NEW DEVELOPMENTS IN COMPETITION POLICY IN LITHUANIA AFTER THE ACCESSION TO THE EUROPEAN UNION
Head of Administration,
Competition Council of the Republic of Lithuania
New developments in the national competition policy are primarily related to the adoption of amendments to the Law on Competition of the Republic of Lithuania which in their own turn have been are mainly conditioned 1) by the modernization of competition rules in the European Union and 2) by a new regulation on concentrations. Apart from that, certain corrections have been made responding to various shortcomings of the previous law that had come out in practical implementation of the said Law by the Lithuanian Competition Council.
As far as the application of Articles 81 and 82 of the Treaty is concerned, the substantive rules of competition do not actually change, yet significant changes in Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty are envisaged in terms of procedural aspects of application, and the new institutions empowered to directly apply these Articles of the Treaty (national competition agencies, national courts). The new EC Merger Regulation contains several major changes, such as the introduction of a new test for the assessment of mergers (alongside with the dominance test) and liberalization of time period for notifications.
Acting in accordance with the requirement of Regulation No 1/2003 to designate a national institution empowered to apply Articles 81 and 82 of the Treaty, the Lithuanian Law on Competition has been supplemented to designate the Competition Council as an authority having the right and obligation to apply the European competition rules.
Direct application of Articles 81 and 82 of the Treaty
Regulation No 1/2003 has authorised the national competition authorities and assigned them with the right to directly apply Articles 81 and 82 of the Treaty. Certain amendments needed to be introduced in the Lithuanian legislation seeking to ensure the direct application of the European competition rules on the national scale. The most important amendment concerned the empowering of the Competition Council to directly apply Articles 81 and 82 of the Treaty. This provision extends the limits of competence of the Council - alongside with the implementation of the Lithuanian Law on Competition, the Council will also apply Articles 81 and 82 of the Treaty in cases when alleged anticompetitive agreements or abuse of a dominant position in a market may affect trade among the Member States of the European Union.
Regulation 1/2003 also establishes an obligation on the Member State concerned and its competition authority to provide all necessary assistance to the European Commission’s officials performing inspections in premises of Lithuanian companies, as well as in private residences. However, in the latter case, the inspection may only be performed provided the Lithuania’s court order has been obtained. If a company opposes the inspection, the police may be called upon to apply “coercive measures” (yet again subject to the prior authorization of the Lithuanian court).
Since national courts have been assigned the right to directly apply Articles 81 and 82 as well, the law has been supplemented with the provisions governing particularities of proceedings of antitrust cases in civil courts (to stop an infringement and to seek damages); in this respect it should be noted that in Lithuania only one civil court - Vilnius Regional Court has been rendered this particular right.
A change in exemptions system
The new Regulation 1/2003 has reformed the previously applicable system of authorized exemptions from prohibitions on restrictive agreements. The new system no longer requires a prior notification in order to benefit from the exemption - under the new regulation, if an agreement is pro-competitive, it is automatically deemed valid, in other words, it has an automatic exception to the prohibition. The Law on Competition of the Republic of Lithuania has been amended to reflect this modernized EU approach to agreements, which places an increased emphasis on economic effects of the agreements concerned. Seeking to ensure a unified approach to agreements both in the Lithuanian law and in the EU, and also keeping in mind that practical experience in dealing with individual exemptions has been rather limited, the amendments to the law eliminated individual exemptions. From the 1st of May 2004, all agreements that fulfill the conditions for exemption, and therefore are pro-competitive, are valid without any authorization from the Competition Council. This means, that even though an agreement is restrictive, it is not prohibited because it satisfies the conditions for exemption. However, the burden of proof in these cases lies with the parties to an agreement seeking to benefit from the exemption.
The Competition Council retains its right to pass regulations (so called block exemptions) exempting, under specified conditions, certain types of agreements from prohibition.
Modernization in mergers area
The new legislation also introduced certain amendments to the mergers and acquisitions provisions. First, the time period allowed for notification to the Competition Council has been liberalized, releasing the companies from the obligation to notify the Council within 7 days from the moment of the conclusion of the agreement by the parties (to merge or buy/sell shares, etc.) or otherwise take the first action to start the concentration process. The requirement to suspend the concentration after the notification has been filed has also been abolished.
