NEWS

Competition Law

Bulgaria launches new competition law
Global Competition Review, December 04, 2008

Bulgaria's Law on the Protection of Competition came into force on Tuesday, bringing the country's practice further in line with EU law.

Bulgaria's Commission for the Protection of Competition developed the law, in cooperation with Italy's Antitrust Authority. The project was funded by the PHARE programme, which aims to help states accede to the EU. PHARE was set up in 1989 as Poland and Hungary: Assistance for Restructuring their Economies. It now provides assistance to 10 recently acceded EU member states. Bulgaria joined the EU in 2007.

One of the most significant changes in the new law is the introduction of a leniency programme. Companies will have the opportunity to gain immunity from fines in return for early cooperation with the commission leading to the detection of a cartel.

The approach to fining companies for competition infringements has also changed. Under the previous law, fines were capped, whereas the new rules mean they will be calculated as a percentage of a company's annual turnover, in line with EU practice.

On abuse of dominance, the law abolishes the presumption of dominance for undertakings that control 35 per cent of a market, and allows the commission to impose interim measures and accept behavioural commitments from undertakings.

Merger thresholds have also changed. Under the new law, the notification threshold for concentrations has been increased from 15 million levs (€7.7 million) to 25 million levs (€12.8 million). In addition, at least two parties to the deal are required to have a turnover in Bulgaria of 3 million levs (€1.5 million) in the preceding financial year.

Finally, the law includes provisions for private enforcement. It allows individuals and companies to claim damages for a competition law infringement, even if the conduct doesn't harm them directly. A commission decision will be viewed as binding on national courts in private actions, as long as all relevant avenues for appeal have been exhausted.

Earlier this year, the commission fined 28 egg and poultry producers for price-fixing. It has also fined insurance companies and cooking oil producers for competition infringements in the past 12 months.

Italy closes rail transport probe
Global Competition Review, December 04, 2008

Italy's Competition Authority has closed its investigation of two railway companies, accused of abuse of dominance.

Ferrovie dello Stato (FS), a holding company, and its subsidiary Rete Ferroviara Italiana (RFI), which operates railway network infrastructure, have offered behavioural commitments to allay the authority's concerns about a possible violation of article 82 of the EC Treaty.

Until June 2004, RFI had offered discounts to railway transport companies to compensate them for the loss they incurred by requiring two drivers on the trains. The railway infrastructure, controlled by RFI, was underdeveloped and lacked the necessary regulations and technology to operate using only one driver.

The authority launched an investigation amid complaints that RFI had terminated discounts to those railway undertakings, to benefit Trenitalia, a licensed railway company providing passenger and freight transport services, contolled by FS. RFI was accused of anti-competitively raising access costs for companies that compete with Trenitalia.

Vietnam investigates insurers
Global Competition Review, December 01, 2008

Vietnam's Competition and Administration Department has launched an investigation of 16 insurance companies, after they raised car insurance premiums.

Tran An Song, deputy head of the department, was quoted last week in Vietnamese press outlets saying that the companies had signed an agreement to "ease the fierce competition among insurers" in violation of the country's competition law.

The companies allegedly signed the agreement in October. According to the press reports, they include: Bao Viet, Petrolimex Insurance, PetroVietnam Insurance, Samsung Vina, Global Insurance, BIDV's Insurance, Bao Long, Bao Ngan, Bao Minh, Bao Tin and Agribank Insurance.

If found guilty, the companies face penalties of up to 10 per cent of their annual turnover. It is understood that they have met the department to discuss its concerns, and claim the agreement does not violate the law. Vietnam's competition law does allow exemptions for certain types of agreement among insurers, where the agreement aims to protect the general health of the market.

DG Comp slams pharma sector
Global Competition Review, November 28, 2008

The European Commission has published the results of its pharmaceutical sector inquiry, finding that large companies often abuse their dominance to block or delay cheaper drugs from entering the market.

The commission identified a series of tactics used by dominant pharmaceutical companies to disadvantage manufacturers of generic drugs. They include filing multiple patent applications for the same medicine, initiating disputes and litigation, negotiating patent settlements that constrain generic drug manufacturers from entering the market, and intervening when rivals seek regulatory approval.

According to DG Comp, these practices cost around €3 billion between 2000 and 2007, and have reduced the incentive for companies to innovate.

The report is the result of an extensive inquiry, launched in January 2008 with dawn raids on sector participants. The commission made substantial requests for information and has uncovered documents laying out detailed plans on how best to hinder generic-drugs companies.

