Poland: A New Competition Law Regime for Polish Business After EU Accession

Solicitor (England & Wales), Warsaw, Poland

This article was first published in the July 2004 issue of Competition Law Insight and is reproduced here with the agreement of the publishers, Informa Law - http://www.informa.com

On Poland’s accession to the European Union on 1 May 2004, EC competition law became an integral part of Polish law alongside domestic competition law. In the months leading up to accession, Poland took legislative steps in order to make enforcement less problematical.

Accession suddenly focused minds in the Polish business community on the extent to which contracts entered into before accession are now potentially anticompetitive and unenforceable. In effect, it means that Polish businesses must now be mindful of two similar systems of competition law: domestic competition law regulating practices of a local nature, which largely mirrors EU law, and EC competition law regulating intra-EU commerce. Since the criterion of influence on trade between member states is interpreted widely, even behaviour of a local nature may have an EU-wide impact if it limits access to the Polish market.

According to the Accession Treaty, the period of adjustment by Polish companies to the requirements of EC competition law started to run on the day of accession. They have six months in which to adjust the many types of agreement concluded before accession.

What has been the norm in the old EU15, such as dawn raids, huge fines and divestment orders, was absent from the Polish competition landscape. But, in the months leading up to accession, the Office of Competition and Competition Protection (UOKiK) began to demonstrate intensified enforcement with a dawn raid – a step not previously applied in Polish enforcement operations – on a mobile telephony company, a divestment order for a publisher that had violated the merger control rules, and other examples of strong measures.

As the accession date came at the same time as the major reform of EC competition law, the UOKiK and the courts have had to sharpen their teeth as they are now to a large extent responsible for the enforcement of EC competition law.

The reform means a division of powers between national authorities and the Commission (with the latter concentrating on the bigger mergers and on detecting cartels) in order to bring greater efficiency to enforcement, particularly in the ten accession countries, as well as to ensure a uniform interpretation of competition law in the enlarged 25-member EU.

Intensified cooperation between the UOKiK, the European Commission and other member states within the European Competition Network, as well as the independent enforcement of competition law by the Commission against Polish companies, means that what until now has been at least unpunishable in practice is now potentially open to enforcement within a far wider framework.

To this has to be added the impact on Polish competition practice of the decisions, recommendations and other acts issued by EU institutions, and the competition case law of the European Court.

Consequently, some widespread Polish commercial practices, such as those that have the effect of limiting price competition and various rebate practices for distributors, are now subject to attack in the light of EU case law.

Two June 2004 UOKiK decisions are evidence of a heightened determination to enforce competition on the Polish market.

Sending a clear message to all the players on the Polish pharmaceuticals market, the UOKiK imposed a total fine of PLN 3.8m (€0.84m) on companies that had entered into prohibited agreements that had the result of restricting competition by limiting the human recombinant erythropoietin (EPO) market and maintaining resale prices.

In one of two decisions, the UOKiK attacked a clause in Johnson & Johnson Poland’s agreement with the wholesaler, Compol, whereby the terms of distribution of the medicament, Eprex, required Compol to purchase it from Johnson & Johnson Poland and offer it for resale under a tender procedure at prices agreed with Johnson & Johnson Poland. The UOKiK saw this as illegal price imposition on distributors which had to be seen as restricting competition.

Another clause in the agreement with Compol named 18 dialysis centres to which the wholesaler was to sell the Eprex. This was recognised by the UOKiK as an illegal agreement as it restricted the wholesaler’s market and thus enabled Johnson & Johnson Poland to control and shape the EPO market.

In a decision involving Hurtofarm, another wholesaling warehouse, under an annex to the general sale conditions, Eprex was not to be sold to named hospitals or 11 medical centres to be established next year, and to which Johnson & Johnson Poland planned to sell directly or through an appointed distributor.

Non-fulfilment of these conditions resulted in no bonus payment for Hurtofarm. For the wholesaler, this was the only remuneration for distributing the medicament. The UOKiK declared these arrangements to be an unlawful agreement that controlled and restricted the sale of the medicament by the wholesaler. In both decisions, the UOKiK ordered that these practices cease.

The UOKiK is conducting two more proceedings in relation to the EPO market. In one, it is alleged that Roche Polska and Johnson & Johnson Poland agreed as to the placing of tenders in procedures organised by medical centres. In the other, it is alleged that there was an illegal horizontal agreement between Roche Polska and the wholesaler, Hand-Prod.

