged to accept the proposal. If accepts the proposal, it will set a deadline for execution of proposed commitments. If party fails to fulfill commitments in a set deadline, the investigation shall be continued.
Given the extremely high fines that can be imposed, market participants should be aware of their acts and collusions that can lead to the initiation of proceedings due to violation of competition rules. However, even when the proceedings have been initiated, certain procedural rules provide protection to parties in the proceedings, such as rules on information and right to give a statement, delivery rules, maintenance of oral dispute, a statute-barred rules, etc. Also, the decisions of the Commission may be reviewed by the Administrative Court by filing an action. Finally, third parties harmed by a infringement of competition (determined by the Commission’s decision), can request a compensation in the civil proceedings.
Having in mind the broad powers of the Commission and the high penalties that it can determine, the legal support of a lawyer may be of crucial importance for the resolution of disputes arising out of the breach of competition.
Attorney at law Damir Petrović
The information contained herein have been provided only for the purpose of general information and cannot be considered as a legal opinion or legal advice. Accordingly, the Law Firm Petrović Mojsić & Partners disclaims all responsibility and accept no liability in respect to actions taken or not taken based on any or all the contents contained herein.