First sanction for abuse of superior bargaining position imposed by the Bulgarian competition authority

By its landmark decision of 26 May 2016, the Bulgarian Commission for Protection of Competition (the “CPC”) imposed for the first time a pecuniary sanction for abuse of superior bargaining position to Siemens EOOD (“Siemens Bulgaria”).

In July 2015, amendments to the Bulgarian Act on Protection of Competition (“APC”) prohibiting such abuse of superior bargaining position entered into force.

The APC does not expressly provide for a definition of ‘superior bargaining position’ but states that the existence of such a position shall be assessed by taking into account the market structure and the case-specific relations between the undertakings concerned. It is specified that the notion of abuse of superior bargaining position relates to any act or omission of an undertaking in such a position, which is (i) contrary to good faith and (ii) damages or may damage the interest of the weaker party and the consumers, where (iii) such act or omission has no objectively justifiable economic grounds. Examples of such abuse are the unjustified refusal to purchase or supply goods or services, and the imposition of excessive or discriminatory conditions or unjustified termination of commercial relations. The prohibition is not sector-specific and concerns all undertakings, regardless of whether they are in a dominant position or not.

In the Siemens case, the claimant and Siemens Bulgaria had a long-standing commercial relationship. The claimant had been awarded a contract for maintenance and repair works of a Siemens steam turbine by a district heating company. Siemens Bulgaria was an unsuccessful bidder in the same procurement procedure. Under the terms of the awarded contract, the turbine parts could only be replaced with parts produced by Siemens. The claimant in the CPC proceeding had not appealed this requirement and had accepted the terms of the contracting entity. It sent a letter to Siemens Bulgaria asking for an offer for the supply of oil seals. Siemens Bulgaria refused to supply the oil seals by unmotivated letter, stating solely that Siemens Bulgaria is not authorized to sell such parts.

Before the CPC, the claimant invoked an infringement of the prohibition of abuse of superior bargaining position and, only in the alternative, of the prohibition of abuse of dominant position. The Bulgarian competition authority did not therefore assess a potential abuse of dominant position. In its findings, however, the CPC mentioned that at the beginning of the period at issue, the market share of Siemens Bulgaria was 27.27%.

The Bulgarian competition authority defined the product market as the market for supply of oil seals for this particular Siemens produced model of steam turbines.

The CPC stated that the notion of superior bargaining position refers to a position characterizing case-specific relations between specific parties and its existence shall be assessed on a case-by-case basis, by taking into account the structure of the market in question (potential competitors, barriers to entry, number of alternative suppliers and buyers etc.). The competition authority further specified that an undertaking could be found to have a superior bargaining position at any stage of its commercial relations with another undertaking, including, but only, at the pre-contractual stage.

According to the Bulgarian competition authority, in the Siemens case:
  • Siemens Bulgaria was in a superior bargaining position given that the claimant could objectively negotiate only with Siemens and that Siemens Bulgaria was the exclusive supplier of Siemens products for Bulgaria;
  • Its behaviour was contrary to good faith as, on one hand, Siemens Bulgaria’s unjustified refusal to supply had in background long-standing commercial relations, which continued even after that refusal, and, on the other hand, it had participated in the same tender procedure, which evidenced that it was capable of supplying the products at issue. For the latter reason, its behaviour did not, furthermore, have objectively justifiable economic grounds;
  • The weaker party suffered damages as Siemens Bulgaria’s unjustified refusal to supply caused its inability to fulfil its contractual obligations;
  • The refusal to supply at issue could also damage the interest of the consumers as the repair works of the district heating company’s turbine were delayed. It is worth mentioning that the CPC used the sector-specific definition of consumer provided by the Bulgarian Energy Act. Under this legislation, a consumer of energy services is a person who purchases energy or natural gas for own consumption. Therefore, the competition authority qualified as consumers not only the clients of the district heating company, but also the district heating company itself.
Under the APC, the pecuniary sanctions that the CPC can impose for abuse of superior bargaining position can amount to up to 10% of the undertaking’s turnover generated during the last business year from the sale of the specific goods in question. The amount of such pecuniary sanctions, however, could not be less than BGN 10,000 (approx. EUR 5,100).

If during the past business year the undertaking did not have any turnover generated from the sale of the goods in question, the sanction may amount to up to BGN 50,000 (approx. EUR 25,550).

In the present case, as in business year 2015, Siemens Bulgaria did not have any turnover from the sale of the goods in question; the CPC imposed a pecuniary sanction of BGN 35,000 (approx. EUR 17,900).

If you would like more information on how the prohibition of abuse of superior bargaining position may affect your business, please contact Gabriela Edreva.