The Competition Council of Bosnia and Herzegovina on 16th December 2013 fined the Agency for financial, IT and intermediary services (AFIP) for abuse of dominant position on the relevant market of the provision of financial, IT and intermediary services in the territory of the Federation of Bosnia and Herzegovina. The proceedings were initiated upon request of the company “LRC Inženjering” from Sarajevo due to AFIP’s refusal to enter into a business cooperation agreement with LRC Inženjering, which, according to the company, excluded LRC Inženjering from the market and placed it at a competitive disadvantage.
The Law on Competition of Bosnia and Herzegovina is applicable to all natural and legal persons which, directly or indirectly, are active in the production and sale of goods or the provision of services, thus making it also applicable to companies that are entrusted with the exercise of certain powers of a public authority when they, directly or indirectly, participate in or affect the market. The Bosnian Competition Council has on several occasions conducted investigations against public authorities due to infringement of competition law by their regulatory activity, which we wrote about in one of our previous posts.
Background of the case
AFIP and the Agency for the provision of IT and intermediary services from Mostar (FIP) are, according to the laws of the Federation of Bosnia and Herzegovina, the only entities authorized to collect, process and analyse financial statements of legal persons from the territory of the Federation of Bosnia and Herzegovina (FIP for the area of Mostar and AFIP for the remaining territory of the Federation). According to the Law on Accounting and Auditing of the Federation of Bosnia and Herzegovina, information from financial reports is public and available to all legal and natural persons. Pursuant to a special decision of the Government of the Federation, AFIP and FIP are obliged to make the data from financial reports available to all other persons upon their request and after payment of the relevant fee.
LRC Inženjering is engaged in consulting, as well as creation and management of databases containing information on the business of undertakings from the territory of Bosnia and Herzegovina. According to the company, without access to information from financial reports of other undertakings it cannot pursue its business activity.
The dispute between LRC Inženjering and AFIP dates back to 2008, when the Competition Council, upon request of LRC Inženjering, rendered a decision finding that AFIP abused its dominant position by refusing to supply LRC Inženjering with financial reports of all legal persons from the territory of the Federation of Bosnia and Herzegovina. In these proceedings, the Council established that AFIP had allowed certain undertakings to use its database containing annual and semi-annual financial reports of undertakings from the territory of the Federation, while AFIP supplied LRC Inženjering only with reports on business performance of those undertakings. Furthermore, the Council determined that the price charged by AFIP to LRC Inženjering for using such reports was higher than the price charged by AFIP to other undertakings. Accordingly, the Council in its 2008 decision established that AFIP had abused its dominant position on the market of the provision of financial, IT and intermediary services in the territory of the Federation of Bosnia and Herzegovina by applying dissimilar conditions to equivalent transactions, thereby placing LRC Inženjering at a competitive disadvantage.
Following the Competition Council’s decision, AFIP entered into a new business cooperation agreement with LRC Inženjering, which agreement was terminated already in 2009, due to LRC Inženjering’s failure to pay for the services rendered. At the beginning of 2013, LRC Inženjering again turned to AFIP with the request for conclusion of a new business cooperation agreement. Soon afterwards, AFIP adopted its Rules on disclosure of information to legal and natural persons and methods of their use, where it was prescribed that information from financial reports can be used only for non-commercial purposes and that it cannot be disclosed to third parties, distributed or published. On the basis of these Rules, AFIP refused to conclude an agreement with LRC Inženjering, causing the company to once again turn to the Council with the request for the initiation of proceedings against AFIP.
Proceedings before the Council
In the proceedings before the Council, LRC Inženjering put forward that the provisions of the Rules barring the use of financial reports for commercial purposes represented a restriction of competition and was contrary to the laws of Bosnia and Herzegovina. LRC Inženjering also disputed the provision of the Rules leaving the possibility for AFIP to conclude agreements on disclosure of information without payment of a fee, in exchange for the provision of certain services related to the advancement of AFIP’s IT system, which AFIP was doing in practice. Finally, LRC Inženjering disputed the provisions of the Rules according to which AFIP was able, at its discretion, to condition the conclusion of agreements on disclosure of financial reports by submission of a bank guarantee as a collateral for the payment of a “one-off compensation” (probably meaning contractual penalty) in the case of breach of contract by the other contracting party.
