Compliance in antitrust law

Competition compliance programmes

In recent years, competition law, its enforcement and efficiency as a core rule of conduct in the market have become essential elements in the decision-making process of companies’ decision-making bodies. This was already a matter that had been extensively developed by the public defence of the market and competition -so-called public enforcement-, through regional, national and EU regulatory bodies, which have developed increasingly sophisticated mechanisms to detect and sanction anti-competitive conduct. One only needs to review the latest CNMC resolutions published on its website, as well as ongoing investigations, to perceive the multiplicity of cases in which a company can fall prey to erroneous decisions taken by its management teams. On this basis, it is important to be aware that companies and their management bodies can be subject to complex and tedious investigations that can result in significant financial penalties. In some cases, these can amount to up to 10% of the total worldwide turnover of the offending company in the financial year immediately preceding the year in which the fine is imposed, plus a fine of up to 60,000 euros for each of its legal representatives or the persons on the management bodies who were involved in the conduct.

Likewise, with the effective transposition of the Damages Directive – Directive 2014/104/EU of the European Parliament and of the Council, of 26 November 2014 – the regulatory framework regulating competition has recently been substantially improved by the so-called private enforcement, providing the necessary legal tools with which to effectively exercise the claim against the infringing company for the damage caused, being able to demand full reparation from any person harmed by anti-competitive conduct.

The sum of the effective public and private enforcement of competition law may imply for the companies involved in an unlawful conduct huge penalties and claims that, in some cases, may be impossible to comply with, even leading to their insolvency.

For this reason, comprehensive and preventive advice in this area is necessary, by means of regulatory compliance programmes, in the same way that regulatory compliance processes in the field of criminal law, data protection or tax and fiscal law are already known as a matter of course.

In the field of antitrust law, there is certainly no culture of regulatory compliance in Spain, unlike what happens in other legal systems in our environment that are more advanced in this area. However, this does not mean that it is not just as relevant as those focused on criminal or data protection compliance, which is why economic operators from all sectors are increasingly interested in its implementation, as competition is a matter for everyone, not just for companies. Therefore, the duty to respect it concerns any person or entity that participates in the market, whether they are companies, non-profit organisations (Foundations, Associations, Cooperatives, etc.), as well as Public Administrations.

The question the reader may initially ask is: And why is it so important to respect competition law to the point of carrying out a competition compliance programme?

Firstly, because it is essential that economic operators respect the free play of competition, thus ensuring workablecompetitionin the market, which is the basis of the constitutional right to freedom of enterprise in the framework of the market economy. Hence, the public authorities have the duty to guarantee and protect its exercise and the defence of productivity.

The implementation of a competition compliance programme is aimed at establishing a system of internal control and surveillance that allows economic operators to avoid, as far as possible, the commission of competition law infringements within them or, if they cannot avoid them, to significantly reduce the risk of their commission, as well as to facilitate their rapid detection. The fact is that the different entities may be carrying out actions that may objectively imply going against competition law, without this requiring a specific effect on the specific market where the conduct is targeted. They are, moreover, objective unlawful conduct, and therefore do not require the element of fault for their composition. For a better understanding, without claiming to be exhaustive, the following is a brief list of conduct that may be considered anti-competitive, both at the horizontal level (cartels) and at the vertical level (purchase and/or distribution agreements) and for abuse of a dominant position:

• Pricing.
• Limitations on production and distribution.
• Information exchanges.
• Bid rigging in public tendering procedures
• Market sharing.
• The constitution of joint ventures made up of several competitors, who independently have technical and economic solvency, in order to compete in a public tender.
• Resale price fixing in distribution agreements.
• Exclusive, selective and franchising distribution systems.
• Abuse of dominant position.
• Distortion of competition by unfair acts.
• Predatory pricing.
• Unfair pricing.
• Fidelity rebates
• Binding agreements on supplementary performance unrelated to the main performance of the contract.

The list of anti-competitive conduct is very extensive, so it is possible that not all entities are aware that they are indeed engaging in anti-competitive conduct. Likewise, it should be pointed out that in some cases an agreement, concert or understanding between independent economic operators will be required; in others, consciously parallel conduct will suffice without there being an agreement as such; and on other occasions the unilateral decision of the economic operator will suffice, when it holds a dominant position in the market and intends to abuse it in order to obtain disproportionate profit. Ignorance does not exempt from compliance with the law(ignorantia juris non excusat or ignorantia legis neminem excusat).

