Basic principles of Latvian competition law

Plan 1.Principles, aims and history of competition law 2.Competition Council and its powers 3.Prohibited Agreements 4.When the agreement is prohibited 5.Liability 6.Amendments to the Competition Law 2

Part one: General Principles, aims and history of competition law Some basic concepts 3

… Adam Smith (1723 – 1790), philosopher and political economist Inquiry into the Nature and Causes of the Wealth of Nations (1776). “ People of the same trade seldom meet together,.. But the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." 4

Competition law in Latvia? 90s – The goal is to join the EC 1999 – First try 2002 – The new law Why Europe needs competition law? 5

Objectives Promotion of competition in the market - Ensuring independent activity of each market participant Restricting the creation or abuse of the market power Aims: lower prices better quality Broader choice More innovations 6

Pillars of competition law 1.Prohibition of anti competitive agreements 2.Prohibition of abuse of the dominant position 3.Merger c ontrol 4.Control of state aid 7

Applicable laws and other sources EU law Latvian laws: Competition Law (in force since January 2002) Regulations of the Cabinet of Ministers 8

Market participants Any natural or legal person Legal persons: whole group Also s elf-employed, individual merchants Associations of market participants Criteria: Is engaged or is preparing to engage in the economic activities in Latvia Economic activities: any sales of goods/provision of any services (except for public services) 9

Relevant market Purpose of relevant market definition to identify the competitors, consumers, customers of the respective market participants to determine the boundaries within which the market participants are competing or are situated in circumstances where they can compete Definition of the relevant market. Two Pillars: Product market Geographic market 10

Product market Substitution Demand Supply Barriers Key: “ specific features of the product and its utilisation characteristics ” 11

Geographic market Substitution Barriers Imports Key: “ appreciably different conditions ” 12

Part two: Competition authorities Structure Rights (obligations)? 13

What’s in its name? Competition Council = Konkurences padome Chairperson of the Council Ms. Ieva Jaunzeme Executive body - the Bureau 14

What do they do? Investigations and market studies Breach cases Mergers New laws: review/opinions 15

Powers – general overview Information request For a very wide range of objectives The necessary information including the commercial secret Rights are very wide Limitations to the rights - there are no direct norms of the law Procedural preconditions - powers of attorneys, court decisions Forced enforcement, money fines 16

Dawn raids Broad powers of investigation The inspection may take place with or without prior warning The inspections without warning are called "dawn raids" Only the powers stipulated by the law European Commission - Regulation No 1/2003 Competition Council - Competition Law (new since 2002) Little practice at application of the law 17

Documents to be presented Power of attorney ID Court decision Decision of the head of the bureau 18

Powers of the CC during dawn raids Access to the company and employees' premises/property (including transport vehicles) Rights to open storage facilities Examination of the company and its employees' property Rights to demand explanations Receive copies, remove originals/property Seal the premises, transport vehicles, storehouses 19

When they come – what to do? To think of: Your lawyer (whatever time of the day) What you have done/written Fines Cooperate Be polite but strict. Keep the investigation under control Set up a team for representation of the company at the investigation Inform all the employees Keep precise copies of the information acquired by the investigators Accompany the investigators continuously Put down the questions and answers 20

Rights of the company during the raid Rights in relation to the protected information: "confidentiality" mark Limits of the investigated case "Legal privilege" or the confidentiality of the lawyer's correspondence 21

Part three: Agreements The rule „Agreement” Prohibited agreements – black list Horizontal and vertical agreements 22

The rule Agreements with an object or effect of hindrance, restriction or distortion of competition in the territory of Latvia are prohibited and void from the moment of conclusion between market participants Principle of invalidity of the agreement Object or effect? Agreement 23

Hindrance, Restriction or Distortion of Competition Test: Object or effect? It is enough that competition can be potentially hindered, restricted or distorted "Affected market" Horizontal/Vertical Relevant product market Relevant geographical market 24

Agreement I “ Traditional ” agreement It does not have to be a written document Does not have to be binding (also gentlemen's agreement) Does not have to be fulfilled But has to be concluded between "independent entities" (that is, does not relate to mutual agreements between parent and subsidiary companies) 25

Agreement II Decisions of associations of undertakings: Recommendations, common standards, models of action The form and legal consequences bear no significance, the participant’s attitude towards such decisions is important Concerted practices: Without arrangement - the market participants does not inform each other about their activities Type of company coordination, which - wihthout knowingly set out in a form of an agreement, threatens the competition, includes practical cooperation of companies 26

Prohibited agreements - "black list" Agreements, which: Directly or indirectly fix prices for purchase or sale, or any other trading conditions; Restrict or control production, markets, technical development, or investments; Divides markets or sources of supply; Applies unequal provisions in equivalent transactions with third persons, creating for them disadvantageous conditions in terms of competition; Make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts. 27

