Get cartel

Spain will no longer have to rely on the EU to fight its competition battles – a new act has brought it bang up to date in the fight against cartels. By Jaime Pérez-Bustamante

On 3 October the European Commission imposed fines totalling e183m (£127.65m) on four companies that had operated a cartel on the Spanish bitumen market for 12 years. In a press release, EU Competition Commissioner Neelie Kroes explained how the cartel had “cheated customers, public authorities and taxpayers in Spain”.

It is revealing that it was the Commission and not the Spanish competition authorities that stepped in to defend the interests of Spanish consumers and taxpayers. However, on 1 September, a new Competition Act (Ley de Defensa de la Competencia) came into force in Spain.

The new act follows in the footsteps of the recent modernisation of EU competition law and reforms the legal and institutional framework, equips the enforcer with better tools of investigation and should make Spain less reliant on the Commission for the detection and persecution of cartels.

Streamlining the system

The most important change in the act is the transition from a system of exemptions granted by the competition authority to a system of self-assessment of agreements that may restrict competition.

Under the previous system, companies were required to seek so-called ‘individual exemptions’ from the competition authorities for agreements the lawfulness of which is based on weighing potentially restrictive effects against efficiency-enhancing effects. Under the new act the exemption provision is directly applicable and companies themselves must analyse whether their business practices meet the requirements for exemption.

An important side-effect of this change is that the competition authorities can reallocate resources from dealing with applications for individual exemptions to investigating the most serious competition law infringements.

The new act has also changed the institutional framework. A key part of the modernisation programme is the merger of the two public authorities previously responsible for competition law enforcement, the Competition Defence Service and the Competition Tribunal, into a single organisation – the National Competition Commission (Comisión Nacional de Defensa de la Competencia).

The new institution, the independence of which has been reinforced, will however maintain a clear divide between the body responsible for the investigation of a case (the Directorate of Investigation) and the body in charge of the final decision-making (the Governing Council). The Governing Council is the governing body of the new authority and is composed of six members who will be appointed for non-renewable mandates of six years.

The institutional reform has allowed for a streamlining of the administrative proceedings and will enable the authority to use its resources in a more efficient manner.

The act also sharpens the investigative tools available to the new authority. In particular, it introduces a leniency system that enables the National Competition Commission to grant immunity from fines or to reduce significantly the fines for companies that are the first to collaborate with the authority by providing new and substantial evidence of a cartel.

The system is modelled on the Commission’s successful leniency notice from 2006 and benefits from the lessons learnt at EU level over the last 11 years – indeed, the bitumen cartel was detected as a result of a leniency application from BP.

Nevertheless, the success of a leniency system depends on the perceived risk of detection and, given the scarcity of cartel cases in which the Spanish competition authorities have imposed high fines, it will probably take some years for the system to reach its full effectiveness.

In addition, the act allows the National Competition Commission to seek a search warrant from a court, allowing the authority to enter not only business premises, but also the private residences of company executives who are suspected of hiding evidence of cartel activities.

The new act does not increase the maximum level of sanctions that can be imposed on companies for competition law infringements (as in EU law, it is maintained at a staggering 10 per cent of consolidated annual turnover), but it does clarify the guiding principles for the calculation of the fine and this is likely in practice to increase the amount of fines imposed.

Merger control

The change of the merger control regime is less far-reaching and falls short of the expectations raised when the programme for the reform was launched in 2005. In particular, the new act fails to eliminate the market-share threshold for the notifications of mergers, in spite of harsh criticism from the legal community and the International Competition Network (ICN), the worldwide network of competition authorities.

The threshold is raised from 25 to 30 per cent, but it still – for reasons difficult to understand – applies to the acquisition of a company with a market share of 30 per cent or more in Spain, even if the relevant market for the goods or services in question is clearly limited to Spain and the acquirer has no activities whatsoever in the country.

Mergers not caught by the market share threshold can be caught by the turnover threshold. The latter is virtually unchanged, with a combined turnover in Spain of e240m (£167.4m) or more and an individual turnover in Spain for at least two of the parties of e60m (£41.85m) or more.

On a positive note, the new act provides for the Spanish government to adopt a regulation on a simplified short-form notification for mergers in which there is no, or insignificant, overlap between the parties to the transaction. Moreover, the new act reduces the maximum sanction that may be imposed on companies that execute a merger in violation of the act from 10 to 5 per cent of the annual turnover and shortens the statute of limitations for such infringements from four to two years.

Another welcome development is that the new merger control regime, at least on paper, limits the government’s involvement in the proceedings. In some high-profile cases, the Spanish government has been criticised for being guided by political considerations rather than the welfare of the Spanish consumers. Under the new act the Government will be able to intervene only when the National Competition Commission has initiated the in-depth ‘Phase 2’ investigation and when the authority suggests prohibiting or clearing the transaction subject to conditions.

Private enforcement

Lastly, it is expected that the new act will increase the amount of competition law litigation in Spain. Under the previous act it was not possible to bring a civil action invoking national competition law until the infringement in question had first been demonstrated in a final decision by the competition authority (strangely enough, this was possible if the plaintiff could invoke European competition law). The new act removes this requirement and allows the possibility of immediately bringing an action before the mercantile courts. It is unknown whether this will create a race to the courthouse.

There are still important obstacles to private actions, in particular the difficulty in obtaining evidence to prove an infringement given the lack of a pre-trial discovery system. However, Spanish companies are becoming increasingly litigious (the no-holds-barred takeover battle for Endesa being the foremost example of this) and the improved position for plaintiffs under the new act is not likely to go unnoticed.

Jaime Pérez-Bustamante is a partner at Linklaters