Czech Republic: Rare acquisition blocking, large fines for price-setting and even larger fine reductions – what are the Office’s highlights this summer?
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News was made when the Czech Office for the Protection of Competition (“Office”) blocked a major acquisition on the postal delivery market in a strictly exceptional move. Multiple competitors were also recently struck with hefty fines for vertical minimum price fixing arrangements. In both cases however, cooperation with the Office lead to major reductions in the fine amounts. As autumn nears, see our comment on the Office’s summer activity below.
Office ready to apply radical measures to prevent monopoly
In a widely followed development, the state enterprise for postal delivery, Česká pošta, s.p. (“Czech Post”), was set to acquire part of the undertaking of První novinová společnost a.s. (“PNS”), a company primarily focusing on the delivery of post to end addressees. After thorough analysis of the planned takeover’s impact, the Office found that it would significantly distort the competition on the markets for the delivery of mail and the distribution of subscriptions and magazines in the Czech Republic. The acquisition would further strengthen Czech Post’s dominant position on the market, potentially even creating a monopoly by removing PNS as the sole substantial competitor on the relevant markets.
The Office’s June decision to block the acquisition comes as an exceptional step, as the Office holds merger prohibition as an extreme measure which it only applies in rare circumstances. In this case however, the Office considered the negative effects on competition, and in turn on the quality of service and price for consumers, grave enough to resort to blocking the acquisition.
Vertical price-setting agreements remain a frequent target
The Office also continued in its hawkish approach to investigating and sanctioning minimal price-setting schemes. In July, the Office distributed a fine of almost CZK 64 mil. (approx. EUR 2.6 mil.) to TESCOMA s.r.o (“TESCOMA”). This was followed by another decision in August, when the Office sanctioned NOVIKO s.r.o. (“NOVIKO”) with a fine of close to CZK 48 mil. (approx. EUR 1.9 mil), also for setting up and maintaining a retail price-setting mechanism. Both fines were nevertheless significantly reduced following the cooperation of both competitors with the Office in the antitrust proceedings.
TESCOMA is a large producer of cookware and kitchen utensils, which it also sells on a wholesale as well as retail basis. The Office’s investigation found that, in the relevant period between 2015 and 2021, TESCOMA informed the distributors of its goods of recommended minimum retail prices which the goods should be sold for. Simultaneously however, TESCOMA also monitored the adherence to these retail prices, and distributors selling for lower prices were called upon to raise them. This made cooperation with TESCOMA conditional on maintaining the recommended prices, which the distributors in general did.
Similar conduct was investigated at NOVIKO, a wholesale seller of animal food and pet supplies. NOVIKO also set recommended minimum retail prices to the distributors of its goods, monitored their adherence and called upon them to raise prices if the minimum prices were not met. Non-compliance was sanctioned with the cancelling or lowering of discounts on the wholesale products. The conduct itself lasted at least between 2013 and 2021.
In both cases the Office concluded that such vertical agreements create significant restrictions of competition on the market and have from their very essence an anticompetitive goal. The actions of TESCOMA and NOVIKO were both found in breach of Czech as well as EU antitrust legislation, due to their effect on cross-border trade.
Major cooperation leads to major fine reductions
In TESCOMA’s case, the company’s turnover and long duration of its anticompetitive conduct gave rise to a considerably higher fine, the base of which being initially set at almost CZK 200 mil. (approx. EUR 8.2 mil.). Nevertheless, the base of the fine was reduced by 60% due to mitigating circumstances. These were namely that TESCOMA confessed to its actions and ceased them, cooperated with the Office during the proceedings, additionally informed its distributors of the non-binding nature of the recommended prices, and introduced an effective compliance program (see here for our analysis of fine reductions for compliance programs). As TESCOMA also met all the conditions of the settlement program, the reduced amount was further lowered by 20% to reach the end fine at about CZK 64 mil. (approx. EUR 2.6 mil.).
Similar procedures followed in the NOVIKO case, where the base of the fine was initially also set using a coefficient reflecting the conduct’s duration multiplied by an amount reflecting a percentage of NOVIKO’s turnover (for more on calculating fines based on turnover, see our earlier article). The base of NOVIKO’s fine was reduced by 70% due to mitigating factors such as their above-standard cooperation and provision of evidence which the Office could not obtain itself. The Office also took into account the existence of NOVIKO’s compliance program. As with TESCOMA, NOVIKO also met all the conditions of the settlement program and the fine was further reduced by 20% to reach the end amount.
While the acquisition blocking in Czech Post’s case shows the Office’s readiness to apply radical measures if necessary to protect the core functioning of the market, the cases of TESCOMA and NOVIKO illustrate the Office’s trend in closely monitoring vertical price-setting agreements. At the same time, both cases also show how significant fine reductions can be achieved through cooperation following the launch of investigations.
The Office’s press release on Czech Post’s acquisition blocking can be found here, and the TESCOMA case press release here and the NOVIKO case press release here.
For more information, please contact Vojtěch Chloupek and Martin Taimr.
