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New legislation regarding compensation for damages in competition law – part one

New legislation regarding compensation for damages in competition law – part one

As of 1st September 2017 the new Act No. 262/2017 Coll., on compensation for damages connected with competition law, became effective in the Czech Republic.

The new Act implements the Directive 2014/104/EU1 (the implementation period elapsed on 26th December 2016!) aimed to unify fundamental principles of enforcement of compensation of damages caused by an infringement of competition law provisions across the EU member states.

The Act introduces special legislation in relation to the general legislation contained in the Czech Civil Code (Act No. 89/2012 Coll.) and the Czech Civil Procedural Code (Act No. 99/1963 Coll.).

Subject of the new legislation

The new Act regulates (i) the obligation to compensate damages caused by the infringement of the Czech, the national member states and the EU competition law, and (ii) the application claims procedure.

As the Directive 2014/104/EU the Act relates only to two forms of the prohibited behaviour, i.e. to (i) the prohibited agreements between competitors (cartel) and (ii) any abuse of a dominant position (other types of infringement of competition law are not regulated by the Act or the Directive).

Definitions

The Czech Act as well as the Directive defines cartel as an agreement or concerted practice between two or more competitors aimed at coordinating their behaviour on the market or influencing the relevant parameters of competition through practices such as, but not limited to, the fixing or coordination of purchase or selling prices or other trading conditions, the allocation of production or sales quotas, the sharing of markets and customers, restriction of imports or exports or anti-competitive actions against other competitors.
Dominant position according to the Czech Competition Protection Act means that one or more competitors are able in respect to their market power to behave to a large extent independently of other competitors or consumers. An abuse of a dominant position may especially consist in: (i) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, (ii) concluding contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts, (iii) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage and (iv) limiting production, markets or technical development to the prejudice of consumers.
Right to full compensation
One of the most important aspects of the new legislation is the implementation of the principle of full compensation, which means that any natural person or legal entity who has suffered damage caused by the infringement of the competition law (either in the form of a cartel or an abuse of dominant position) is entitled to claim and to obtain full compensation of those damages.
Compensation according to this principle covers the right to compensation for (i) actual loss, (ii) loss of profit, and (iii) various interest payments (i.e. time value of money needs to be respected!). Nevertheless, full compensation shall not lead to overcompensation.
If there is no possibility to determine the precise value of the damage, then the court is entitled to estimate the value pursuant to its fair discretion of individual circumstances of the particular case. The aim of this new legislation is to reinforce the procedural position of the damaged party.

Multiple infringers

The new legislation also adopts general rules regarding compensation for damage caused by multiple infringers (already contained in the Czech Civil Code) and sets out that:

  1. in cases of an infringement of competition law caused by a joint action of multiple infringers (e.g. cartel), these infringers are obliged to compensate for damages jointly and severally; and
  2. infringers, who are obliged to compensate for damages jointly and severally, are obliged to settle with each other according to their participation in damages.

The new Act also introduces some exceptions from the general rules stated above, which relate to:

  1. so-called cooperating infringer in leniency programme (i.e. the participant in a secret cartel who voluntarily and independently of the other undertakings involved in the cartel cooperates with an investigation of the competition authority and who in return for it receives immunity from, or a reduction in, fines for its involvement in the cartel);
  2. so-called small or medium-sized enterprises2 (i.e. enterprises with less than 250 employees; with annual turnover not exceeding the sum of 40 million euros or with annual balance sheet not exceeding the sum of 27 million euros; and fulfilling the criteria of independence);
  3. an infringer participating in an amicable settlement with the damaged party (i.e. the person who concludes an out-of-court settlement or a court settlement with the damaged party).

Within the jointly and severally obligation to compensate for damage, these infringers are privileged in comparison with other infringers. In most cases they have to compensate for damage only in relation to their direct or indirect customers or suppliers, in relation to other damaged persons only in exceptional cases.

Special legislation regarding time limitation

Statute of limitation period regarding claims for damages is 5 years.

By Michaela Fuchsová & Magda Stárková

1 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union
2 pursuant Sec. 2 of the Act No. 47/2002 Coll., on aid to small and medium-sized enterprises and on amendment of the Act No. 2/1969 Coll., on the Establishment of Ministries and Other Central Government Authorities of the Czech Republic; and Commission Regulation (EC) No. 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises

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