Competition in Latvia: Prohibited agreements, Dominant position, Merger control and Unfair competition
Prohibited agreements
The Competition Law prohibits and proclaims null and void all agreements that have been entered into with the purpose or consequence of restricting competition. Actions, which restrict competition, are:
- the fixing of the price or the exchange of relevant price information;
- the fixing of the production volume, restriction of investments or technical development;
- any division of market;
- conditional conclusion of agreement on acceptance of obligations that are not connected with the subject of the agreement;
- participation or refusal to participate in tenders or bidding, or in the agreement on the rules of the tender or bidding except for cases where the competitors jointly declare the offer for rules;
- application of different conditions to the equal substance agreements if it creates competitive disadvantage;
- activities restricting any other member of the market from entering the market or forcing its departure from the market.
If the activities of this type are detected by the Competition Council, the authority is entitled, in some instances, to order the termination of the activities in question and to impose on the market member a penalty up to 5 per cent and on competitors - up to 10 per cent of the net turnover of the last financial year. Non-compliance with the decision regarding restrictive practices entitles the Competition Council to increase the penalties up to the maximum amounts (5 and 10 per cent). The decision of the Competition Council may be appealed to the administrative court.
Release of prohibited agreements
The Regulations on the release of vertical agreements from prohibition of agreements according the Competition Act determinates procedure how separate vertical agreements between members of the market are liberated from the prohibitions.
The main requirements which shall be met are the following: the market share of agreement’s participant in the relevant market is not more than 10 %; the market share of supplier in the relevant market is not more than 30 %; the market share of the buyer is not more then 30 % regarding exclusive supply (distribution) (the seller is obligated to sell goods only to one buyer in specified territory for special use and resale).
Agreements between competitors (horizontal agreements) also may be liberated from the prohibition and the main requirements which shall be met are the following: combined market share of market participants, who has agreed on joint purchase, sale, distribution and advertising of goods in the relevant market, is more than 40 %; combined market share of market participants, who have entered in unilateral specialization agreement (one market participant undertakes to cease or refrain from proceeding of some certain goods and obtain them from competitive participant of market, but competitive participant of market undertakes to produce and deliver these goods) or in mutual specialization agreement (two or more market participants mutually agree to cease the produce of some certain (different) goods and obtain these goods from other market participants, who agree to deliver these goods), or in agreement on joint production of goods, in relevant market is not more than 15%.
Dominant position
A market participant is in a dominant position if he has the capacity to significantly hinder, restrict or distort competition in any relevant market for a sufficient length of time by acting with full or partial independence from competitors, clients, suppliers or consumers. The market member is prohibited from taking advantage of the dominant position in a malicious manner.
Among other malicious acts, the law particularly defines the following prohibited activities:
- the refusal to conclude an agreement with any other market member without a substantiated reason;
- the decrease in volume of manufacturing goods, or technical development without a valid reason;
- the imposition of rules according to which the conclusion of the agreement with any other market member is dependent on the acceptance of conditions that are not related to the subject of the agreement;
- unfair price fixing or the imposition of unfair conditions of trade;
- the application of different conditions to equivalent agreements if it creates competitive disadvantage.
If a market participant is in dominant position in retail trade, the law defines to such market participants special following prohibited activities:
Application or imposition of unfair and unjustified:
- provisions in relation to the returning of goods;
- payments for the presence at a retail selling point of the goods supplied;
- payments for the entry into a contract;
- payments for the supply of goods to a soon-to-be-opened retail selling point;
- lengthy settlement periods for the goods delivered;
- fines for violating the provisions of a transaction.
If the Competition Council detects malicious activities, it is entitled to order the termination of the activities and to impose a penalty on the market participant in question in an amount of 5 per cent of the net turnover of the last financial year. If malicious activities are detected in action of market participant who is in dominant position in retail trade, penalty will be imposed in amount up to 0,2 per cent of the net turnover of the last financial year. Non-compliance with the decision entitles the Competition Council to increase the penalty up to 10 per cent, but in case market participant is in dominant position in retail trade, penalty will be increased up to 2 per cent calculated from the net turnover of the last financial year.
Merger control and notification
Merger notification shall be given to the Competition Council, if combined net turnover of the parties of merger exceeded 35572000 Euro for the last financial year.
Companies with joint turnover of the previous financial year not less than 35572000 Euro, who intends to merge, shall submit a full-form notification to the Competition Council. The short-form notification report shall be submitted if: none of the participants in the merger operates in a single concrete market or in a market that is vertically related thereto; or the combined market share of the merger participants in a concrete market does not exceed 15 per cent. The notification to the Competition Council shall not be submitted if the turnover for the last financial year of one from two merger participants does not exceed 2134000 Euro.
It is specified, that the turnover of the market participants shall be calculated by summing the proceeds from the activity, from the purchase of goods and services only in Latvia in the prior financial year. If the companies do not submit such report, a penalty up to 1400 Euro per day can be fined.
Unfair Competition
Unfair competition is defined as an activity, which violates law or fair business practices and which, may result in the restriction, deformation or suppression of competition. The law regulates:
- usage or reproduction of the name, marks or other characteristics of any other market member when the usage or suppression may be misleading as to the identity of the market member;
- the usage of a trademark or the reproduction of trade external appearance, labels, packaging or name of goods manufactured or realized by any other member of the market if the foregoing activities may be misleading as to origin of the goods;
- the dissemination of false, incomplete or distorted information regarding any other member of the market; its participants or goods manufactured or realized by the member, if the dissemination may cause damages;
- the appropriation, usage or dissemination of trade secrets without the consent of the owner;
- the influencing of any other member of the market by threat or bribery in order to create a competitive advantage, if the foregoing activities may cause loss.
Violation of unfair competition prohibition rules are being settled at the court.
Eva Narovska, lawyer of the Gencs Valters Law Firm in Riga.
Practising in fields of Competition Law in Latvia, Estonia, Lithuania.
T: +371 67 24 00 90
F: +371 67 24 00 91