AmCham Macedonia Fall 2017 (Issue 55) | Page 16

Analysis Fall 2017 / Issue 55 Competition Authorities Scrutinizing Sales & Distribution Agreements We’ve all witnessed an increase in competition authorities’ activi- ties across Europe. Recently, the European Commission started probing an alleged German car cartel. At the same time, investiga- tions revealed that European truck producers breached EU antitrust rules. For 14 years truck prices were fixed and the cost of com- plying with stricter emission rules were passed onto consumers by the cartel. As a result, a record € 2.93 billion fine was imposed on the truck manufacturers. Greek competition authorities also fined six cosmetics manufacturers € 19 million for price fixing. Industries including fuel distribution, cement manufacturing and telecommuni- cations have been carefully scruti- nized by Romanian and Bulgarian competition protection bodies.   It goes without saying that similar actions can be expected from the Macedonian Competi- tion Commission, as Macedonia looks to launch the EU Member- ship negotiations. In fact, we’ve already seen some signs of this. The local legislation has already been largely harmonized with EU acquis, and the same legislative tools and mechanisms for deter- mining competition breaches are already at the disposal of the Macedonian authorities. Plans to further amend Macedonian leniency legislation and increase awareness of whistle-blowers immunity rights have both been steps in this direction. The fines stipulated in Macedonian law for 16 AmCham Macedonia Magazine Kiril Papazoski, Attorney-at-law, Papazoski and Mishev Law Firm anticompetitive agreements are quite severe, reaching up to 10% of a company’s previous annual turnover. Considering the complexity of the matter, the severity of potential fines and the lack of established legal practice in the field, companies should conduct a diligent review of their agreements, policies and prac- tices to reduce their risk exposure in this area.   Macedonian legislation stipulates that agreements intended to distort competition and those that succeed in doing so are prohibited. In particular, agreements which: directly or indirectly lead to price fixing or the deliberate manipulation of any other trading conditions; limit or control the production, market, technical devel- opment or investments; share the market or supply sources; apply different conditions in similar transactions with partners, thereby placing them in a less favorable com- petitive position; and/or condition the conclusion of the agreements with the acceptance of supplementary obligations by the other parties.   The law provides that these restrictions do not apply to intra- group agreements and to agreements which are essentially agency agreements (where under the agent does not undertake any risks and rewards other than the ones associated with the work as a commissionaire). Companies with small market shares are also not subject to competition measures (e.g., companies with <10% market share in horizontal agreements or <15% in vertical agreements). However, serious competition breaches – even by smaller players – would still be subject to closer scrutiny and administrative action. The block exemption is also available if the undertakings concerned have less than 30% market share and their agreement doesn’t contain any serious competition implications (e.g., selective distribution systems, non-compete >5 years).   Special rules exist for companies with dominant market posi- tions. There is no strait-jacket criteria to determine such domi- nance, and it is always viewed in the actual economic context. The burden of proof for dominant positions lies with the rele- vant authorities, however 40% is the minimum threshold set by Macedonian Competition Law. Examples of dominant abuse sanctioned by competition authorities can be various loyalty Analysis Fall 2017 / Issue 55 programs, inducing rebates, pred- atory pricing (dumping prices for the purpose of eliminating the smaller competition), refusal to supply, refusal to transact, and more.   Do’s & Don’ts Do not share markets, cli- ents or suppliers via a pre- liminary agreement with your competitors; Do not fix buying or selling prices or fees with your competitors; Never discuss any of the above issues with your competitors; Always offer identical, non-discriminatory treat- ment given equal condi- tions (dissimilar treatment could be applied when there are objective differ- ences between cases); Take due care when par- ticipating in meetings of industry associations, chambers of commerce and similar. Do not share information about your prices, discounts, supply conditions, profit margins, cost structures, distribu- tion practices, territories, customers, future invest- ment plans nor anything on the discontinuance of products/services. Never set minimum resale prices for which your dis- tributors can sell a prod- uct; this is generally seen as a serious breach of the competition principles. In case of a dominant market position, avoid tying the sale of a prod- uct to another transac- tion or bundling several products sold together, unless the products are complementary; Expressly and publicly refuse to participate to meetings that have an anticompetitive agenda; Distance yourself expressly from any anticompetitive decisions/actions taken by any group to which you are a member (e.g., trade association); Do not respond in any way to correspondence or doc- umentation you may receive containing details of poten- tially anticompetitive con- duct; and Refuse meetings requested by competitors that pertain to potentially anticompeti- tive conduct and seek legal advice on the matter.   Investigations & Dawn Raids  Macedonian law offers the follow- ing options in competition-related investigations: Clemency. Whistleblowers may be granted immunity from fines and those pro- viding significant information may reduce their fines; Commitments. A party may commit to change their behavior in return for clos- ing the investigation without paying any fines; Admitting. A 15-30% reduc- tion of the basic fine may be granted in cases where par- ties admit fault.   The law entitles the Competi- tion Commission to perform unan- nounced “dawn raids” into business premises, land or transportation means to examine financial and commercial documents and/or reg- istries in both hard and soft copy form. The Commission can also request oral or written statements from any company representative or staff member regarding the alleged acts. Also, for investigative pur- poses, the Commission can obtain copies or excerpts and/or seal any documents, registries, and other accountancies they deem relevant to company activities.   Company Rights & Obligations in Dawn Raids  It’s important to know your rights as a company undergoing a dawn raid. They are that the company: Is not obligated to provide access to information that is outside the place stated or in relation to another building, or a specific object of inter- est than the one(s) explic- itly stated in the inspection order; Can request a specific time when their external legal counsel can participate in the inspection, however inspectors are not obligated to grant this request; Is not obligated to share cor- respondence they have con- ducted with their external legal counsel;   Companies must also understand their obligations in dawn raids. They must: Not refuse an order without a justification nor deny inspec- tors access to their premises or documents; Not break any seals placed by inspectors on their documentation; Not hide or destroy informa- tion during the inspection which are considered rele- vant to the inspection; Allow inspectors access per- sonal computers, lockers, closets, notebooks, etc.; Answer inspectors’ questions.   The Use of Forensic Technologies  In some neighboring countries, competition authorities are using specialized investigative IT tools and software to copy hard disks, CDs, DVDs, memory sticks, and to recover and restore deleted or cor- rupted emails and electronic docu- ments. This can enable inspectors to search for information using key words, sort documents using filters, extract and print relevant documents, and more. Such tools can be used to copy computers and laptops (even data stored on servers or in the cloud), devices like printers and copy machines, smartphones and other devices. Given the institutional alignment in the competition sphere, it is only a matter of time before the Macedo- nian Commission catches up with such practices. AmCham Macedonia Magazine 17