Czech Republic: EU accession - competition

What changes have already been made to Czech Competition Law?

Czech competition law has been harmonised with EC legislation by adopting a legal framework in force since 2001 which aims at ensuring that competition on the market is not restricted or distorted, and that the misuse of market power, to the detriment of the interests of other entrepreneurs and consumers, is prevented.

The major principles of Czech competition law are as follows:

• mergers must be notified to the Office for the Protection of Economic Competition, and cannot be completed until clearance is obtained, unless a specific derogation is granted, or a 30-day waiting period has expired;
• in particular, a merger must be notified, if the combined world-wide turnover of the purchaser (and its capital group) and the target (and its capital group) exceeds the CZK equivalent of €166 million, even though both the purchaser and the target are located outside the Czech Republic;
• there are various exemptions from the notification requirement which are applicable, amongst others where the merger occurred abroad and the combined market share of the parties to the merger (and the respective members of their capital groups) does not exceed 10% of the relevant market in the Czech Republic;
• anti-competitive agreements and practices, like market sharing, price fixing or limiting sources of supply, are prohibited and invalid;
• the whole system of block exemptions in force within the EU since 2001 has been introduced, which provides for an exemption from the rule that all agreements restricting competition are prohibited. These block exemptions cover, amongst others, certain categories of vertical agreements and certain categories of agreements concerning research & development, specialisation, technology transfer, the insurance sector and the automotive industry;
• the concept of agreements of minor importance has been introduced, according to which the prohibition shall not apply to any agreement concluded between companies operating at the same market level (i.e. competitors) enjoying jointly a market share of less than 5% in the relevant market or between companies operating at different market levels enjoying jointly less than 10% of the relevant market;
• an abuse by a company of its dominant position in the market, by, amongst others, setting unfair or discriminatory conditions, showing predatory behaviour or imposing linked services, is prohibited;
• aid granted by the state through state resources in any form whatsoever which leads to favouring certain undertakings or the production of certain goods shall be prohibited insofar as it affects the trade between the Czech Republic and the EU; and
• there are various legal exemptions to the prohibition of state aid, amongst others where the aid does not exceed the CZK equivalent of €100,000 or where the aid aims at promoting the economic development of certain disadvantaged regions. The provider of the state aid may also apply before the Office for the Protection of Economic Competition for an individual exemption.

What changes to Czech Competition Law come into effect on accession?

Czech Competition Law already substantially mirrors EC law. Following the Czech Republic's accession to the European Union, community competition law will apply in the Czech Republic and will be directly binding and directly applicable. However, its effective application must be ensured by national legislation. Community competition law only applies to the actions of competitors that could have an impact on trade between Member States and that are aimed at or result in the exclusion, restriction or interference with competition on the common market (competition action with a community element). It is for this reason that national competition law should be designed as a "two-tier" system by Member States – it must ensure effective application of community competition law to competition actions with a community element, and, should the relevant Member State so wish, provide for competition rules applicable to actions with an impact on national markets only. The existing legislation will be amended to cover the issues of competition, procedure and the effective oversight (regulation?) of competition in such a two-tier competition law system in the Czech Republic. For example, the new legislation will provide for an option to investigate not only business premises, but non-business premises also (e.g. in managers' houses).

Also important is a proposed amendment which, if approved, will prohibit abuse of economic dependence. For example, the amendment will prohibit requests for monetary or non-monetary consideration for entry into records, offers of goods for sale, favourable location of goods in the shop, unjustified direct or indirect requests for additional free services on top of consideration already agreed and provided, requests for an unjustified contribution to the payment of promotional expenses, direct or indirect requests for unjustified special discounts or financial benefits in connection with the opening of a shop or the organisation of other sales or similar events, direct or indirect requests for discount sales in the absence of a justified reason for the price, etc.

What can you do to ensure you comply with Czech Competition law and prepare for accession?

According to new EC legislation, the majority of competition cases concerning, in particular, anti-competitive market practices will be transferred to local competition authorities, while state aid will be monitored by the European Commission. It should be noted that the European Commission in its 2002 Report on the Czech Republic's progress towards accession encouraged the Office for the Protection of Economic Competition to adopt a move severe sanction policy in respect of antitrust legislation. Additional efforts are required as regards aid to the banking and steel industries. Therefore, the Office for the Protection of Economic Competition will have to be more vigorous than at present to determine whether certain agreements and practices are anti-competitive and to ensure a more efficient monitoring of state aid.

You should therefore check whether your business complies with competition rules by:

• reviewing all agreements entered into by you;
• adopting special procedures to deal with dawn raids of the Office for the Protection of Economic Competition; and
• complying with either EC or Czech merger control provisions in the case of acquiring shares, establishing joint ventures or taking control over other companies.

Future developments

Aside from new EC legislation being introduced in 2004 which will end the EC notification and exemption system and which will confer greater powers to the local competition authorities, recent changes have been made to the EC block exemption regulations concerning the insurance sector and automotive industry. It is anticipated that changes are also likely to be made to the EC block exemption regulation on technology transfer agreements. Therefore a close eye should be kept on such changes. Until such time as such changes are reflected in Czech competition law (if at all), there may be a divergence of approach between EC and Czech competition law in respect of these areas.