URÍA & MENÉNDEZ
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NEWSLETTER

July 2003

The information contained in this Newsletter is of a general nature and does not constitute legal advice

COMPETITION LAW

RECENT DEVELOPMENTS IN PORTUGUESE AND SPANISH COMPETITION LAW

 

PORTUGAL: NEW COMPETITION ACT REVIEWS PORTUGUESE COMPETITION LAW COMPREHENSIVELY

A substantial reform of Portuguese competition law has taken place recently. After the creation of the new Competition Authority (“Autoridade”) by Decree-Law 10/2003, of 18 January 2003 [See our Newsletter of April 2003], new Law 18/2003, of 11 June 2003 (the “new Competition Act”) has been passed by the Parliament. The aim of this new Act, which entered into force on 16 June 2003, is to correct and adapt the Portuguese Competition legislation to the demands of the modern economy and current competition policies, which have undergone significant developments both in the European Union and the United States.

The most relevant reforms introduced concerning the control of the operations of concentration are the following:

·               There is a more coherent and better drafting of the provisions relating to the concept of concentration and the calculation of the market share and turnover of the parties involved.

·               The merger control regime is extended to the financial and insurance sectors, which were previously excluded from it.

·               As regards the conditions for compulsory prior notification and the threshold relative to the turnover of the participating undertakings, a new cumulative condition is included, whereby the individual turnover in Portugal of at least two of the participating undertakings must exceed Euro 2 million (provided that the aggregate turnover of the parties in Portugal exceeds Euro 150 million).  

·               The procedure of appraisal of concentrations is clarified, and the division in two phases (of 30 and 90 working days respectively) is established, in accordance with the Community regime.

·               There is a general harmonisation of the Portuguese system, as far as possible, with the European provisions, in terms of the deadline (7 working days) to file the notification, the control of joint ventures, the regime of suspension of concentrations and the criteria for the appraisal of concentrations.

Concerning other areas of competition law, the new Competition Act has introduced relevant modifications relative to the following issues:

·               As regards prohibited practices, it is now expressly recognized that the Community Block Exemption Regulations, adopted in application of Article 81.3 of the EC Treaty, apply to the practices which, not affecting trade between Member States, fulfil the conditions established therein.

·               As regards the abuse of dominant position, the presumptions established in the previous legislation which referred to specific thresholds (30% for individual dominance and 50% -for two or three companies- and 65% -for four or five companies- for collective dominance) are eliminated given their indicative and misleading nature. Thus, it will be the task of the Autoridade to establish in its day-to-day practice, and in the light of the case-law of the Community Tribunals, the criteria to ascertain the existence of a dominant position.

·               The concept of abuse of economic dependence is clarified, pointing out that it will be considered to exist only and as long as it is capable of affecting the functioning of the market or the structure of competition.

·               Finally, the system of fines follows the Community model by calculating their amount on the basis of the turnover of the undertaking (up to 10%) and by including periodic penalty payments for certain types of infringements (up to 5% of the average daily turnover for each day of delay).

 

SPAIN: NON-COMPETITION CLAUSES IN OPERATIONS OF CONCENTRATIONS BETWEEN UNDERTAKINGS

In its Decision dated 8 April 2003 (Case A 313/02 - Pacto Foodservice-Mercat, the “Decision”), the Spanish Court for the Defence of Competition (“CDC”) has considered that a non-competition clause agreed between two parties to a concentration amounts to an agreement restrictive of competition that must be notified to the Spanish Service for the Defence of Competition (“SDC”), even if the concentration to which the clause is related does not require a merger control filing pursuant to Article 14 of Law 16/1989, of 17 July, on Defence of Competition (“LDC”).

This interpretation implies a significant change in the treatment of non-competition clauses. Under EU and Spanish antitrust law, non-competition clauses directly related to concentrations are generally considered as ancillary restraints, provided that they meet certain requirements. In particular, they must comply with the terms of duration and field of application specified in the Commission Notice on restrictions directly related and necessary to concentrations (“Commission Notice on ancillary restraints”). This is so since this kind of clauses usually guarantee the transfer to the purchaser of the full value of the intangible assets transferred, such as the know-how or the goodwill accumulated by the vendor. As a consequence thereof, non-compete clauses are assessed in the same procedure as the concentration to which they are related, and are consequently covered by the clearance decision which may authorize the latter.

Therefore, before the Decision, it was reasonable to consider that non-competition clauses directly related to concentrations which were not subject to notification requirements (i.e. those below the turnover or market share thresholds set forth in Article 14 of the LDC) did not have to be notified on a separate basis either, provided that they met the limits and conditions established in the Commission Notice on ancillary restraints.

However, the CDC now considers that this kind of clauses, even if they can be labelled as ancillary restraints, are restrictive agreements prohibited by Article 1.1 of the LDC. Therefore, where they cannot be cleared within a merger control procedure (for instance, if the concentration to which they are directly related is not subject to notification requirements), they must be notified to the SDC in accordance with the individual exemption procedure specified in Articles 38 onwards of the LDC. The CDC’s interpretation has an important substantive consequence: if the parties do not request an individual exemption, the nullity of the clause can be invoked before the Civil Courts.

In order to mitigate the effects arising from this line of reasoning, account should be taken of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (“Regulation 1/2003”) [already entered into force and binding national antitrust authorities, but which will be applicable only as of 1 May 2004].

Article 3.2 of Regulation 1/2003 acknowledges the principle of uniform application of EU antitrust law in all Member States. This acknowledgment implies that the application of national antitrust rules may not lead to the prohibition of agreements which may affect trade between Member States, but which are not prohibited under EU antitrust law (since they are not contrary to Article 81.1 of the EC Treaty) or are compatible with the Common Market (to the extent they meet the conditions of Article 81.3 of the EC Treaty or are covered by a Block Exemption Regulation).

In light of EU Court case-law and Commission practice (and contrary to the CDC’s interpretation), it could be held that non-competition clauses that meet the objective, subjective and temporal limits established in the Commission Notice on ancillary restraints are not agreements prohibited by Article 81.1 of the EC Treaty. As a consequence, if EU antitrust law has acknowledged the legality of non-competition clauses which amount to ancillary restraints, this kind of restrictions should not be considered as agreements prohibited by the LDC, on the basis of Article 3.2 of Regulation 1/2003. Therefore, no obligation to notify them to the SDC would arise if the concentration to which they are directly related is not subject to filing requirements.

However, this interpretation of Article 3.2 of Regulation 1/2003 would only apply as of 1 May 2004 to non-compete clauses linked to concentrations not subject to an obligation of notification to the SDC, but which may affect trade between Member States. On the contrary, non-competition clauses agreed to in the context of concentrations which do not require notification but the effects of which, either actual or potential, are limited to the Spanish national territory, should be analysed in accordance with the reasoning of the CDC. Therefore, this kind of non-competition clauses would be in principle subject to a notification obligation to the SDC.