The article was published with some editorial changes in digest “Commercial and contractual law” issue 9, 2015

On July, 2015 on second hearing was adopted amendment in the Competition Protection Act (CPA). Similar amendment was adopted by the National assembly in 2014, but the president vetoed them. The amendment, adopted in 2015 in comparison to this in 2014, is more limited towards the expansion of the scope of the control that the Commission on Protection of Competition (CPC) exercise, but they introduce a notable structural change – the members of the CPC could not be elected for second term immediately after the first.

The changes affect mainly the expansion of the scope of the control that CPC exercises on undertakings with certain significant role on the market. They are focused primarily on the group of forbidden activities that are associated with certain unilateral conduct of undertakings which regard to its position on the market are able to distort the competition on the relevant market or damage the interests of their partners.

The expansion of the regulatory intervention of the CPC over the activities of conditionally speaking “larger” undertakings on the market is about the range of enterprises whose unilateral activity is subject to regulatory control in terms of possible abuse – alongside the existing control over the undertakings with a “monopolistic position” and “dominance” is introduced a control over the undertakings with a “stronger bargaining position”.

Unlike the originally proposed bill, in which it was foreseen for undertakings with “a significant market power” (this term has dropped out in the adoption of the bill from 2014) to apply the same prohibition as a dominant undertaking, the finally adopted approach is another. The prohibition of abuse with a “stronger bargaining position” is formulated in a way which is different with the one of the prohibition of abuse with monopolistic and dominant position.

It is necessary to outline that the adopted in 2015 amendment, unlike the proposed bill in 2014, which was not adopted, do not widen of explicitly the actions listed as prohibited of the undertakings with dominant and monopolistic position on the market. However, it should be pointed out that the text, with which in the bill from 2014 was introduced a new concrete manifestation of abuses of the dominant undertaking, can be assessed as editorial and clarifying. According to that text, it was explicitly identified as prohibited the unjustified direct or indirect impact on the undertaking having the purpose or effect his removal from the relevant market. The text has focused on this form of abuse, but prior to its formulation there had been no doubt that such actions represent the so-called “structural abuse”.  Art. 21 of the CPA governing the prohibition of abuse of dominant position, has always been clear that it includes a non-exhaustive, indicative list of prohibited actions, and prohibited is any action of the dominant undertaking which has the purpose or effect to prevent, restrict or distort the competition and to affect the interests of consumers.

Very strong expansion of the control carried out by the CPC is made in the special Food Law. The amendment in it is made precisely with the changes in the CPA and in the context of these changes. They govern explicit requirements for а purchase contract for foods, intended for subsequent sale. There is a prohibition to include certain conditions in these contracts, which is connected directly to the free competition. The amendment could be described as introducing special rules concerning “vertical restrictions on the competition”, which are applicable in the food trade sector, as well as special rules related to certain potential abuses with dominant position on the market. In details the amended Food law provides that such contracts shall not include conditions, prescribing that either party may not offer or buy products or services to or from third parties or to propose the same or better trade conditions to third parties. The amended Food law does not allow sanctions in these contracts for providing the same or better trade terms and conditions to third parties. Additionally there are prohibitions for terms that allow unilateral changes of the contract without explicitly describing the conditions, as well as remunerations for unaccomplished services and transmission of unjustified or disproportional risk to either party. Special rules for the terms of payment are added and an explicit prohibition for conditions in these contracts that prevent a party to transfer its receivables to third parties.

Part of this amendment is adopted in order to prevent vertical restrictions on the access to the market and to prevent vertical restrictions of efficient and effective competition. Unlike the general rules of the Protection of competition act and especially unlike the prohibitions of agreements, restricting the competition, where every single agreement is assessed in the overall context of the market, in some cases depends on the market shares of the parties, on the structure of various vertically connected markets etc., amended Food law contains provisions that declare a condition is void, if it is in violation of that prohibition. This, by the author’s opinion does not mean that, if such condition is void, there is violation of the prohibition of cartels. The same conclusions are applicable to the prohibition of abuse of monopoly or dominant position, or “stronger bargaining condition”.

After the amendment in CPA Food law also provides the establishment of National advisory council for better functioning of the chain for food distribution and creation of Conciliation committees. One of the tasks of National advisory council is providing standpoints, opinions and recommendations about problems, established within the chain for food distribution and with projects of legislation, including their application. Conciliation committees cooperate for out-of-court dispute resolution between food producers and traders, including adherence to good practices and not exercising unfair trade practices.

In comparison, in the bill from 2014, which was not adopted, was foreseen an obligation for a food retailer with a total turnover in the preceding year, over BGN 50 million, who buys foods intended for subsequent sale in certain food trade facilities to draft a model contract and / or general conditions for the supply of food and submit them to the Commission on Protection of Competition for a preliminary assessment. However, it should be pointed out that the draft law, which was proposed before the bill from 2014, had provided a preliminary assessment of all common terms and contracts of undertakings, regardless of the sector in which they operate, if they have realized in the previous year a turnover of over 50 million BGN. In the adopted by the National Assembly act in 2014 this very strong expansion of regulatory control was dropped out.

A stronger bargaining position.