On the other hand, AFIP submitted that free access to information from financial reports is not an absolute right and that it can be limited in order to protect the public interest. According to AFIP, misrepresentation of data could lead to credit frauds, money laundering and terrorism financing. For that reason, after it gained knowledge that incorrect information from financial reports had already been present on the market, AFIP adopted its Rules in order to prevent unauthorised use and distribution of information from financial reports. AFIP noted that LRC Inženjering, after the termination of business cooperation in 2009, found alternative, unauthorised, ways of receiving data from financial reports and that it distributed such data on the market. Finally, the Agency added that it ceased with any disclosure of information to commercial clients, until the Council renders a decision on whether the disputed provisions of the Rules are in accordance with the Law on Competition.
Council’s 2013 decision
In its decision from December 2013, the Council defined the relevant market as the market of the provision of financial, IT and intermediary services in the territory of the Federation of Bosnia and Herzegovina and found that AFIP had dominant position on this market. The Council came to this conclusion in the light of the fact that, by virtue of the relevant decision of the Government of the Federation of Bosnia and Herzegovina, only AFIP and FIP are authorised to collect and process financial statements of legal persons from the territory of the Federation, and that these two agencies cover different territories within the Federation. Accordingly, the Council concluded that AFIP is dominant since, with respect to financial reports from the territory covered by it, undertakings could not conclude agreements on disclosure of financial reports with any other agency or institution.
Following the proceedings, the Council established that AFIP abused its dominant position on three grounds – two infringements pertain to certain provisions of AFIP’s Rules on disclosure of information to legal and natural persons, while the third infringement pertains to a particular case, i.e. to refusal to conclude a business cooperation agreement with LRC Inženjering.
The first infringement found by the Council relates to several provisions of the Rules by virtue of which AFIP was applying dissimilar conditions to equivalent transactions with other trading parties (barter arrangements with undertakings engaged in IT activities and the possibility for AFIP to, based on its assessment, contract for different types of contractual penalties) thus infringing Article 10, paragraph 2, item c) of the Law on Competition (an equivalent of Article 102, paragraph 2, item (c) of the TFEU). The Council also established that, by virtue of its rules, AFIP infringed Article 10, paragraph 2, item d) of the Law on Competition (an equivalent of Article 102, paragraph 2, item (d) of the TFEU), by making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such contracts (barter arrangements with undertakings engaged in IT activities, refusal to disclose financial reports for commercial use, and the possibility of activating a bank guarantee in case of suspicion of breach of contract by other contracting party).
Regarding the two infringements described above, it is interesting to note that the Council qualified barter arrangements with undertakings engaged in IT activities in two ways: as application of dissimilar conditions to equivalent transactions with other trading parties and as making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such contracts. It is not clear from the Council’s decision why such possibility represents the imposition of supplementary obligations. According to the Council, a dominant undertaking cannot impose any additional or different conditions in its business activities and all other undertakings must have the same conditions for cooperation with AFIP.
The third infringement found by the Council pertains to AFIP’s refusal to conclude an agreement on business cooperation with LRC Inženjering, which the Council qualified as abuse of dominant position from Article 10, paragraph 2, item b) of the Law on Competition (“limiting production, markets or technical development to the prejudice of consumers”, an equivalent of Article 102, paragraph 2, item (b) of the TFEU). In this respect, the Council noted that AFIP had abused its dominant position by limiting markets, i.e. by refusing to conclude an agreement with LRC Inženjering it applied dissimilar conditions with other undertakings (AFIP was concluding agreements on business cooperation with other undertakings) which, according to the Council, excluded LRC Inženjering from the market and placed it at a competitive disadvantage.
It would appear that, regarding this last infringement, the Council had in mind the refusal to deal doctrine, in particular the refusal to supply an essential facility. According to LRC Inženjering, financial reports are necessary in order for it to provide to its clients the information on business activities of other undertakings, to perform analyses, etc. However, in its decision, the Council did not provide any additional analysis in this respect, for instance such as the one provided in the European Commission’s Guidance on enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings.
After it established the existence of the described infringements, the Council ordered AFIP to amend the disputed provisions of its Rules and to conclude with LRC Inženjering, and with all other clients, agreements on business cooperation under equal conditions. AFIP was also fined in the amount of BAM 19,000 (approximately EUR 10,000).
This case confirms that the Competition Council is ready to apply the Law on Competition to undertakings entrusted with certain powers of public authority. In such case, according to the Council, a dominant undertaking must apply the same business conditions and cannot refuse to supply other undertakings.