That said, engaging or participating in anti-competitive conduct may entail the following negative consequences:

(a) From public enforcement of competition law, fines imposed by the competition authorities, such as the National Competition Market Commission, the corresponding authorities of the Autonomous Regions with competence in the matter, or, where appropriate, the European Commission, depending on the territory where the conduct has affected. The fines imposed by the authorities may amount to up to 10% of the total turnover of the offending company, and fines of up to €60,000 for each of the legal representatives or persons forming part of the management body involved in the anti-competitive agreement.

b) From the private application of competition law, compensation for damages caused to those harmed by the competitive practice. Injured parties (e.g. suppliers, consumers, purchasers) may bring civil claims for the damages that the competitive practice has caused them. In other words, not only does it imply an administrative sanction, but non-compliance can lead to claims by each and every one of the purchasers – direct or indirect – who were affected by the conduct, which can mean facing numerous legal claims with a very high overall economic impact.

c) From corporate law, compensation for the exercise of individual and/or corporate actions against the management body of a company by shareholders, third parties or the company itself, if it is proven that the management body has participated in the infringing conduct, has promoted it and has caused damage to the shareholders.

d) Prohibition from contracting with the public administration (up to three years for having distorted competition).

e) Criminal liability: In the most serious cases of violation of competition, both natural and legal persons may be criminally liable and punished for it (e.g. bribery offence, corruption offence in international commercial transactions, private corruption offence, price-fixing offence, etc.).

f) Reputational costs: Investigations of companies for engaging in anti-competitive behaviour, as well as court rulings, tend to be notorious in the media, so the value of the affected company’s business is likely to suffer and therefore potential investors will lose interest in the company.

g) Human resource costs: the process of an inspection for possible anti-competitive conduct implies that employees spend considerable time and effort in collaborating with the inspecting authority rather than in their own company functions.

h) Nullity of clauses in contracts that violate competition law, which on many occasions would imply the nullity of the contract and, therefore, may entail a considerable cost for the company that was counting on the effectiveness of the operation.

The implementation of antitrust compliance in the different economic operators allows them to prevent, detect and/or mitigate their participation in unlawful conduct, which may generate criminal, administrative, civil and commercial liability, as well as social rejection.

Such a programme must be implemented throughout the company as a whole, taking into account all the people who are part of it and who make decisions on an ongoing basis; only in this way will restrictive competition practices be detected or prevented. In this sense, a programme must include: protocols, internal procedures, codes of ethics, internal and external whistleblowing systems, employee training, disciplinary systems, designation of a person in charge (CompetitionCompliance Officer) to guarantee the effectiveness and compliance with the programme, establish a risk map of the business areas most exposed to infringement of competition rules, as well as the risk level of infringements, etc…

The purpose of a competition compliance programme should be to: (i) raise awareness among economic operators so that they establish a true culture of compliance with antitrust rules; (ii) prevent competition law infringements; and (iii) establish means to detect and manage infringements that could not be avoided.

Finally, it is worth noting that the National Competition Market Commission (the state authority in charge of ensuring compliance with competition rules, as well as imposing sanctions, in an administrative sphere, on those legal entities that have engaged in anti-competitive conduct) has recognised the importance of legal entities implementing such programmes; and although the implementation of antitrust compliance does not per se exonerate or attenuate the entities’ liability, it does value them positively when it comes to modulating the possible sanctions that may be imposed, as it is evidence of a commitment to collaborate with the latter.

Countries such as the USA, Chile, the United Kingdom, Canada and France already establish in their corresponding legal systems that the implementation of competition law compliance programmes will imply, to the extent that compliance is accredited, a reduction of the financial penalty, mitigation or exemption from liability, if the entity has committed a competition law offence. It is therefore to be expected that in the near future, the national legislator will consider and introduce such programmes as mitigating factors or as an element to reduce penalties for legal entities that violate antitrust rules.

AddVANTE offers all our advice to all types of legal entities for adopting and implementing a regulatory compliance programme in the area of antitrust law.