Competition law: Are you really complying with the regulations?
Competition law – also known as antitrust law (USA and EU) – is one of the least known branches of the law.
Whether because penalties were not often imposed until now, or because the regulations are confusing and having an adequate understanding of the subject requires detailed study of the case law, the truth is that companies have been failing to comply with the rules governing competition law and, in many cases, that noncompliance has been due to the lack of knowledge.
To give you an idea of the practices that might infringe the applicable regulations, the key aspects to take into account are listed below.
To begin with… What is competition law?
Competition law is the branch of the law that aims to prevent practices that restrict or prevent competition, or could do so, such as the abuse of a dominant position or price-fixing, in order to ensure market freedom on the part of its participants.
The basic regulation in the Spanish legal system is Law 15/2007, of 3 July, on the defence of competition, and the body responsible for ensuring that it is complied with at state level is the National Competition Commission (Comisión Nacional de la Competencia: CNC).
What practices incur penalties?
The practices prohibited by the applicable regulations are basically divided into two groups:
1. Collusive practices.
In this regard, the law states that: Any agreement, decision or collective recommendation, or concerted or consciously parallel practice, intended to prevent, restrict or distort competition, or which has or could have that effect, is prohibited.
The law goes on to give some examples of potentially collusive practices, the most usual of which are:
- a. Price-fixing: This occurs, for example, where a distributor fixes the price at which products must be sold; or where, under a franchise agreement, the franchiser may not impose prices on the franchisee, as that is a clearly restrictive practice as regards competition law.
Another example occurs where different competing companies agree to raise the price of their products uniformly, so that the price rises, to the clear detriment of the end consumer.
- b. Market sharing, or the sharing of sources of supply, between different operators, normally related to each other horizontally (e.g. two distributors).
- c. Making entering into a contract subject to the acceptance of supplementary obligations which, by their nature, have no connection with the subject of the main contract. This may occur, for example, where, on purchasing an electrical appliance, the vendor requires a specific company to carry out the installation.
- d. In trade or service relationships, the application of unequal conditions to equivalent transactions which place some competitors at a disadvantage to others.
All of these prohibitions have numerous exceptions and nuances, making it necessary to study each case in particular.
2. Abuse of a dominant position.
Having a dominant position in a market makes it necessary for a company take the utmost care regarding the practices it employs, as it may very easily fall into practices contrary to free competition.
While many believe that dominant positions are limited to major industries (telecoms, water, etc.), the National Competition Commission understands dominant position to mean the situation in which a company is able to engage in relatively independent practices that allow it to operate in the market without having to take suppliers, customers or competitors into account, and therefore such a position may be achieved in many more cases than may be apparent a priori, such as, for example, with the distribution of a very exclusive product or in the case of the only centre providing a service in a specific area.
In that case, for example and without limitation, refusing to satisfy demand or imposing unequal conditions on consumers is considered abuse of a dominant position.
What penalties may be imposed?
Prohibited practices may be liable to two kinds of fines:
• Fines, the amount of which is determined in view of the importance and seriousness of the infringements and where the amount may be up to 10% of the total turnover of the infringing company.
• Periodic penalty payments, which, unlike the above fines, are also intended to rectify the distorting effects on competition caused by the infringing company and which may be up to €12,000 per day.
The scope of the penalties requires business owners to review their contracts to ensure that they comply with current legislation.
As usual, this post is only intended to give you an idea of the practices liable to penalties in which you may be engaging, with the matter being much complex in practice.
Therefore, if you think that you may be infringing the applicable regulations, we invite you to contact Estudi Jurídic Sánchez & De Canals so that we can study your particular case.
Published by Andrea Serrano
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