Proposed amendments to Law on Protection of Competition

The 2009 Serbian Law on Protection of Competition is undergoing an overhaul. The first draft of the amendments, prepared jointly by the Ministry of Trade and the Commission for Protection of Competition, has been submitted for public debate. The initial round of consultations was held on 10 April 2013, on the occasion of the Commission’s anniversary.

Statute of limitations

The most noteworthy proposal concerns the extension of the statute of limitations for imposition and collection of penalties by the Commission. According to the law currently in force, penalty can be neither imposed nor collected following the expiry of three years from the infringement. Moreover, the statute of limitations clock does not stop running even if the Commission opens an investigation or initiates collection process.

The proposed amendments seek to extend the statute of limitations for imposition of fines to five years from the last action constituting the infringement. This period would be tolled every time the Commission takes an action towards establishing the infringement or imposing a penalty; nevertheless, penalty will become absolutely time barred upon the expiry of the double statute of limitations period. A separate five-year statute of limitations is proposed for collection of penalty and it would start running from the date when the Commission’s decision imposing the penalty, or the court judgment dismissing the challenge to the Commission’s decision, becomes enforceable. Tolling would occur whenever an action towards collection is undertaken, subject to the absolute time limit of 10 years from the date when the Commission’s decision or, as the case may be, the court decision rendered in judicial review procedure, became enforceable.

While the extension of the current statute of limitations is reasonable given the complexity of most of competition law investigations, what is extremely problematic from the legal point of view is a provision of the draft amendments seeking to make the new statute of limitations applicable to infringements that will have occurred before the prospective amendments will have come into force. The current proposal, if adopted, would mean that the Commission could impose a penalty even in those cases where the penalty became time-barred before the new statute of limitations was introduced. Even though the expiry of statute of limitations does not prevent the Commission from finding an infringement, it does remove the possibility of the infringement being penalized. Penalty provisions of the competition law statute resemble criminal law statutes. In that context, retroactivity of penalties is more than a dubious idea. This aspect of the proposed amendments faced criticism from the panel during the first public debate.

Commitments

Another proposal worth singling out concerns the amendment toArticle 58 of the Law on Protection of Competition, dealing with commitments. In its current form, Article 58 allows the Commission to suspend proceedings if the infringement of competition was insignificant and the party undertakes not to continue with it or repeat it, or, as the case may be, to compensate or remedy the damage caused. The maximum suspension period is currently six months. If the party subject to the proceedings fails to fulfill or breaches its undertaking before the expiry of the six-month period, or in the meantime commits another infringement of competition, the Commission shall continue the proceedings.

There are several problems with the current provision. To start with, the six-month compliance period appears too short. Furthermore, the provision states that the Commission shall resume the suspended proceedings not only if any of the commitments is not complied with, but also if a new infringement occurs during this period. It is unclear, though, how a new unrelated infringement could be investigated in the proceedings that were initiated for investigation of another infringement. Finally, the existing solution does not allow for revision of the commitments or continuation of the proceedings if the circumstances change since the original commitments decision.

According to the proposed change, the Commission would be able to suspend the proceedings against an alleged infringer who hasoffered to the Commission “a settlement“ (the reference to settlement was probably introduced in a drafting haste) along with a proposal of commitments and the deadline for compliance therewith. The party could submit a commitment proposal within one year from the commencement of investigation orwithin the deadline for a response to the statement of objections, whichever expires earlier. If it finds the proposed commitments satisfactory, the Commission would adopt a decision, in the form of a conclusion, imposing behavioral and/or structural measures and the time limit for their implementation.The proposal states that the Commission is not bound by the commitment proposal submitted by the party to the proceedings. This wording suggests that in a process started by the party’s own initiative, the Commission could impose measures that the party has not agreed to, whereas it is not clear from the current proposal that the party would in that case have recourse against such decision. To the extent the draft aims at saying that the Commission is not obliged to accept a proposal made by the party and is allowed to continue its ongoing investigation, this should be made clear in the next iteration of the draft.

