Competition law trends in 2021 – more focus on cartels and e-business

In 2020, the Competition Council acquired a full set of tools both for conducting its own investigations and for assisting investigations of other EU Member States with respect to companies operating in Lithuania. The amendments to the competition law fully implement the EU directive, which strengthens the powers of national competition authorities (NCAs). The Competition Council was given even more powers, new grounds for fines emerged, and the joint and several liability of parent company was legally established. EU competition authorities will cooperate not only in the exchange of information but also in the recovery of fines. Therefore, we should expect active enforcement of competition law in the future.

Infringements of competition law by companies operating in digital markets, in recent times, have gained attention. The European Commission, the NCAs and courts of individual Member States and the United States of America constantly investigate the compliance of actions and business models of major technology companies Google, Apple and Facebook with the competition law. There is also an active discussion on whether competition law should be used for achieving other goals, such as sustainability and public health.

These trends are not very noticeable in Lithuania yet. Most infringements of competition laws remain in conventional sectors. However, as the activities of companies have moved to the Internet due to the pandemic, it is likely that the Competition Council will inevitably monitor e-commerce and other businesses providing services electronically more closely. In addition, we will face the actions of not only the Competition Council, but also the State Data Inspectorate and the State Consumer Rights Protection Authority in these areas.

The trade and retail sectors will also have to adapt not only to changes caused by the quarantine but also to the new Unfair Commercial Practices Directive, that will enter into force in November 2021. Its goal is to identify prohibited practices in relations with suppliers. Infringements are expected to be subject to fines of up to 1% of annual revenue.

In 2020, the Competition Council imposed only four fines. They were imposed in the retail, passenger transport, notarial services and entertainment sectors. However, according to publicly available data, at least 13 more investigations are currently pending the decisions of the Council. Most of them are related to cartels (prohibited agreements). Given that the investigations take 2-3 years, most of them are expected to be completed by 2021.

Cartel investigations will remain a priority for the Council. COVID-19 forces businesses to interact more. It would therefore be necessary to monitor daily business actions even more closely so that no cartels are formed by communication between competitors, as competition law applies during the quarantine as well.

After the pandemic began, associations returned to the spotlight of the Council. An investigation has been launched into an alleged cartel formed by the Lithuanian Basketball League for possibly jointly deciding on contractual relations with players of independent clubs, whereas a dental association received a friendly warning from the Council for publicly shared plans to raise service prices. Associations are an important tool for companies to be heard in public institutions. However, this is one of the main forms of communication between competing companies where competition law is most easily infringed. It should be borne in mind that discussing or making joint business decisions between companies, as well as exchanging commercially sensitive information, are prohibited. Each company has to decide on its activities on its own.

The Council also pays particular attention to public procurement – most of the investigations initiated and fines imposed in recent years are related to cartels in public procurement. This practice will undoubtedly continue, especially following the outcomes of the cases in the administrative courts, which upheld the Council’s conclusions on the prohibited agreements between construction companies in public procurement and imposed fines in the millions.

The Competition Council has been passive in investigations into abuse of a dominant position for a long time. However, given that infringements of abuse of dominant position in Europe are given much attention as well as that in specific sectors (e.g. trade, retail, pharmacy) the range of problems of markets with actors having significant market power became apparent during the pandemic, this will inevitably have to be addressed by the Council. Therefore, companies with more than 40% of the market should monitor their business practices more closely and not abuse their dominant position.

Corporate groups will also face new challenges. The amendments to the Law on Competition established joint and several liability of parent company for the infringements of its subsidiary. Accordingly, we no longer have the limits of liability of a legal person in competition law which we are customary under civil law. In addition, the personal liability of managers for competition infringements in the company they manage results in managers losing their right to hold management positions for 3 to 5 years, including the management bodies of other companies. Therefore, infringements of competition law may affect the whole group of companies, not just the infringing company.

The Council has begun to boldly question the legal acts and regulations adopted by the institutions with respect to the provision of services where they potentially reduce competition or are unfavourable to consumers. The notarial services and the procedure for organizing the carriage of passengers on regular routes have fell under the spotlight of the Council. Therefore, when having contractual relations with the public sector, it should be borne in mind that the obligations imposed by the Council on the institutions to terminate the illegal activities may have an impact on the regulatory business environment or contractual relations.

Please note that from 1 November 2020, i.e. from the day entry into force of the amendments to the Law on Competition, the Competition Council relinquished its functions related to unfair competition supervision. The Competition Council will no longer investigate possible infringements of unfair competition. Companies themselves will have to defend their rights in cases of unfair competition through civil proceedings.

Finally, in 2021, Brexit will also take place. The EU competition law will no longer apply to the United Kingdom (UK) and differences in the rules and their enforcement may gradually emerge. So companies with business partners in the UK will need to follow developments in UK legislation and case law more closely.

As the supervision over the observance of the competition law grows in intensity, risk management plans for detection of the potential competition infringements and staff training will become an even greater necessity for successful day-to-day operations.

In 2020, we invited “Motieka & Audzevičius“ clients to the spring and autumn cycles of webinars on competition law. We continue to monitor competition law practices and trends relevant to business. We are ready to share our expertise and insights and, at the beginning of the year, we will invite you to new (so far virtual) meetings. Should you have any questions, please get in touch!

 

7 trends of competition law and its enforcement in 2021.

  1. Cartel investigations: will remain a priority for the Council, wherefore communication with competitors, even in pandemic conditions, must comply with competition law.
  2. Public procurement: suppliers must comply not only with the rules of public procurement but also with the rules of competition law.
  3. Activities of associations: it is necessary to closely monitor what issues are addressed in the association. Members of associations may not exchange commercially sensitive information and make joint business decisions regarding market behaviour.
  4. Joint and several liability: the customary limits of a legal person’s liability are no longer there in the competition law, wherefore it is necessary to assess the risk that the parent company will also be held liable for the infringements committed by the controlled company.
  5. Retail and e-commerce: due to the importance of the sectors during the pandemic, the regained attention to infringements of abuse of dominant position and the entry into force of new legislation, companies should pay particular attention to their compliance with competition law.
  6. Sanctions for public entities: change the relevant regulatory environment and may influence business decisions.
  7. Compliance with competition law in the company and its groups: investing in understanding the competition rules and the ability of employees to identify potential infringements is the most effective way to avoid sanctions.

Experience