Thereby now all parties to the concentration can decide for themselves when (in which stage of the concentration process) to notify the Competition Council. The only thing which is crucial is to notify before the actual implementation of the concentration, that is before the process is consummated and control is acquired.
Apart from that, the time period for the Competition Council to take a final decision has also been liberalized - it has been prolonged for one month (in addition to the previous four months period) if the companies so request the Council. In practice, this may only occur in individual cases when after the preliminary investigation in the Council’s opinion the concentration, in the view of its causing significant restriction of competition on the market, is to be banned unless some corrective measures have been taken, and an extra month is needed for the companies to prepare and to offer the Council the appropriate measures, which, when and if implemented, would remove any doubts as to the compatibility of the concentration with the law.
Second, the new law sets a new requirement for the merging parties to pay a concentration fee which is collected to the national budget. This provision purports to be a kind of disciplinary measure on companies to see the seriousness of intentions of the parties to the concentration.
Third, the criteria for assessment of the concentration have been extended to include, alongside the previous dominance test, also a test of significant restriction of competition in the market. From now on, only one of these criteria - the creation/strengthening of a dominant position or significant restriction of competition - may form a basis for the prohibition of the merger/acquisition. The similar provisions are included also in the new EC Merger Regulation of 2004; actually changes in the Lithuanian legislation have been essentially effected under a strong influence of the new developments in the EU merger regime.
Forth, the new law provides for a new right of the Council to oblige the parties to the concentration to notify a planned or even already-implemented concentration, even though the turnover thresholds for notifying have not been fulfilled (i.e. companies are too small). This may only happen if the Council is of an opinion that there is a threat, as a result of the merger, of a dominant position being created/strengthened or a threat of a significant restriction of competition. However, this ex-post obligation may be imposed on companies only within one year after the implementation of the merger.
This change in the law has been caused by the experience accumulated through the practical implementation of the law. There have been cases when in some local markets, in particular services, after non-notifiable concentrations dominant positions have been created/strengthened, however, the Competition Council was not able to stop these actions under the law effective at that time.
The sanctions system as established by the law has been transformed following the principles applied by the European Commission when setting fines for infringements of the Community competition rules. From the accession to the EU, the national competition authorities will have the right and obligation to directly apply Articles 81 and 82 of the Treaty, when infringements of competition affect trade among the Member States. Sanctions for these violations, as well as for violations of the national competition law, will be applied in each country under the national competition law. Therefore, there is a need to have a system of fines compatible with that applied by the European Commission, otherwise, the same violation, depending on which country or the European Commission has investigated it, may lead to different sanctioning of the companies, which in turn may mean the inconsistent application of Community rules by the Member States and the Commission. Besides, fines should be adequate to the infringement committed. However, fines as previously imposed under the Lithuanian competition law have proved too low. A maximum fine of LTL 100,000 (around EUR 29,000), possible in the absence of any aggravating circumstances, was clearly inadequate for some major companies. Such fines could hardly act as a deterrent from the infringements in the future, and sometimes they may even be lower than the gains generated by the companies from the infringement. Without a sufficient fines system one can also hardly expect a “leniency/amnesty program” to work in practice, which could encourage violators to come to the competition authority first and “betray” their partners in a cartel, thereby ensuring their exemption from fines.
The law also provides for other amendments. One is in particular worth noting here, because it was not provided in the former reading of the law, and it will be meaningfully implemented by the Competition Council in the future. The Council has had several cases when an infringement committed by a company was not very serious and widespread, and the Council was not able to collect sufficient evidence to go ahead with fines against the company. On the other hand, the company itself was quite aggressive and refused to admit the infringement of the law. In such circumstances, it would be quite reasonable to terminate an investigation, saving our limited human and other resources and concentrating on more serious cases - violations of the law, with the obligation on the company to desist from the identified activities without fines and without stating that there has been an infringement of the law. However, the previous reading of the law did not foresee such a provision, which has caused some problems for the Council in terms of flexibility and speedy termination of specified wrongdoings by companies.
The new law states that in cases where the activities of the company have not caused substantial harm to competition, and where the company has presented a written commitment to cease the identified conduct, the Council can terminate its proceedings with the obligation on the company to follow the above-mentioned commitment. In case of a breach of the commitment, a substantial fine may be imposed (up to 5 % of the daily turnover for each day of breach of the commitment).