Basic principles of Latvian competition law

1. Basic principles of Latvian competition law

2. Plan
1. Principles, aims and history of competition law
2. Competition Council and its powers
3. Prohibited Agreements
4. When the agreement is prohibited
5. Liability
6. Amendments to the Competition Law
2

3. Part one: General
• Principles, aims and history
of competition law
• Some basic concepts
3

4. …
Adam Smith (1723 – 1790), philosopher and political
economist
• Inquiry into the Nature and Causes of the Wealth of Nations
(1776).
“People of the same trade seldom meet together, .. But the
conversation ends in a conspiracy against the public, or in
some contrivance to raise prices."
4

5. Competition law in Latvia?
• 90s – The goal is to join the EC
• 1999 – First try
• 2002 – The new law
• Why Europe needs competition law?
5

6. Objectives
• Promotion of competition in the market -
• Ensuring independent activity of each market participant
• Restricting the creation or abuse of the market power
• Aims:
• lower prices
• better quality
• Broader choice
• More innovations
6

7. Pillars of competition law
1. Prohibition of anti competitive agreements
2. Prohibition of abuse of the dominant position
3. Merger control
4. Control of state aid
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8. Applicable laws and other sources
• EU law
• Latvian laws:
• Competition Law (in force since January 2002)
• Regulations of the Cabinet of Ministers
8

9. Market participants
• Any natural or legal person
• Legal persons: whole group
• Also self-employed, individual merchants
• Associations of market participants
• Criteria:
• Is engaged or is preparing to engage in the economic
activities in Latvia
• Economic activities: any sales of goods/provision of any
services (except for public services)
9

10. Relevant market
• Purpose of relevant market definition
• to identify the competitors, consumers, customers of the
respective market participants
• to determine the boundaries within which the market
participants are competing or are situated in circumstances
where they can compete
• Definition of the relevant market. Two Pillars:
• Product market
• Geographic market
10

11. Product market
• Substitution
• Demand
• Supply
• Barriers
• Key: “specific features of the product and its utilisation
characteristics”
11

12. Geographic market
• Substitution
• Barriers
• Imports
• Key: “appreciably different conditions”
12

13. Part two: Competition authorities
• Structure
• Rights (obligations)?
13

14. What’s in its name?
• Competition Council = Konkurences padome
• www.kp.gov.lv
• Chairperson of the Council Ms. Ieva Jaunzeme
• Executive body - the Bureau
14

15. What do they do?
• Investigations and market studies
• Breach cases
• Mergers
• New laws: review/opinions
15

16. Powers – general overview
• Information request
• For a very wide range of objectives
• The necessary information including the commercial
secret
• Rights are very wide
• Limitations to the rights - there are no direct norms of the
law
• Procedural preconditions - powers of attorneys, court
decisions
• Forced enforcement, money fines
16

17. Dawn raids
• Broad powers of investigation
• The inspection may take place with or without prior warning
• The inspections without warning are called "dawn raids"
• Only the powers stipulated by the law
• European Commission - Regulation No 1/2003
• Competition Council - Competition Law (new since 2002)
• Little practice at application of the law
17

18. Documents to be presented
• Power of attorney
• ID
• Court decision
• Decision of the head of the bureau
18

19. Powers of the CC during dawn raids
• Access to the company and employees'
premises/property (including transport vehicles)
• Rights to open storage facilities
• Examination of the company and its employees' property
• Rights to demand explanations
• Receive copies, remove originals/property
• Seal the premises, transport vehicles, storehouses
19

20. When they come – what to do?
• To think of:
• Your lawyer (whatever time of the day)
• What you have done/written
• Fines
• Cooperate
• Be polite but strict. Keep the investigation under control
• Set up a team for representation of the company at the investigation
• Inform all the employees
• Keep precise copies of the information acquired by the investigators
• Accompany the investigators continuously
• Put down the questions and answers
20

21. Rights of the company during the raid
• Rights in relation to the protected information:
• "confidentiality" mark
• Limits of the investigated case
• "Legal privilege" or the confidentiality of the lawyer's
correspondence
21

22. Part three: Agreements
• The rule
• „Agreement”
• Prohibited agreements –
black list
• Horizontal and vertical
agreements
22

23. The rule
• Agreements with an object or effect of hindrance,
restriction or distortion of competition in the territory
of Latvia are prohibited and void from the moment of
conclusion between market participants
• Principle of invalidity of the agreement
• Object or effect?
• Agreement
23

24. Hindrance, Restriction or Distortion of
Competition
•Test:
•Object or effect?
• It is enough that competition can be potentially hindered, restricted or distorted
•"Affected market"
•Horizontal/Vertical
•Relevant product market
• Relevant geographical market
24

25. Agreement I
• “Traditional” agreement
• It does not have to be a written document
• Does not have to be binding (also gentlemen's agreement)
• Does not have to be fulfilled
• But has to be concluded between "independent entities" (that is, does not
relate to mutual agreements between parent and subsidiary companies)
25

26. Agreement II
• Decisions of associations of undertakings:
• Recommendations, common standards, models of action
• The form and legal consequences bear no significance, the
participant’s attitude towards such decisions is important
• Concerted practices:
• Without arrangement - the market participants does not inform each
other about their activities
• Type of company coordination, which - wihthout knowingly set out in
a form of an agreement, threatens the competition, includes practical
cooperation of companies
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27. Prohibited agreements - "black list"
• Agreements, which:
• Directly or indirectly fix prices for purchase or sale, or any other
trading conditions;
• Restrict or control production, markets, technical development, or
investments;
• Divides markets or sources of supply;
• Applies unequal provisions in equivalent transactions with third
persons, creating for them disadvantageous conditions in terms of
competition;
• Make the conclusion of contracts subject to acceptance by the other
parties of supplementary obligations which by their nature or
according to commercial usage have no connection with the subject
of such contracts.
27

