Numerous Important Changes Proposed to Finnish Competition Act

D&I Alert

Posted on

10 Nov

2020

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Dittmar & Indrenius > Insight > Numerous Important Changes Proposed to Finnish Competition Act

Implementation of ECN+ Directive Takes a Step Forward

As part of the national implementation of Directive (EU) 2019/1 (the “ECN+ Directive”), the Finnish Government published on 5 November 2020 a proposal (Government Bill 210/2020) to reform the Finnish Competition Act. The Government put forward wide-reaching amendments to comply with the Directive as well as introduced changes of domestic origin.

The proposed changes relate to the enforcement of competition rules, especially investigation procedures and powers, the calculation of fines, and remedies for infringements, including the possibility for the Finnish Competition and Consumer Authority (the “FCCA”) to propose structural remedies such as divestitures to end a competition infringement. The amendments to the Competition Act are intended to enter into force on 4 February 2021.

Strengthening and unifying the powers of competition authorities

The ECN+ Directive aims to improve the ability of the national competition authorities of the EU Member States to enforce EU competition law, and to ensure that all national competition authorities have sufficient powers to fulfil their duties. To accomplish this, it includes a broad range of changes to investigation and enforcement procedures, remedies for infringements and rules on co-operation between national competition authorities. However, the Government Bill also includes a number of important but purely domestic amendments, for example concerning the calculation of fines. The main proposals are summarized below, divided into two sections: amendments related to (i) sanctions and (ii) investigation procedures.

I Sanctions: fines and structural remedies in focus

Level of fines to increase due to proposed new rules on calculating fines

Until now, the rules on how to calculate fines for competition infringements have been vague. Unlike the European Commission, the FCCA has not had detailed fining guidelines. The Government Bill, however, includes detailed rules on how fines are to be calculated. The maximum fine will remain 10% of an undertaking’s global turnover.

In line with the European Commission fining guidelines, a concept of ‘basic amount of a fine’ is introduced in the Government Bill as a starting point for calculating a fine: as a main rule, the basic amount would be up to 30% of the undertaking’s turnover resulting from the sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area during the last calendar year when the undertaking committed the infringement. The proportion of the turnover to be taken into account for the basic amount would be based on an overall assessment of the infringement, having regard to a number of factors such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented. For the most serious infringements, such as price-fixing, market-sharing and output-limitation agreements, the basic amount would normally be between 15-30% of the said turnover. The basic amount would then be multiplied by the number of years the undertaking committed the infringement. For serious infringements, an additional top-up of 15–25% of the said turnover would then be added for additional deterrence.

The basic amount could then be increased or decreased based on aggravating and mitigating circumstances. The basic amount could be increased for (i) repeating or continuing an infringement after an authority has made a finding of an infringement, (ii) acting as the leader or instigator of the infringement or (iii) coercing other undertakings to participate in the infringement. For repeating or continuing an infringement after an authority has made a finding of an infringement, the increase to the basic amount can be up to 100% per each such infringement established. Mitigating circumstances include, for example, the undertaking (i) settling to pay damages for the harm caused by the infringement, (ii) terminating the infringement as soon as the FCCA intervened (this will not apply to secret agreements or practices; in particular, cartels), (iii) having only a substantially limited involvement in the infringement and thus demonstrating actually avoiding applying the offending agreement by adopting competitive conduct in the market and (iv) effectively cooperating with the FCCA outside the scope of the leniency rules and beyond legal obligation to do so.

Furthermore, in exceptional cases, the undertaking’s inability to pay may, upon request, be taken into account in a specific social and economic context. According to the Government Bill, any reduction granted for this reason in the fine would not be based on the mere finding of an adverse or loss-making financial situation. A reduction could be granted solely on the basis of objective evidence that imposition of the fine would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.

Although not all of the proposed detailed rules on calculating fines will be binding in the courts as such, we expect the level of fines to increase significantly if the amendment will be adopted. Also, one of the many things to be noted in this regard is the proposed transitional provision: according to the proposal, the detailed rules on calculating fines will apply to all infringements that have not ended before the new rules enter into force.

Imposition of structural remedies to be made possible to have an infringement ended

The Government Bill also includes for the first time the possibility to impose structural remedies to have a competition infringement ended. If an undertaking has infringed the prohibitions in Articles 101 or 102 TFEU, or the domestic equivalents, the undertaking can be ordered to perform structural remedies, such as divesting certain parts of its business or selling its shares in a competing undertaking. Such heavy-handed remedies would only be possible under certain circumstances. They could only be ordered by the Market Court, not by the FCCA. Also, the FCCA could only propose them if lighter, behavioural remedies are not sufficient to terminate the anticompetitive situation or if they would be more burdensome for the infringing undertaking.

