The Legal 500

The new Competition Protection Act was enforced on 1 December 2008, more than one year after the public announcement of the draft act and its introduction by the Commission for Protection of Competition (CPC; the Commission) to the Council of Ministers. It was surprising that the chapter which regulates the different events of unfair competition was reinstated in the final text, tabled by the Council of Ministers and adopted by the National Assembly.

These provisions did not appear in the initial draft of the CPC. In its motives, enclosed with draft, the Commission points out, correctly in our opinion, that ‘the protection against unfair competition is not a typical function of competition authorities of EU Member States, but it had been performed by the CPC throughout the years when the Bulgarian legal system lacked a special consumer protection law and an authority assigned with its implementation’. However, the text adopted by the National Assembly restored the powers of the Commission to investigate and sanction acts of unfair competition and all events previously existing in the repealed Competition Protection Act. What’s more, the text also introduced new events, including the imitation of a domain or website, as well as the misleading and prohibited comparative advertising, which was transposed into this law from the Consumer Protection Act.

This approach raises many questions of principle, especially in view of the initial content of the draft act and the Commission’s motives thereto, and because unfair competition does not fall within the typical prerogatives of the national competition authorities, nor of the European Commission. Furthermore, unfair competition is not subject to regulation by EU competition law. Yet, the lawmaker’s aspiration to leave the regulation of unfair competition relations under the thumb of the CPC is understandable, as it is the authority that has been performing this activity (based on previous competition laws) for 18 years and has gained substantial experience and practical expertise in this area.

However, the lawmaker’s approach in respect to the sanctions for acts of unfair competition is unacceptable. The new Competition Protection Act (CPA) takes on an uniform course as to the sanctions, where all substantive law infringements under the Act entail the imposition of a fine amounting to 10 percent of the total turnover (calculated for the previous financial year) of the sanctioned undertaking or association of undertakings. This course is understandable in respect of the infringements referred to in Articles 15 and 21 of the Act (i.e. prohibited agreements and abuse of dominant position), given that Article 23 of Council Regulation (EC) No. 1/2003 lays down such sanctions in the same vein. The Regulation, however, does not in any way pertain, nor apply, to the acts of ‘unfair competition’. The sanctions foreseen by the Regulation concern infringements of Articles 81 and 82 of the Treaty Establishing the European Community (reproduced in Articles 15 and 21 of the CPA). The sanctions of the Regulation, however, do not concern any conduct that has an analogue or even a semblance among the events of Chapter Seven of the CPA.

The CPC has repeatedly stated (including in its Methodology for Determining Sanctions under the repealed Competition Protection Act) that basically, infringements of unfair competition harbour a lower degree of public hazard compared to the violations of the antitrust provisions of the CPA. Hence, it is not groundless for the amount of sanctions, with respect to the aforementioned infringements, to be smaller. However, this principle has not been reflected in the vehicle of imposing sanctions under the new Act. Moreover, the new Methodology for Determining Sanctions, as adopted by the CPC upon the entry into force of the new CPA, no longer contains an expression reflecting this ratio of ‘degree of public hazard’ entailed by the different violations.

The specific methods featuring the Methodology involve explicit criteria and thresholds to form the amount of sanctions (according to type and relative weight of the violation) for prohibited agreements and abuse of dominant position. Thus, the maximum amount of the relevant sanction can be imposed only in the most serious cases of infringement. Such specific methodology is absent with the sanctions for unfair competition. All of the aforementioned is a source of additional concern.

Furthermore, the basis for calculating the sanctions for core anti-competition violations includes ‘the sales realised by the undertaking within the territory of the country (Bulgaria) during the last financial year of the period, when the undertaking was involved in the violation’, and more particularly, ‘the net profit realised by sales of the respective products which are directly or indirectly concerned or might be concerned by the violation’. The amount of the sanction for unfair competition is determined on the basis of ‘the total turnover of the undertaking for the previous financial year’.

It is obvious that the established new regulation and the statutory instruments for its implementation (such as the CPC’s Methodology) have not addressed the difference between the true anti-competition acts and the acts of unfair competition, nor their different relative weight and degree of public hazard, respectively. Instead, one and the same maximum amount of the sanction is stipulated. This statutory situation has even created conditions to impose higher sanctions for unfair competition, rather than for prohibited agreements and abuse of dominant position. This approach is totally unacceptable from a legal standpoint, given that the prototype of the sanction adopted by the new law does not concern the so-called ‘unfair competition’. Another argument to this end is that none of the sanctions in the Consumer Protection Act, which served as the source for the events of misleading advertising to be transposed into Chapter Seven of the CPA, were changed. Hence, among all violations under the Consumer Protection Act, only the public hazard of misleading and prohibited comparative advertising has drastically increased to such an extent that these infringements are now sanctioned by a fine of up to 10 percent of the total turnover of the undertaking for the previous year, instead of by a sanction of BGN 1,000 to BGN 15,000.

In light of all this, it is apparent that the new Competition Protection Act and the statutory instruments for its implementation introduce repressive measures in respect of business, and, rather than promoting competition, they create legally unfounded prerequisites for imposing unjustified and disproportionately high sanctions for certain types of violations. This is not only to the detriment of the free market, but also does not find support in the norms of acquis communautaire. For this reason, we believe that Chapter Fourteen of the Competition Protection Act, as well as CPC’s Methodology for Determining Sanctions, need to be revised so as to ensure an adequate sanctioning policy (proportionate to the public hazard of the violations) which, at the end of the day, will benefit the competition.

Vladimir Penkov

Svetlin Adrianov

For more information please visit http://www.penkov-markov.eu/