Czech Competition Authority becomes even more powerful following changes to Czech Competition rules

Below we set out six key things you need to know about the revamped competition reforms.

Leniency extended to vertical agreements

The leniency program has been a powerful tool in the CCA’s fight against cartels. It grants whistleblowers immunity when reporting a cartel and allows for a fine reduction if the cartel participants provide the CCA with evidence that is materially relevant for proving the existence of the cartel agreement. The Amendment defines rules on the marker guaranteeing a place in line for leniency applicants and sets out more detailed rules on submitting summary leniency applications in situations where the whistleblower requests immunity in more than one EU Member State.

However, the Amendment does not simply amend the existing competition rules to make them compliant with the ECN+ Directive, but it also extends the leniency to all collusive agreements aimed at distorting competition, not just cartels. This means that a leniency application can be submitted to report a prohibited vertical agreement, ie an agreement between companies operating at a different level of the production chain. As a result, we may see more suppliers and distributors whistleblowing their agreements in the future. However, suppliers who most often impose anticompetitive clauses on their counterparties (such as resale price maintenance clauses) should bear in mind that undertakings who coerce others into an agreement will not be eligible to apply for leniency. How this plays out in practice remains to be seen, but reports from our colleagues in Poland, where leniency for vertical agreements was introduced several years ago, describe the competition authority being overwhelmed with cases of competitive battles between companies. Also, the use of leniency for vertical agreements can become difficult in cases where the anticompetitive practice has a cross-border element. Leniency for vertical agreements is not available in all EU Member States and it is not even recognised by the European Commission under the EU rules.

Conditions for settlements become stricter

Settlements were introduced to wrap up proceedings as quickly as possible, in cooperation with the infringer admitting its wrongdoing in exchange for a fine reduction of 20%. This has become very popular in the Czech Republic. In the past, the majority of cartels were closed after an agreement was reached with the CCA. However, lengthy settlement negotiations with cartel participants disrupted the effectiveness of this tool, which was originally designed to bring about procedural savings.

With the Amendment, the use of settlements now becomes more discretionary, and the amount of the fine reduction will now range from 10 to 20%. Furthermore, cartel participants involved in bid-rigging can face a prohibition on performing public contracts even if they apply for a settlement. However, in such cases the prohibition cannot exceed one year. It will be up to the CCA to decide about the exact percentage of the fine reduction and the length of the public procurement ban, depending on the procedural savings achieved. In particular, the CCA will consider the total length and course of the settlement, the number of oral negotiations held, as well as the complexity of the case.

The Amendment explicitly provides that hybrid settlements (where not all cartel participants wish to settle) are possible and now enables the public authorities suspected of committing a competition law infringement to benefit from the settlement as well.

Wiretapping can be used to cartel proceedings

One of the most controversial aspects of the Amendment is the admissibility of transcripts from wiretappings carried out by the Czech police in the course of criminal investigations of cartel agreements or collusive behaviour aimed at distorting economic competition. Originally, this option was proposed by the CCA when presenting its draft bill, but was rejected by the Legislative Board of the Government. During the legislative process, it was reintroduced and approved by the Deputies. 

Some think that the use of transcripts of call recordings or telecommunication traffic data can undermine the right to defence. We can expect that the introduction of these new powers for the CCA will be tested in the courts, especially in light of the May judgment of the European Court of Human Rights in Janssen de Jong Groep B.V. and Others v. the Netherlands, which concerned the transmission of data lawfully obtained in a criminal investigation to the Dutch Competition Authority, which then used that data in an investigation into the companies’ involvement in price-fixing. According to the ECHR, the data transmission is possible if the domestic legal system is capable of avoiding an abuse of power and enables judicial oversight of the lawfulness of the data transmission. The latter is, however, not easy to satisfy under Czech law because the cartel participants can only claim unlawfulness in the administrative proceedings on merits.

Protection of identity of complainants

So far, the Competition Act has not protected identity of those reporting illegal anti-competitive practices. The fact that potential infringers were able to see details of the complaint, incl. the identity of the complainant, in the administrative file, could have had a deterrent effect due to fear of possible retaliations. According to the new rules, the identity of complainants will not be revealed in the administrative file if the protection is sought from the CCA. Documents and information provided by the complainant will be kept separate until the state of objections is issued. Even then, the identity of the complainant will be kept confidential.

Changes to the rules on fines

There are several rules related to fines that should provide the CCA with more efficient ways of enforcing them.

Solidarity of companies forming an undertaking

If there are proceedings regarding anticompetitive conduct against several companies forming an undertaking (ie a single economic entity), these companies can now be held jointly and severally liable for the payment of the fine. This change is in line with the EU law and should prevent parent companies from avoiding responsibility for an infringement committed by one of its subsidiaries by transferring its assets elsewhere or liquidating the subsidiary.

Liability for payment of a fine by other members of an association

If a fine is imposed on an association of undertakings, its amount can reach 10% of the total net turnover achieved by all its members during the last completed accounting period. If the fine is not paid in full, each member of the association is liable for the payment of the fine up to 10% of its net turnover, while those members who were represented in the decision-making body of the association must pay preferentially.

Higher procedural fines

Anyone failing to provide business records on the CCA’s written request within the specified period of time or refusing to cooperate during a dawn raid may face fines of up to 10% of their average daily net turnover achieved in the completed accounting period. These fines can be imposed repeatedly, and should prevent the company from choosing a strategy of non-cooperation instead of submitting to the investigation.

What next?

The Competition Act only defines general rules. The practical impact on companies and proceedings depends largely on soft law published by the CCA. The CCA initiated a public consultation on redrafts of notices on leniency, settlement, de minimis agreements and alternative solutions of competition problems. We expect the new notices to enter into force soon after the Amendment.

Please get in touch if you would like to further discuss any of these issues or trends and developments in Czech competition law.