In this decision the UOKiK imposed a fine of PLN 40m (€15.5m) on PKP Cargo, which is owned by the Polish state railways, for abuse of its dominant position.

The company, which has a 70% share of the Polish rail cargo market, was accused of concluding long-term contracts with its contractors that were conditional on the latter agreeing not to purchase services that would compete with those offered by PKP cargo, thus establishing barriers to the development of competition on the rail transport market. Contractors were thus bound to an exclusivity clause in the case of transport of listed goods and, in the case of the remaining goods, the application of the preferential selection if PKP Cargo’s offer was not worse than that offered by other transport companies.

The UOKiK saw this as an impermissible practice since every entity should have the freedom of deciding for itself as to whose transport services to use. Otherwise it is limited as to exercising its freedom of economic action.

The fine imposed for PKP Cargo’s tie-in attempts is one of the largest ever for abuse of a dominant position. The UOKiK required the decision to take effect immediately in order to free the market and provide its participants with the unlimited right to choose the best business partners freely. The size of the fine was justified on the ground that the company had misled the UOKiK in claiming that it had ceased some of the challenged practices in its long-term agreements. This proved not to have been the case.

Given that PKP Cargo is one of the largest employers in a country with high unemployment, this decision shows that the UOKiK is asserting its independence in enforcing competition policy vis-à-vis even sensitive targets, irrespective of any possible political pressure.

Competition law is governed by two major pieces of legislation – the Law on Combating Unfair Competition and the Law on the Protection of Competition and Consumers.

The Unfair Competition Law protects the interests of businesses, customers and consumers, and regulates the prevention of unfair competition in the public interest. It has an open catalogue of activities that are deemed to be acts of unfair competition, such as the misleading designation of a business, false or fraudulent designation of the geographical origin of goods or services, violation of confidentiality, product imitation, obstruction of market access, and dishonest and unlawful advertising.

While such practices are not illegal per se under the law, they may give rise to liability if they cause specific harm to another person. The person whose interest has been injured may seek redress, cessation and elimination of the relevant activity. There may also be a claim for a refund of unjustly received benefits or the imposition of fines, and there may be criminal liability for some acts that are designated as unfair competition.

The Competition Law aims to protect the Polish market against abuse of dominant position and regulates the market so as to prevent any entity from achieving a dominant position.

It thus forbids restrictive agreements that exclude, limit or infringe competition in a given market. Such agreements are illegal. This Law is similar to article 81 EC as far as the list of prohibited acts is concerned, while the sections on abuse of dominant position are similar to article 82.

The Law regulates what are called "practices infringing collective consumer interests" by forbidding their continuation and ordering rectifying measures. It also requires notification of mergers. With some exceptions, the UOKiK may prohibit mergers if they result in or strengthen a dominant position.

Limitation of competition, abuse of a dominant position and non-notification of a merger are subject to fines. Appeals against decisions of the UOKiK, which is the state authority responsible for competition policy, may be made to the Court for the Protection of Competition and Consumers.

With accession, significant amendments to the Competition Law came into force, bringing Polish competition law in line with Regulation 1/2003, which provides a new basis for competition policy enforcement. National competition authorities in the enlarged EU now have a large part of the enforcement function that was previously the domain of the Commission.

The following are some of the changes made by the amendment:

• the UOKiK President may apply EU law directly and impose penalties on European enterprises where forbidden practices involve trade between EU member states

• the maximum penalty was increased from €5 million to €50 million

• the penalty for merging without the UOKiK’s consent is up to 10% of earnings in the previous year’s accounting period

• before the final decision, the President of the UOKiK may order interim measures where an enterprise’s actions seriously threaten competition

After accession, companies that intend to merge, create new common entities or acquire other companies must check whether the UOKiK needs to be notified of their plans. Such notification may also be required where there is a share acquisition transferring 25% of the votes at a shareholders’ meeting.

Before accession, matters were somewhat simpler. Notification was not required where the combined market share did not exceed 20%. The amendment removes this exemption. Failure to notify a merger was previously subject to a maximum fine of €50,000, but now it can be as much as 10% of the total annual turnover.

Notification is required where the combined turnover in the year before the proposed transaction was at least €50 million, including the turnover of all capital groups of which the concentrating entities are members. Notification is not required where the concentrating entities belong to the same capital group or where the turnover in Polish territory of the entity acquired does not exceed €10 million.

The UOKiK may prohibit a merger or, where it has been accomplished without its consent, impose a penalty, order a return to pre-merger conditions, order a division of the new entity, or order divestment.

