Challenges of the new rules on competition

By Georgeta Gavriloiu, Attorney at Law and Silviu Vasile, Associate at Schoenherr & Asociatii

Denigration and diversion of clients - practices of unfair competition

At the beginning of September, the amendments to the Law on unfair competition, brought by the Government Ordinance no. 12/2014, will enter into force. These changes are intended to update a regulation which, although was adopted in 1991, has proved difficult to apply in practice.

At the time of its adoption, Law no. 11/1991 was incriminating as unfair competition practices a series of behaviors that were subsequently regulated by specific legislation in various fields. This fact led in time to sometimes conflicting and overlapping regulation jurisdictions. In an attempt to clarify the legal and institutional framework, by the recent changes certain practices (such as practices related to the protection of merchants against misleading and comparative advertising or practices related to the protection of industrial property rights in the field of trademarks and geographic indications) have been removed from the scope of the Law on unfair competition.

At the same time, the Law of unfair competition shall continue to consider the denigration of a competitor or its products and the diversion of clients of an undertaking as practices of unfair competition. Denigration involves the spread by an undertaking or by its representative / its employee of untrue information on the competitor’s activities or its products, information that is capable of harming the latter’s interests. Diversion of an undertaking’s clients may be considered as unfair competition when such practice is carried out by a current or former employee or by a representative of the undertaking, by 

use of business secrets, for which the undertaking has taken reasonable measures in order to ensure their protection and of

which disclosure may harm the interests of that undertaking.

In addition to the two types of practices specifically defined, the law leaves open the scope of the practices that may fall under the unfair competition scope. Thus, any other commercial practices which are contrary to the fair practices and the general principle of good faith and which cause or may cause damages to any market participants may be considered as practices of unfair competition. Despite this lax regulation, the use of the provisions of the Law on unfair competition in order to protect the consumers’ individual interests or of the undertakings interests will remain a burden on those affected, given the fact that they must provide evidence on the existence of the practice of unfair competition and on damages/ risk of damages. In addition, the Competition Council, which is the competent authority to protect undertakings against unfair competition practices, may decide not to act when it considers that, in a particular case, the effects of such a practice are minor, mainly with regards to the gravity of the practice, the circumstances under which it was committed, as well as the importance of the economic sector, in which the practice was committed, in the overall national economy. By this manner, the Competition Council has the right to not judge any kind of cases. However, any interested party has the possibility to either appeal the refusal of the authority to decide on a practice, or to directly address the court of law.

For cases in which the competition authority decides to act, it can make use of investigation powers similar to those used when investigating cartels or other anticompetitive practices. For example, in order to investigate practices of unfair competition, the competition inspectors will be able to conduct unannounced inspections (in accordance with Competition Law no. 21/1996, republished) or to impose fines if the undertakings do not provide the information requested by the competition authority or if such undertakings refuse to comply with an unannounced inspection. 

The recent amendments bring greater clarity on the legislation, by defining specific concepts such as "commercial practices", "honest practices", "commercial secret". Note the definition of the “fair competition”, a concept that is often used, even in the current speech, yet not always correctly, is introduced for the first time in the national legislation.

Thus, fair competition is defined as the situation of market rivalry, in which each undertaking tries to simultaneously obtain sales, profit and/or market share, by offering the best practical combination of prices, quality and additional services, with the observance of the honest practices and the general principle of good faith.

New Rules on the Competition Council’s investigations

Besides the amendments brought to the Law on unfair competition, Ordinance no. 12/2014 has introduced also, in a discreet fashion, certain amendments to the Competition Law no. 21/1996, which generally prohibits and sanctions anticompetitive agreements (such as cartels or the abuse of a dominant position).

The amendments mainly target the quorum conditions that must be met for the assembly of the authority’s plenum and for the adoption of the plenum’s decisions, as well as the manner of the unfolding of investigations.

An important change that helps clarify the legal status of the undertakings that are investigated by the competition authority is the Competition Council’s obligation to inform the investigated undertakings with regards to the closing of the ex officio investigations for lack of evidence in which such undertakings were involved.

Another amendment targets the manner in which the rights of the undertakings that are investigated by the Competition Council are exercised. In order to prepare their defenses, undertakings that are involved in the investigations unfolded by the Competition Council have the right to request access to the investigation file and to obtain copies of the documents in the file. However, if such documents are considered confidential (eg, information representing business secrets of the undertakings that provided information during the investigation), the access to file may we awarded only by order of the President of the Competition Council and, depending on the case’s circumstances, the President may award or refuse the access to confidential information.

By an amendment brought in 2010, the possibility that the order by which the President of the Competition Council decides on the access to certain documents of the case file by the undertakings may be appealed directly in the court of law, without waiting for a final decision of the competition authority with regards to the investigated case, was introduced. The appeal of the order in the court of law triggered the suspending of the investigation procedure until the there was a decision on the appeal of the said order. In practice, the use of such an appeal determined, in certain cases, to the delaying by several months of the unfolding of the hearings and of the final decision on the case.

As a result of the recent amendments, the investigated undertakings will be able to appeal the said order only at the end of the investigation procedure, together with the decision issued by the competition authority. Even if by this amendment the situation before 2010 is to some extent restored, it is expected that this amendment will be criticized, especially for its implications with regards to the investigated undertakings’ right of defense.

Even if the attention of the critics, especially of those familiarized with the competition law, may be caught by this amendment, there is also another amendment that deserves at least the same level of attention given its possible implications with regards to the overall competition policy.

This amendment consists of the newly introduced provision which allows the Competition Council, in order to effectively make use of its resources for unfolding of an investigation, to “prioritize” the investigated cases based on “the potential impact on the effective competition”, the “general consumers’ interest” or on “the strategic importance of the concerned economic sector”

It is interesting to see if, in practice, the Competition Council will make use of this instrument in order to select its cases on which it acts ex officio or if the prioritization shall have any effect on the ongoing cases or on the scenarios where the consumers or the undertakings, which are victims of an anticompetitive behavior, submit complaints to the Competition Council.