Public consultation on draft law sanctioning the abuse of superior bargaining power

On June 3, 2020, the Romanian Competition Council (the “RCC”) published on its website a draft Government emergency ordinance amending and supplementing Law no. 11/1991 on unfair competition (the “Draft Law”). Interested parties can submit observations and proposed changes to the Draft Law by 3 July 2020.

The most significant amendment planned by the Draft Law is introducing the concept of superior bargaining position (“SBP”) and the regulation of its abuse. Currently, only the abuse of dominant position is prohibited in Romania and the RCC has no tools to intervene in those cases where market power does not translate into a dominant position. As per the law No. 21/1996 on competition (the “Competition Law”), a dominant position is presumed above 40% relevant market share and, thus, undertakings not meeting the dominance threshold are not constrained in their business interactions, although (mostly) in theory dominant position may be demonstrated below 40% market share.

The Draft Law aims to bring protection to companies (which are not necessarily small or medium enterprises, but also bigger companies who find themselves in an unbalanced business relation) in their collaboration with must-have partners.

Definition

SBP is defined as the position of an undertaking that is not dominant under the Romanian Competition Law which is determined by market characteristics favouring the appearance of significant imbalances that are generated by factors such as: the specific structure of the production or distribution chains, vulnerability to external factors, perishability or seasonality, and the specific relation between this undertaking and other undertakings active on different markets. Such relation is to be analysed by reference to the following cumulative criteria:

  • an imbalanced power relation due to factors such as the considerably larger dimension or market position;
  • the importance of the commercial relationship for the proper functioning of the activities of the other undertaking as a result of elements such as (i) the significant sales or acquisition percentage of the undertaking holding a SBP in the activity of the other undertaking, (ii) the critical role of its goods or services for the activity of the other undertaking, or (iii) the significant investments made by the latter undertaking in view of honouring the agreed commercial relation; and
  • the difficulty or absence of alternative equivalent solutions for the other undertaking.

The abuse of SBP qualifies as a prohibited act of unfair competition if it is able to produce a significant prejudice to the “abused” undertaking or to damage the normal competition on the market. The abusive behaviour can take the form of actions or inactions such as: (i) the unjustified refusal to supply or acquire goods or services, (ii) failure to comply with contractual clauses concerning payment, supply or acquisition, (iii) imposing unduly burdensome or discriminatory conditions considering the object of the contract, or (iv) amending or terminating in an unjustified manner commercial relation with the partner undertaking.

The above examples, which are exemplificative only, replicate in fact instances of abuse of dominant position.

The RCC’s intervention against abuse of SBP will only occur if public interest is affected which is to be determined by reference to: (i) the high degree of social danger, (ii) the importance or dimension of the economic sector concerned, (iii) the high number of undertakings involved in the practice, (iv) the high number of affected undertakings and (v) the long duration of the unfair competition practice.

Fines

The abuse of SBP can trigger the imposition of a fine between:

  • 0.01% and 1% of the total turnover of the previous year, but no less than RON 5,500 and no more than RON 100,000 for breaches committed by undertakings; and
  • RON 5,500 and RON 11,000 for breaches committed by individuals.

If the infringing person acknowledges the breach as presented by the RCC, the competition authority may apply a 10%–20% reduction of the fine.

Fines are regulated also for procedural breaches (including by public institutions) such as supplying incomplete information.

Notably, the Draft Law brings into the unfair competition field instruments from the Competition Law, such as the admittance procedure, the investigative tools, the qualification of RCC’s decision as proof of the infringement before the courts dealing with follow-on claims on damages caused by the respective unfair competition practices.

Conclusion

The proposed regulation of SBP abuse seems to be a natural step considering this type of practice is prohibited in other jurisdictions (including CEE) and also the criticism formulated by many companies throughout the years against RCC’s lack of intervention in this sort of situations.

 

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