Exchange of information European Commission in case of IFTRA Rules on Glass Containers: It is contrary to provisions of Article 81 that the producer contacts his competitors in relation to significant elements of his price policy, for example, pricelists, discounts and sale conditions applied by him, rates and dates, when they are changed, and special exceptions, which he can award to specific clients 28

Is "information" illegal? Life in information vacuum? Operation in full independence from competitors? Special case - oligopoly [for example, fuel market] 29

Agreements on Prices Nintendo case Vitamin Cartel 30

Market and/or client division Purpose of market and/or customer division is to provide the members of a cartel with a possibility to maintain an artificially dominant or even monopoly position in a definite geographical territory. 31

Other examples "The distributor undertakes to purchase Goods only form the Producer" "Within the premises of the Distributor, only the Producer's goods are allowed for sale" "Opening of every new sales place by the Distributor shall be coordinated with the Producer" "The Parties have agreed that the Distributor shall be the exclusive distributor of the Producer in the Territory" "During the term of this Agreement the Seller will not involve in active sale of Goods within the Territory" Appendix XXX to the agreement between YYY and ZZZ “retail price” 32

Horizontal and vertical agreements Horizontal agreements: An aggrement is concluded or concerted practices are practiced between companies, which are active in the same level of the market [competitors] Vertical agreement: Agreements which are concluded between companies which are active in various levels of production or supply chain 33

Vertical agreements The competition may be limited: among various brands (inter-brand competition) or competition between the distributors of goods of one and the same brand (inter-brand competition). Most harmful agreements to the competition are those agreements which influence the inter-brand competition, rather than between the distributors. However, limitations to the intra-brand competition can be harmful in case the inter-brand competition is limited at the same time. 34

Horizontal agreements Members of a cartel engage in cartels in order to be able to rely on their existing market share, on the existing clients and they do not need to offer new or better products for competitive prices. Accordingly, the consumer loses because he pays more for goods of worse quality. Price fixing if it is only a purpose or recommendation influences the competition because as a result of such decision, all participants can foresee with a reasonable degree of certainty what price policy will be adopted by their competitors, especially if the fixing of a target price is accompanied by a possibility of control and sanction. 35

Part four: when the agreement is prohibited Exemptions from the prohibition De minimis 36

Exemptions Agreement may be allowed or allowed on conditions for a definite term if the agreement promotes improvement of goods production or sale, or the economic progress and therefore ensures benefit for the consumer, besides these agreements do not impose limitations to the respective market participants, which are not necessary for reaching these aims and avoids the possibility to eliminate competition in a significant relevant market share. 37

De minimis Agreements which cannot significantly harm the competition: Agreements between companies which operate in one level of manufacture or distribution (horizontal agreement) if the joint market share of the both/all parties in the relevant market does not exceed 10% Agreements between companies which operate in different levels of manufacture or distribution (vertical agreement) if the market share of the contracting party in the relevant market does not exceed 15% 38

Part five: Liability Penalties Leniency 39

Penalties Competitors – 10% Non-competitors – 5% Civil liability 40

Leniency What is leniency policy? Allows the company to cooperate with the authority during the or even to initiate it “ Whistle-blowers"  Aim – destabilization of cartels Consequences: Reduction of/exemption from penalty Does not influence the civil liability 41

Part six: Amendments History Process Result Consequences 42

Just to reiterate…. History Process 43

Part 2 of Clause 13 A market participant or several market participants are in a dominant position in retail, if: they, taking into account their buyer power and dependence of the suppliers in the relevant market, have the capacity to directly or indirectly apply or impose unfair and unjustified provisions, conditions, or payments upon the suppliers, and have the capacity to hinder, restrict or distort competition in any relevant market within the territory of Latvia for a substantial length of time. 44

Prohibition Any market participant holding a dominant position in retail is prohibited from abusing such position in the territory of Latvia. 45

Abuse I imposition or application of unfair and unjustified provisions regarding the return of the goods, unless the returned goods are: Goods of bad quality, New goods, which were not previously known to the consumers provided that the increased supplies thereof were initiated by the supplier 46

Abuse II imposition or application of unfair and unjustified payments for the presence of the delivered goods at a retail sales point, unless such payments are justifiable as marketing costs for new products, which were not previously known to the consumers; 47

Abuse III imposition or application of unfair and unjustified payments in exchange for entering into a contract, unless such payments are justifiable as costs for entering into a contract with a new supplier, which therefore requires special evaluation; 48

Abuse IV imposition or application of unfair and unjustified payments in exchange for delivery of goods to a new, yet-to-be-opened retail point of sale; 49

Abuse V imposition or application of unfair and unjustifiably long payment periods for delivered goods. 50

Abuse VI imposition or application of unfair and unjustifiable sanctions for the breach of the agreement. 51

Consequences / conclusions It depends…. 52

Thank you! Jūlija Jerņeva Mob: