Czech Republic: Pharma sector investigation, dawn raid obstruction fines, RPMs and compliance programmes. What are the Czech Competition Office’s current priorities?
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The Czech Office for the Protection of Competition (the “Office”) held its annual St. Martin’s Conference in November with representatives from the Office and European Commission, as well as top competition law experts. Among others, the conference served to present the Office’s current priorities in its activities, offering indications to the market on what to keep an eye out for. The key takeaways are explored below.
Finalising the pharmaceutical sector investigation
A major status report is that the Office is nearing the conclusion of its large investigation into the pharmaceutical sector. The investigation has been ongoing since the last year and primarily targets the distribution models of prescription and insurance-covered medicines on the market. The background to the investigation includes complaints by independent pharmacies as to the alleged rise of pharmaceutical cartels comprising manufacturers and select distributors. The investigation is projected to be finalised around the end of the year and published in early 2023. The Office has also expressed its intention to launch an investigation into a new sector soon.
Maximum fines for dawn raid obstruction
Dawn raids are also at the centre of the Office’s attention. Record numbers have been carried out this year and this trend is set to continue. Last week, the Office has for the fifth time in a short time period handed out a fine for obstructing an ongoing dawn raid at or near to the maximum amount allowed for by law. The largest of these at CZK 22,500,000 was imposed on Beryko s.r.o., whose directors and employees either refused access or had deliberately erased data from their telephones, laptops and email inboxes. Earlier this year, the Office handed out fines to MIT METAL POWER, a.s., HK STEEL TRADING, s.r.o. and EUROTUBES, s.r.o. on identical grounds. The fines were set at CZK 1,870,000, CZK 300,000 and CZK 333,000, respectively, all of which were the maximum amounts permitted.
In the latter two cases the company representatives had initially cooperated with the investigators carrying out the dawn raid, but subsequently reversed their consent to it despite knowledge of possible sanctions. The authorities were unable to conclude the inspections, thus thwarting their purpose. A comment was made by the Office that the last court decision stating the Office’s fault in a dawn raid procedure is from 2012 and that it would be ill-advised to rely on potential procedural errors of the investigators now.
In a recent press statement, the Office emphasised its position of zero tolerance towards dawn raid obstruction. Competitors are told to expect automatic receipt of the maximum possible fine if they do not permit the carrying out of on-site inspections. Such a fine amounts to CZK 300,000 or 1% of the company’s turnover. The fine may be handed out repeatedly, up until a maximum of 10% of the company’s turnover.
RPM sanctioning and effect of compliance programs
Another point raised by the Office at the conference were vertical resale price maintenance agreements (“RPMs”). The Office views these as a problem and intends to investigate and sanction such agreements further, with a shifting focus on large market actors. Although it is debated within the field whether RPMs truly hamper competition, the Office has concluded that its approach to RPMs is consistent within practice across the EU, following informal consultation with other national offices. It is therefore advisable to review supply chain agreements for potential risks.
The Office has also recently chosen to take into account compliance programs when setting sanctions for anticompetitive behaviour and intends to continue with this trend. The compliance program must, in particular, be effective, the breach must have occurred without knowledge of the higher management and the competitor must have applied for a leniency or settlement program. For more on compliance programs and their role in competition sanctions, see our recent article. With regard to sanctions for RPMs, significant reductions can be expected in the face of compliance programs, as well as effort and cooperation on the part of the firm under investigation.
On a side note, the DG Competition’s representative also noted the trend of information on anticompetitive behaviour increasingly coming from company insiders, rather than competitors and customers, over the last two years.
The St. Martin’s conference offered fresh insight on where the Office’s attention lies and what activity and policy may be expected going forward.
The Office’s abovementioned press statement can be found here (in English) and two of the cited earlier dawn raid decisions can be found here and here (in Czech).
For more information, please contact Vojtěch Chloupek and Martin Taimr.