The proposal states that the Commission shall resume the proceedings if “within five years from the commission of an act or the last action constituting an act”, where there has been a material change in any of the facts on which the decision was based, the party breaches any of the measures imposed by the commitments decision or fails to submit evidence of compliance therewith or it is discovered that the decision on commitments was based on incorrect or false information (unlike Article 9 of Regulation 1/2003, the draft provision makes no reference to incomplete and misleading information, which should be remedied in the next iteration).

Determination of dominance

The existing law provides that an undertaking is considered dominant if it has no competition on the relevant market or such competition is negligible, or, as the case may be, if the undertaking is in a significantly more favorable position than its competitors with respect to its market share, economic and financial strength, access to supply and distribution markets and legal and factual barriers to entry. An undertaking with a 40% or larger share on the relevant market is presumed to be dominant but is allowed to rebut the presumption.

The draft amendments aim at significant change in the approach to market dominance, by moving to the test established in seminal United Brands and Hoffmann-La Roche cases decided by the European Court of Justice. According to the proposal, an undertaking The proposal maintains the presumption of dominance when market share is 40% or more but then states that the burden of proving dominance is in all cases on the Commission. In that context, it is unclear what is the consequence of the stipulated presumption of dominance. This should be clarified in the next iterations.

The draft amendment to the provision on abuse of dominance also proposes a change to the definition of collective dominance. The existing law creates the presumption of collective dominance where two or more undertakings are in no significant competition between them and their combined market share is 50% or more. The draft amendment dispenses with the 50% threshold and provides that two or more undertakings legally independent of each other may be deemed to have collective dominance on the market if they are connected with such economic links that they act jointly on the relevant market and/or there is no significant competition between them.

Merger control

The draft seeks to clarify that acquisition of “a part of anundertaking” is also concentration subject to the notification requirement, if the relevant turnover thresholds are exceeded. A definition of “part of an undertaking” would be welcome, though.

It is specified that the one-month deadline to either approve a concentration in summary proceedings or initiate investigation, starts running from the date when a complete notification is submitted. This is in any event been how the Commission has so far interpreted the one-month deadline.

Draft amendments also propose to extend the deadline for the Commission’s decision in phase II of merger control proceedings, from three to four months.

Finally, the Commission is sought to be empowered to revoke a merger clearance issued based on inaccurate or falsefacts.

Individual exemption

With respect to restrictive agreements, the draft does not propose to dispense with formal individual exemption regime but seeks to give to the Commission the power to revoke the terms of its decision granting individual exemption, if the conditions underlying the exemption decision change, the exemption was based on inaccurate or false information or the exemption “is being abused”.

Procedure before the Commission

The current law prescribes that a separate appeal to the Commission’s procedural orders (made in the form of conclusion) is allowed unless expressly provided otherwise. The draft amendments turn this around, by prescribing that the appeal is not available unless otherwise stipulated. If the current proposal becomes the law, appeal would be available only with respect to decisions denying protection of confidential data and decision on interim measures.

Strengthening the Commission’s financial independence

The draft envisages the possibility for the Commission to set aside reserves before transferring revenue surplus to the state budget. Moreover, the existing provision requiring the Commission to pay interest on penalty amount to be returned to undertaking following the final reversal of the Commission’s decision imposing the penalty is proposed to be deleted. Payment of interest would be in such cases governed by the rules on tax proceedings.

Judicial review

The draft proposes shift of competence for judicial review of the Commission decisions, from the Administrative Court to the Commercial Court of Appeals. This proposal faced fierce criticism during the first public debate. It has been submitted that the judges of the Administrative Court have already gained some experience in competition law matters and it would not bereasonable to start building that competence among judges of the Commercial Court of Appeals from scratches. Moreover, it is submitted that the judges of the Administrative Court, which is a specialized court for review of administrative acts, are better suited to apply the rules of procedure applicable to such disputes. Transfer of judicial competence would require streamlined amendments to the law governing organization and competence of courts (Zakon o uređenju sudova) and the law on judicial review of administrative acts (Zakon o upravnim sporovima).

Instructive deadline for the court to decide on a claim for annulment of the Commission’s decision is proposed to be extended from two to three months. Same instructive deadline is sought to be imposed on the Supreme Court of Cassation when acting upon extraordinary appeal to the decision of the Administrative Court (or, according to the current draft, the Commercial Court of Appeals).