Competition in Estonia: Prohibitions, Dominant position of the undertakings, Control of mergers and Unfair competition
Framework of commercial competition in Estonia is provided in the Competition Act adopted in November 2001. Estonian legislators working on that Act were following the EC competition legislation and competition guidelines issued by the European Competition Board were also partly implemented and are applied while handling specific competition violation cases. The essence of the competition regulation can be considered relatively new for Estonian legal climate but it has been acquiring more attention during the recent years and obtaining a significant role with regard to most of the current commercial activity branches.
Prohibition on agreements, concerted practices and decisions by associations of undertakings
Prohibition concerns agreements, concerted practices and decisions by associations of undertakings that have as their object, purpose or effect any restriction of competition. Following activities are objects of such prohibition, having a negative effect on competition:
- Directly or indirectly fixed prices or any other trading conditions, including prices of goods, tariffs, fees, mark-ups, discounts, rebates, basic fees, premiums, additional fees, interest rates, rent or lease payments applicable to third parties;
- A limitation of production, provision of services, goods markets, technical development or investments;
- Share of relevant goods markets or sources of supply. Here are also included restrictions on access for the third party to a goods market in question or any other attempt to exclude the person from such access;
- Exchange on crucial information that might be restrictive to competition;
- Agreeing on the application of dissimilar conditions to equivalent agreements, thus placing other trading parties at a competitive disadvantage;
- Enhance an agreement that is subject to acceptance by the other parties, with supplementary obligations having no genuine connection to the subject of such agreement.
It shall be noticed that Estonian legislation is in accordance with European Union legislation the abovementioned prohibitions, with exception of price fixing, do not apply to agreements and practices of agricultural producers unless competition is substantially restricted by such agreements, practices or decisions. Furthermore prohibition on the basis of exchange of information, application of dissimilar conditions and supplementary non-relevant provisions do not apply to agreements, practices and decisions that can be considered to be of minor importance. The term “minor importance” can be taken into consideration if the combined market share of the total turnover of the undertakings in question does not exceed:
- 15% for each party in the case of a vertical (undertakings operate at different levels of the production or distribution chain) agreement, practice or decision;
- 10% in total for all parties of a horizontal (undertakings operate as competitors at the same level of the production or distribution chain) agreement, practice or decision;
- 10% in the case of an agreement, practice or decision that includes concurrently the characteristics of vertical and horizontal agreements, practices or decisions.
Besides aspect of “minor importance” there is an amount of exceptions regarding prohibitions of commercial activity with regard to distortion of completion. In the list below some of those exceptions including also a block exemption are stated:
- Agreement, decision or activity contributes to improvement of the production or distribution of goods or to promoting technical or economic progress or to protecting the environment, while allowing consumers a fair share of the resulting benefit;
- Agreement, decision or activity that does not impose on the undertakings which enter into the agreement, engage in the concerted practices or adopt the decision any restriction which are not indispensable to the attainment of the objectives specified in abovementioned clause
- Agreement, decision or activity that does not afford the undertakings which enter into the agreement, engage in concerted practices or adopt the decision the possibility of eliminating competition in respect of a substantial part of goods market
- Block exemption is a general permission granted by the regulation of the Government of the Republic on the proposal of the Minister of Economic Affairs and Communications to enter into certain type of agreements (most of them specified in the previous points) without a danger of restricting the competition.
An undertaking which enters into an agreement, providing a decision or an activity which might be restrictive to competition can turn to exemptions but shall thus also present proof concerning compliance with all the conditions set forth. In case an agreement or a decision or part thereof do not fulfill the conditions for exemptions and can be found as restrictive to competition shall be admitted as void.
Dominant position of the undertakings
In accordance with the Estonian legislation an undertaking can be considered to have a dominant position if its position on the market enables it to operate to a considerable extent independently of competitors, suppliers and buyers. Thus dominant position may be presumed if such an undertaking stands for at least 40% of the turnover in the relevant market. Furthermore, the situation of a dominant position may include several undertakings operating on the same market thus jointly creating an independent environment and accounting for at least 40% of the relevant market.
The state or a local government may grant special and exclusive rights to an undertaking by which enable the undertaking to have a competitive advantage over other undertakings in a goods market or to be the only undertaking in the market. Procedure of granting such an artificial dominant position is granted by the Government of the Estonia.
Furthermore a dominant position of an undertaking might be determined by its ability to control an essential facility. This means that in case an undertaking possesses or operates a network, infrastructure or any other essential facility without access to which or the existence of which it is impossible to operate in the relevant market and this essential facility cannot be or is substantially difficult or costly to duplicate, the undertaking can be considered to have a dominant position.
Any direct or indirect abuse of the dominant position is prohibited. Such an abuse may often include following:
- Directly or indirectly establishing or applying unfair purchase or selling prices or other unfair trading conditions;
- Limiting production, service, goods markets, technical development or investment;
- Offering or applying dissimilar conditions to equivalent agreements with other trading parties thereby placing some of them at a competitive disadvantage;
- Making the entry into agreements subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such agreements
- Forcing an undertaking in disadvantageous position to enter into agreement;
- Unjustified refusal to sell (buy) goods or provide services.
Control of mergers
Pursuant to Estonian legislation mergers (Estonian legislation has a slight linguistic difference using the term concentrations) usually arise in the cases where one or several (jointly) undertakings acquire control over whole or a part of another undertaking. Furthermore there is an option of a natural person already having a part of an undertaking to acquire control through an enhanced partnership. Legal aspects of mergers are governed by the provisions in the Estonian Commercial Act.
Competition legislation requires that a merger has to be a subject of a Competition Board control according what the law provides. Yet the merger shall not be a subject of the Competition Board control in case it is controlled pursuant to Council Regulation 139/2004/EC on the control of mergers between undertakings unless appointed otherwise.
Estonian competition legislation sets out the requirement to notify the Competition Board of the relevant merger procedure before entry into force of the latter in case the conditions in the previous paragraph are fulfilled. Such a notification shall be submitted in writing and shall contain following:
- Information on parties of the merger;
- A description of the merger;
- Data concerning turnovers;
- Information concerning exercised control or owned holdings;
- Information concerning relevant markets;
- Objective description of the effect of merger on the relevant market;
- Information concerning associations of undertakings (where parties are members);
- Restrains of trade clauses;
- List of other competition authorities notified;
- Any other necessary information concerning aspects of the merger in question.
Finally it is important to bear in mind that the Director General of the Competition Board or his or her deputy may decide to revoke a decision to give a permission to merge if among the submitted documents can be found false or misguiding information or the merger procedure is executed violating legal provisions. Yet it does not deprive the parties from the right to submit a new application or appeal the decision of the Director General.
Unfair competition
There is a clear and definite prohibition of unfair competition in Estonia. In accordance with legislation unfair competition arises in cases of dishonest trading practices and acts which are contrary to good morals and practices. This may also include following:
- Publication and presentation of misleading information;
- Disparagement of a specific competitor or its goods or services;
- Misuse of confidential information obtained;
- Misuse of an employee or a representative of a competitor.
It might be useful to observe that in cases of misleading, offensive or derogatory information applied as a method of advertising shall be prosecuted in accordance with Advertising Act. Otherwise the existence or absence of unfair competition shall be determined in a dispute between parties held pursuant to civil procedure.
Tony Koivula, attorney at law of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Competition Law in Latvia, Lithuania, Estonia.
T: +372 61 91 000
F: +372 61 91 007