DG Comp confirmed that it raided "several" European pharmaceutical manufacturers on 24 November, but declined to say which companies had been raided. Sources say further cases could be brought on the back of the information gathered during the sector inquiry, which may also prompt changes in legislation.

Greece fines oil companies
Global Competition Review, November 27, 2008

Greece's Competition Commission has fined BP and Royal Dutch Shell a combined €49.6 million for allegedly colluding to fix prices.

The commission announced it had fined BP €30 million and Shell €19.6 million on 25 November.

The commission met on 20 November to vote on the case. It claims the companies colluded in setting discount policies for Greece's petrol stations, which it says amounted to price-fixing.

"The companies had no intention of competing against each other and converged their net wholesale prices through proportionally adjusted discounts," the commission says.

But one source says the theories the commission used to come to its decision were inaccurate. "The way the commission defined the geographical area and analysed the alleged price-fixing did not give a correct measure of the competition in the market," says the source. "Out of the 10 committee members who voted on this case, all three economists on the panel voted against the fines."

BP has already appealed against the fine, and recently took out an advert in several Greek newspapers highlighting why it believes the decision to be wrong.

Lawyers say that Shell is also likely to appeal the decision.

Review of Modern Trade Channel
International Law Office, November 06, 2008

In September 2008 the Office of Competition and Consumer Protection conditionally cleared the acquisition of Plus Discount by Jerónimo Martins Dystrybucja SA.

Both parties are active in the retail sector. Jeronimo Martins Dystrybucja, a subsidiary of Portuguese company Jerónimo Martins Dystrybucja SA, owns over 1,000 discount stores operating throughout Poland under the Biedronka brand. Plus Discount operates a national network of over 200 discount outlets. The transaction, which was announced in December 2007, is one of the largest consolidations in the Polish retail sector.

In defining the relevant product market, the regulator concluded that the parties are active in the 'modern trade' channel, which includes hypermarkets, supermarkets and discount stores, and found that retail sales of fast-moving consumer goods in such outlets constituted a separate product market. Although this approach was consistent with two recent decisions by the Polish authorities in merger cases involving consolidations of hypermarket and supermarket chains, the regulator has previously analyzed consolidations from a general retail market perspective, regardless of the type of retail outlet.

The regulator thus disagreed with the position presented by the notifying party, which argued that a concentration involving two discount stores should be assessed as part of a more broadly defined market due to chain of substitution considerations.

The regulator decided to make clearance conditional on Jeronimo Martins Dystrybucja's divestment of 13 Biedronka stores and 25 Plus Discount stores. Jeronimo Martins Dystrybucja was also required to lease a portion of its sales space in three further outlets to independent retailers. This is the first time that the regulator has presented conditions relating to a reduction of sales space.

The decision seems to demonstrate that the regulator is reluctant to deviate from its established view of the modern trade channel as a single and distinct market. It remains to be seen whether the growing importance of smaller formats (eg, convenience stores) and their ongoing consolidation, including vertical integration with wholesalers, will affect competition policy in future.

Economic Regulation

France awaits ruling on banking aid
Global Competition Review, December 02, 2008

France is calling on the European Commission to relax competition rules in the face of the global financial crisis.

The government is responding to reports that the commission is set to veto French plans to loan €10.5 billion to the country's six main retail banks in a bid to boost their capital reserves.

Though the plan was announced in October, DG Comp has yet to approve the measures, which may breach European competition rules. As the banks are not yet failing, the commission says they should reduce lending in exchange for state support. But France is calling on the banks to increase lending if they want state loans.

Says Jacques Buhart, of Herbert Smith LLP in Paris: "There is a risk of distortion of competition between the banks that will benefit from the government assistance, and the banks, mostly foreign, which would not benefit from this package."

Jose Manuel Barroso, president of the commission, says the measures have yet to be blocked. "We are examining the dossier with all the necessary rigour and urgency," he says, while conceding that the plan may face opposition. "If we accept that one country gives a billion to banks, that poses a problem of unfair competition that can destroy the healthiest banks."

Buhart predicts that Sarzoky's government is likely to reach a compromise with the commission. "It would be difficult for France to fight too hard against the commission, given that they hold the presidency of the council," he says.

But another source says that automatic approval "does not seem to be on cards" as other banks "are complaining loudly" about the measures.