As with the new detailed rules on calculating the fines (see above), also the imposition of structural remedies will be available to all applicable infringements that have not ended before the amendments enter into force.

Maximum fines for associations of undertakings to be increased

Another significant area of changes concerns fines payable by associations of undertakings, such as industry associations. The Government Bill proposes that if an infringement committed by an association of undertakings is connected to the activities of the members of the association, then the maximum amount of the fine for the association will be 10% of the combined turnover of those members of the association that operate in the markets affected by the association’s infringement. This is a significant increase compared to the current situation where only the turnover of the association itself is used to calculate the fine.

Members of an association risk being held liable for the association’s fines

In case a fine of an association is based on the turnover of its members (see above), but the association is unable to pay the fine – as probably will often be the case – the association has to ask its members for contributions to pay the fine. If the fine is not paid despite this, the FCCA can, subject to certain restrictions, demand payment from the undertakings that were the members of the association (first from members of the board or a similar decision making body of the association and subsequently from any member that was active in the market where the infringement occurred). If an undertaking has been fined for the same infringement, its own fine and its contribution to the association’s fine, taken together, cannot exceed the maximum 10% turnover limit. All in all, the proposal could still significantly increase the risk for undertakings that are members of associations.

Introduction of fines for failures to comply with procedures

The Government Bill proposes to enable the FCCA to propose (for the Market Court to impose) fines for a wide range of failures to comply with the FCCA’s investigation procedures, such as failure to comply with inspections (dawn raids) or information requests or failure to appear at an interview. The maximum amount of such a fine would be 1% of the undertaking’s global turnover.

The basis for calculating periodic penalty payments to be clarified

The FCCA can already propose and the Market Court impose periodic penalty payments for non-compliance with the FCCA’s orders. However, the calculation of the amount of such penalty payments has been vague. The Government Bill clarifies that the basis for the calculation of such payments would be the undertaking’s average global daily turnover.

II Investigation procedures: more powers to the FCCA

The FCCA to be given broader authority to summon persons for interview

The FCCA would be able to call to an interview any person who may possess information relevant to a competition restriction. This considerably broadens the FCCA’s powers on who may be called for an interview and also lowers the threshold of when someone can be called for an interview. Currently, the FCCA may only call to an interview a person who the FCCA has a probable cause to suspect of having taken part in the implementation of a competition restriction, and only when hearing the person is essential.

Dawn raids in places other than business premises to be eased

The FCCA can currently conduct inspections in places other than the suspected undertaking’s business premises, such as in an employee’s home or vehicle, only if there is probable cause to believe that potential evidence of a serious competition infringement is being kept there. The FCCA has to obtain the Market Court’s prior permission for such inspections. Under the proposed amendments, the FCCA could conduct inspections in places other than business premises if it has probable cause to suspect that potential evidence of a competition infringement is being kept there. In other words, the suspected infringement would no longer need to be a serious one. This will potentially expand the FCCA’s powers considerably.

Interim measures to be enabled for much longer periods

Currently, if the FCCA considers that some circumstances clearly restrict competition, it can order interim measures to stop the restriction on competition for a period of 90 days. In practice, the FCCA has considered this time limit to be too short because its investigations typically take much longer than 90 days.

The Government Bill proposes that such interim measures would stay in force until the FCCA issues its decision following its investigation. We expect that the FCCA will begin to use interim measures more widely once it is no longer bound by the 90-day limit.

Deadlines in merger control cases in the Market Court to be calculated in working days

The Government Bill proposes amendments to the calculation of due dates in merger control cases in the Market Court. In 2019, the merger control review periods at the FCCA were amended to be calculated by using a set number of working days instead of previously used calendar months (see Amendments to the Finnish Competition Act will enter into force on 17 June 2019). The Government Bill proposes to begin using the same method to calculate procedural dates also in the Market Court in merger control proceedings. For example, the Market Court would have 69 working days to decide on the FCCA’s prohibition proposal in merger control cases instead of the current three calendar months.

New way forward: more effective competition law

The proposed amendments to the Competition Act are intended to enter into force on 4 February 2021. The amendments would significantly extend the powers of the FCCA and increase the risks of undertakings. Some of the new rules will even apply retroactively in certain situations. The Government Bill estimates that the ECN+ Directive is the most significant change in competition law in years both in the European Union and on national level. Coupled with the proposed changes of domestic origin, we cannot but agree.

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