28. Exchange of information
• European Commission in case of IFTRA Rules on Glass
Containers:
• It is contrary to provisions of Article 81 that the producer
contacts his competitors in relation to significant
elements of his price policy, for example, pricelists,
discounts and sale conditions applied by him, rates and
dates, when they are changed, and special exceptions,
which he can award to specific clients
28

29. Is "information" illegal?
• Life in information vacuum?
• Operation in full independence from competitors?
• Special case - oligopoly [for example, fuel market]
29

30. Agreements on Prices
• Nintendo case
• Vitamin Cartel
30

31. Market and/or client division
• Purpose of market and/or customer division is to provide the
members of a cartel with a possibility to maintain an artificially
dominant or even monopoly position in a definite geographical
territory.
31

32. Other examples
•"The distributor undertakes to purchase Goods only form the
Producer"
•"Within the premises of the Distributor, only the Producer's goods
are allowed for sale"
•"Opening of every new sales place by the Distributor shall be
coordinated with the Producer"
•"The Parties have agreed that the Distributor shall be the exclusive
distributor of the Producer in the Territory"
•"During the term of this Agreement the Seller will not involve in
active sale of Goods within the Territory"
•Appendix XXX to the agreement between YYY and ZZZ “retail price”
32

33. Horizontal and vertical agreements
• Horizontal agreements:
• An aggrement is concluded or concerted practices are
practiced between companies, which are active in the
same level of the market [competitors]
• Vertical agreement:
• Agreements which are concluded between companies
which are active in various levels of production or supply
chain
33

34. Vertical agreements
• The competition may be limited:
• among various brands (inter-brand competition) or
• competition between the distributors of goods of one and the same
brand (inter-brand competition).
• Most harmful agreements to the competition are those agreements
which influence the inter-brand competition, rather than between the
distributors.
• However, limitations to the intra-brand competition can be
harmful in case the inter-brand competition is limited at the
same time.
34

35. Horizontal agreements
• Members of a cartel engage in cartels in order to be able to rely on their
existing market share, on the existing clients and they do not need to
offer new or better products for competitive prices. Accordingly, the
consumer loses because he pays more for goods of worse quality.
• Price fixing if it is only a purpose or recommendation influences the
competition because as a result of such decision, all participants can
foresee with a reasonable degree of certainty what price policy will be
adopted by their competitors, especially if the fixing of a target price is
accompanied by a possibility of control and sanction.
35

36. Part four: when the agreement is prohibited
• Exemptions from the
prohibition
• De minimis
36

37. Exemptions
• Agreement may be allowed or allowed on conditions for a definite
term if
• the agreement promotes improvement of goods production or
sale, or the economic progress and therefore
• ensures benefit for the consumer, besides
• these agreements do not impose limitations to the respective
market participants, which are not necessary for reaching
these aims and
• avoids the possibility to eliminate competition in a significant
relevant market share.
37

38. De minimis
• Agreements which cannot significantly harm the
competition:
• Agreements between companies which operate in one
level of manufacture or distribution (horizontal
agreement) if the joint market share of the both/all
parties in the relevant market does not exceed 10%
• Agreements between companies which operate in
different levels of manufacture or distribution (vertical
agreement) if the market share of the contracting party in
the relevant market does not exceed 15%
38

39. Part five: Liability
• Penalties
• Leniency
39

40. Penalties
•Competitors – 10%
•Non-competitors – 5%
•Civil liability
40

41. Leniency
• What is leniency policy?
• Allows the company to cooperate with the authority during the
or even to initiate it
• “Whistle-blowers" L
• Aim – destabilization of cartels
• Consequences:
• Reduction of/exemption from penalty
• Does not influence the civil liability
41

42. Part six: Amendments
• History
• Process
• Result
• Consequences
42

43. Just to reiterate….
• History
• Process
43

44. Part 2 of Clause 13
• A market participant or several market participants are in a
dominant position in retail, if:
• they, taking into account their buyer power and dependence of
the suppliers in the relevant market,
• have the capacity to directly or indirectly apply or impose unfair
and unjustified provisions, conditions, or payments upon the
suppliers, and
• have the capacity to hinder, restrict or distort competition in any
relevant market within the territory of Latvia for a substantial
length of time.
44

45. Prohibition
• Any market participant holding a dominant position in retail is
prohibited from abusing such position in the territory of Latvia.
45

46. Abuse I
• imposition or application of unfair and unjustified provisions
regarding the return of the goods, unless the returned goods are:
• Goods of bad quality,
• New goods, which were not previously known to the consumers
provided that the increased supplies thereof were initiated by the
supplier
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47. Abuse II
• imposition or application of unfair and unjustified payments for the
presence of the delivered goods at a retail sales point, unless such
payments are justifiable as marketing costs for new products, which
were not previously known to the consumers;
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48. Abuse III
• imposition or application of unfair and unjustified payments in
exchange for entering into a contract, unless such payments are
justifiable as costs for entering into a contract with a new supplier,
which therefore requires special evaluation;
48

49. Abuse IV
• imposition or application of unfair and unjustified payments in
exchange for delivery of goods to a new, yet-to-be-opened retail
point of sale;
49

50. Abuse V
• imposition or application of unfair and unjustifiably long payment
periods for delivered goods.
50

51. Abuse VI
• imposition or application of unfair and unjustifiable sanctions for the
breach of the agreement.
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52. Consequences / conclusions
• It depends….
52

53. Thank you!
Jūlija Jerņeva
Mob: +371 29131597
https://www.linkedin.com/in/julijajerneva