Agencies Issue Final Internet Gambling Regulations
International law Office, November 28 2008

The Board of Governors of the Federal Reserve System and the Department of Treasury issued a final regulation on November 12, 2008 implementing key portions of the Unlawful Internet Gambling Enforcement Act of 2006. The regulations, which will affect many financial institutions and payment processors, become effective on January 19 2009, although compliance is not required until December 1 2009.

The new rule designates automated clearing house systems, card systems, cheque collection systems, money transmitting businesses and wire transfer systems as covered payment systems. It then exempts certain participants in those payment systems from the rule, and reiterates the general requirement that “non-exempt participants establish and implement written policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit restricted transactions”.

The rule allows an entity to rely on the policies and procedures of a designated payment system if the system’s policies and procedures comply with the rule. A participant may rely on a system’s representation of compliance with the rule unless the participant is told otherwise by its regulator.

The rule also imposes obligations not only on certain financial institutions and payment systems, but also on third-party processors. The rule provides a detailed definition of a ‘third-party processor’, but the agencies note that a service provider simply providing ‘back-office support’ to a depositary institution is not a third-party processor under the rule.

The act and the rule are subject to enforcement solely through federal administrative enforcement. The rule also reiterates the act’s liability protections with respect to ‘overblocking’ transactions that may not be restricted transactions. Furthermore, neither the act nor the rule requires any entity to process any transaction, legal or otherwise.

Transform Oil and Gas Exploration and Production
International Law Office, November 24, 2008

After several months of debate, Mexico's energy reform has been approved by the Senate and the House of Representatives. The eight federal statues implementing it are expected to be enacted shortly. The reform focuses on the oil and gas industry - particularly the role and organization of Pemex, the state-owned oil and gas company - but also covers renewable energy projects.

Mexico has never had an upstream authority and Pemex, as the sole exploration and production operator, has been subject to limited supervision in these areas. Except in the electricity sector, no long-term or medium-term energy policy or planning strategy has been applied; rather, decisions on projects have been based largely on the Ministry of Finance's assessments of the likely short-term revenues. This has resulted in dramatic decreases in reserves and a consequent steep decline in the output of the main production fields. The latest structural changes will reshape the oil and gas industry's framework and facilitate the implementation of further reform.

The secretary for energy has been given broader authority to regulate Pemex and the energy industry in general, particularly with respect to the oil and gas industry and energy planning and policy.

A National Energy Council, presided over by the secretary for energy, will be established to represent all federal agencies and public entities that are directly involved in the industry, including Pemex, the Federal Electricity Commission, the Energy Regulatory Commission, the National Water Commission and Central Light and Power. The council will be charged with preparing and implementing a 15-year national energy plan, to be resubmitted for ratification to Congress every February; the first plan is due for submission in 2010. A consultative committee will allow private-sector entities and others to participate in the council's work.

A new architecture for global financial regulation
Financial Times, November 19, 2008

At the G20 summit in Washington this month, it was agreed that global growth will require sound new global regulation of financial markets. But what would it take to achieve such regulation?

The summit offered few answers. We argue that nothing less than a new global architecture for the regulation of banking and finance is required to ensure success. Such architecture comprises three elements: broad representation in the rule-making process, proper monitoring, and systematic enforcement.

First, a better and more impartially-informed process for setting the rules is required. The existing rules were written by the Basel Committee on Banking Regulation which comprises officials from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the UK and the US.

They were wrongly persuaded by banks that complex derivative instruments could improve risk management and distribution as well as enhance market efficiency and resilience.

Indeed, the financial sector argues its case extremely effectively. Recall how quickly and effectively their July 2008 report argued against any new or further regulation by detailing instead “best practice reforms” for the industry. Regulators who resist the finance industry’s well-honed case have been accused of stupidity, incompetence, and over-zealousness by those whose profits and personal gains are at risk by new rules.

Effective new regulation thus requires participation by a broader range of countries and stakeholders in rule-making. The recent crisis shows that some of the costs of poor regulation fall on emerging and other economies whose voice would add a different and balancing set of stakes into rule-making. Equally important is the range of agencies involved in rule-making.

A second requirement of a new architecture is robust monitoring of regulators and those they regulate. New global rules – once agreed upon – need to be implemented and obeyed in the face of well-organized and richly-resourced firms and groups who try to avoid this.

A third essential element of the new architecture is the creation of a special-function international judicial institution charged with assisting the enforcement of the new rules in banking and finance, adjudicating disputes, and offering uniform authoritative interpretations of the rules.

It is clear now that an urgent need exists for a new architecture at the international level. This will not remedy all failings at the national level, but it could create powerful incentives for effective regulation within countries.