New name, new rules in antimonopoly law
Every now and then it is quite educational to look back on one's work and think about where improvements could be made. This process of reflection is not only useful in personal and professional matters, but also in lawmaking. Most recently, Polish antimonopoly law underwent a number of changes, which took effect on April 1. The reason for these changes was not only technical improvements to clarify antimonopoly law (an exercise much appreciated by those practicing antimonopoly law and their honorable clients), but also to fulfill certain requirements relating to Poland's European Union aspirations.
Given the patchwork of changes that have been made to the Act on Counteracting Monopolistic Practices and Consumer Protection since it was enacted 10 years ago, the government opted to repeal that law and replace it with a new one, entitled the Act on Protection of Competition and Consumers. Despite the fact that the term "monopolistic" has disappeared from the title of the Act, you should not be lulled into thinking that the antimonopoly authorities have become less concerned about these matters. In fact, major players in their respective markets, entities considering acquisitions in Poland, and individuals considering significant capital investments should, in particular, study the new rules.
Two parts of the Act most important for businesses and investors alike are the sections on impermissible practices and premerger notification rules.
The provisions of the Act addressing the issue of impermissible agreements pertain to all persons and entities doing business in Poland. Impermissible agreements are those that aim at or result in the elimination or limitation of competition or a violation of the rules of fair competition in a given market. Generally, agreements of that nature are deemed, wholly or partially, invalid by virtue of law. Impermissible agreements can involve: setting prices or terms and conditions of purchase or sale; a restriction or control over production, sales, research and development or investment; a division of a market between entities; or discrimination with respect to certain customers.
Another set of impermissible practices pertains only to entities holding a dominant position in a market. Similar to the repealed law, a business is presumed to have a "dominant position" if it has at least a 40% market share. The Act forbids an entity from abusing its dominant position. The catalog of abusive practices set forth in the Act is not exclusive. Depending on the particular circumstances, abusive practices could include setting unfair prices, forcing long payment terms, and restricting production.
Another key set of provisions in the Act requires that entities intending to consolidate (or, to use non-statutory vocabulary, "merge") provide notification. Companies that plan to enter into mergers, establish joint ventures, acquire control over other companies or acquire shares in other companies must notify the president of the Office for Protection of Competition and Consumers ("CCPO") if the intended action will cause the investing company to have at least 25% of the voting rights at the shareholders' meetings of the target company and if the total turnover of both entities in the preceding year exceeded the equivalent of E50 million (previously, the threshold was E25 million).
One of the significant changes introduced by the Act is a change in the requirement of who must file a premerger notification: Previously, both the investor and the target company needed to file one. In practice, this requirement made hostile bids even more complicated as, not surprisingly, target companies were reluctant to file this notification. Now, for acquisitions of at least 25% of the voting rights at the shareholders' meetings of the target company, the Act only requires the investor to file this notification. A premerger notification must be filed within seven days (previously 14 days) from the day of execution of an agreement or any other act that could lead to a merger. As was the case previously, the CCPO is supposed to rule on whether a merger is permissible within two months from the day of the notification's filing. However, in case of proceedings pertaining to companies whose shares are admitted to public trading, this period is shortened to 14 days.
A merger may not occur until the President of the CCPO issues a decision granting permission. As a practical matter, entities contemplating a merger of a regulated sort may make their agreement conditional on obtaining a satisfactory decision from the President of the CCPO.
According to the Act, the President of the CCPO must allow the entities to enter into a merger if it does not endanger competition. The president may condition the decision on the entities involved taking certain actions. It seems that the president may invoke these powers even if the merger would only have limited negative effect on competition. In particular, the president may require disposal of portions of the business of one or more entities involved, surrender of control over an entity or entities not participating in the merger, and granting of an exclusive license to a competitor of a given entity. The president may set a time limit for interested entities to satisfy the conditions to the decision and require that they report on their progress.
The Act has revisited the already severe penalties that may be levied against businesses (and in some cases their officers) that do not comply with antimonopoly law. As examples, a failure to file a premerger notification, either willingly or through mere oversight, can lead to a fine of up to E50,000. Providing false data in the premerger notification is subject to a fine of between E200 and E5,000. Abuse of a dominant position may be penalized with a fine of E1,000-E5 million.
This article was prepared by Lejb Fogelman, the managing partner of Hunton & Williams Poland, with the assistance of Przemyslaw Siecinski, an associate attorney.