Of course, a Polish merger may have an EU-wide dimension. This is decided by the world turnover of the entities intending to merge achieving at least €2.5 billion and meeting the other criteria that then require the Commission to be notified without the need for UOKiK notification.

The institution of leniency was introduced in Polish competition law in cases where parties to an illegal arrangement voluntarily decide to cooperate with the UOKiK. A penalty may be lowered or not imposed at all where, on its own initiative, a company is the first to report the existence of a cartel or provides evidence of such cartel. In such a case, the penalty imposed cannot be greater than 5% of earnings.

The legislative amendment introduced the possibility of Commission "dawn raids" on Polish companies. Under company law, this includes companies with 100% foreign participation that are registered as Polish companies. Raids may be carried out even at the private residence of company management in the case of non-cooperation.

The UOKiK provides assistance to the Commission in the way of obtaining court approval, police assistance, etc. The Commission may impose a fine amounting to 1% of the total turnover in the previous year in cases where a search is impeded.

Where the UOKiK has reason to suspect practices that amount to unfair competition, it may itself conduct a surprise search at any time with the consent of the Court for Protection of Competition and Consumers. Before the amendment, the Court itself set the time for such a search.

The Accession Treaty provides various exceptions from the prohibition against state aid, for example, in agriculture, public transport, damage caused by natural disasters.

State aid has been and continues to be politically controversial in Poland, especially in relation to areas of low development or high unemployment, in cases of aid for important European projects, and where such aid serves to prevent serious disturbance to the economy.

Before accession, the UOKiK provided approval for state aid. With accession, articles 87-90 EC Treaty apply directly and the Commission decides on Polish state aid if the value exceeds the €100,000 over three years de minimis level, except in the case of export aid. This does not include the cases of assistance listed in the Accession Treaty or other programmes accepted by the Commission.

It is the responsibility of the entity receiving de minimis aid to keep track of how much it has received over the three years. Neither the Commission nor the UOKiK have to be notified of state aid not exceeding the de minimis level. The concept of de minimis aid in EC Regulation 2001/69 was introduced into Polish legislation by the Law on Procedure in Matters Regarding State Aid, which came into force on 1 May.

This Law provides the basis for cooperation in matters of state aid between the Polish and EU institutions, bypassing the conditions for granting such aid as these are provided in EU legislation. Polish state aid is decided by various government ministries, gminy (communes) and other authorised institutions. The Commission must be notified of any intention to grant state aid in the form of a project programme where its value exceeds the de minimis level.

First the aid has to clear the domestic procedure for checking its completeness. The UOKiK participates in this by verifying programme projects and ad hoc programmes in the case of individual state aid. It coordinates the work on the project before notification of the Commission and gives its opinion on whether a given project is in conformity with the EU state aid rules.

The Commission may be notified of a project even where it has received the UOKiK’s negative opinion, but this is done entirely at the risk of the interested party. In the course of proceedings for granting aid, the body granting the state aid communicates with the Commission via the UOKiK.

Aid granted is monitored by the UOKiK, while the Commission can check directly whether it is applied properly by the recipient. Officials of the UOKiK are present during such an inspection and can impose a fine where this is hindered. Commission decisions, for example where aid is not approved, can be appealed to the European Court of First Instance.

During the EU membership negotiations, Poland obtained some transitional periods for adjustment to the full application of EU competition policy as regards the Special Economic Zones (SSE). These give tax incentives to enterprises locating there. In effect, this measure protects their acquired rights:

• until 2011 and 2010 in the case of small and medium-sized enterprises respectively

• the level of public aid was increased to 75% of investment costs for those enterprises that had obtained their operation permit in an SSE up to the end of 1999 and 50% for those that obtained it in 2000

• public aid to the automotive sector was allowed at a level of 30% of investment costs

• In the case of adjustment to environmental protection standards, the following levels of aid were changed:

• an increase of 15% was made in public aid for small and medium-sized enterprises for dangerous substances introduced into the aquatic environment

• 30% for existing installations until 2010 and for other installations until 2007

Law on Combating Unfair Competition, Official Journal No.153 (2003), item 1503 as amended

Law on the Protection of Competition and Consumers, Official Journal No.86 (2003), item 804 as amended

Law on Procedure in Matters Regarding State Aid, Official Journal No.123 (2004), item 1291

Office for Competition and Consumer Protection of Poland
www.uokik.gov.pl

The contents of this article are intended to provide a general guide to the subject matter and do not constitute legal advice.