Art. 21 of the CPA provides certain prohibitions and it lists the actions that are punishable under the law. These actions are not prohibited for any undertaking on the market, but only for those with monopolistic and dominant position. On the other hand the law in Chapter VII regulates the prohibition of the so-called “unfair competition” – this prohibition relates to any undertaking which carries out economic activity and acts or omissions at odds with good faith commercial practice, which action or omission harms or may harm the interests of the competitors. Unfair competition can perform any undertaking no matter if it has a certain market position. Damaged by the acts of unfair competition, however, can only be competitors of the offending undertaking. Proceedings for unfair competition could not be led by a person who is not in a relationship of competition with the unfair market participant.

With the amendment of June 2014 is introduced a new prohibition and it is the prohibition of abuse with a stronger bargaining position. The approach to this prohibition is significantly closer to the regulation of the prohibition of abuse with monopolistic or dominant position – certain actions have been prohibited, but only for such market participant who has a certain market position. On the other hand, the prohibition itself is described in a manner closer to the unfair competition – for example, as in the unfair competition, for there to be a violation is introduced a requiring the actions to be in a violation of the good faith commercial practice. Unlike the rules for unfair competition, with the new prohibition the violating actions or omissions should be in infringement not on the interests of the violator’s competitors, but on the weaker party in the bargaining and on the consumers. Surprisingly the law provides cumulative infringement on the weaker party in the bargaining and on the consumers’ interests, not alternative. As far as administrative penal liability is strict, this formulation of the provision probably would give grounds for imposing administrative penal sanctions only if there is infringement on both interests.

When comparing the new prohibition with the existing until now, it should be noted that the legislation prescribes the proceeding for establishment of administrative violation to be the lighter procedure like that one for unfair competition, but not the more complicated, applicable for dominant position abuse and cartels.

To assess whether an undertaking would fall “under the attacks” of the new statutory prohibition, it should be considered in the first place whether the same has a stronger bargaining position. It is extremely important that this verification must be made not generally for the undertaking, but in connection with a particular legal relationship. It is appropriate in this regard to be made a comparison with the assessment whether there is a dominant or monopolistic position, what has been done so far.

In order to establish if an undertaking would “fall under the attack” of the new prohibition, firstly there should be an assessment whether it has a “stronger bargaining position”. It is highly important that this assessment have to be made not as a general rule, but only considering certain legal relationship. That is why a comparison with establishment of monopoly and dominant position is useful.

The assessment about a monopoly position was not a difficulty, as far as the law defines as a monopoly position of an undertaking, which by law has the exclusive right to perform a certain type of economic activity. Therefore, the determination of whether an undertaking has such a position is limited to verifying whether there is a legal prohibition another undertaking to perform the same activity.

The law defines a dominant position as the position of the undertaking which, in view of its market share, financial resources, opportunity for market access, technological level and economic relations with other undertakings can hinder the competition on the relevant market, as it is independent of its competitors, suppliers or buyers. The most important is that the undertaking has the opportunity to hinder the competition in the relevant market, and this possibility follows the fact that the undertaking is independent of other market participants. Therefore the CPC focuses on economic independence in evaluating whether there is such a dominant position. The dominant position itself is not prohibited, but abuse with it is prohibited.

Until the changes in the CPA these are the two categories of undertakings that could be punished for an “abuse”. Now, in addition, there are prohibitions for abuse with a stronger bargaining position, although this position has different characteristics compared to the monopolistic and dominant position and the prohibitions themselves are different. The finally adopted bill does not contain definition for “stronger bargaining position” – it is only described when the actions can be assessed as unfair. It should be pointed out that when it comes to the cross-border cases, EU law does not deal with this concept. For the cases which concern trade between Member States, punishable for abuse is only the behavior of undertakings with monopolistic or dominant position, but not that of an undertaking with a stronger bargaining position. European competition law does not use the Institute of unfair competition, too. Immediately, however, it should be noted that the European Community law expressly permits (art. 3, para. 2 of Council Regulation № 1/2003) in this area the Member States to apply to cases of national dimension stricter national law. It can be assumed that with the adoption of the amendment, Bulgarian competition law becomes exactly such stricter national law, compared to the European.

The finally adopted bill does not contain definition for “stronger bargaining position”. It is provided, including with examples, when an abuse appears and also how to assess if there is a state of “stronger bargaining position”, but there is no definition.

To determine the state of “stronger bargaining position” law requires taking into consideration the structure of the relevant market and legal relationship between the concerned undertakings, the level of dependency between them, their activity and the difference in the scale of this activity, the probability for finding alternative trade partner, including the existence of alternative supply sources, channels for distribution and/or clients. It could be said that state of “stronger bargaining position” exists, when the trade partners of the enterprise depend on it, because of the structure of the considered market and legal relationship between the concerned undertakings, the level of dependency between them, their activity and the difference in the scale of this activity. Nevertheless, the finally adopted provisions do not obligatory require such a dependency, but only require taking it into consideration.

Immediately are noticed some specifics:

• The relation between the abuse of dominant position and the abuse of a stronger bargaining position is not regulated. It could not be assumed with certainty that if an undertaking has a dominant position and performs the described in the new art. 37a LPC activities, then its behavior would also constitute an abuse under the currently existing regulations. However, in the general case, an undertaking that is independent of the other participants in the relevant market or related markets, should be in such a position that can make its contractual partners dependent on it and, generally, in stronger position. It derives from it independency from them. That is why practically, the novelty concerns undertakings, not so strong that they have a dominant position, but enough to be in stronger bargaining position. The broad framework for the concept of “stronger bargaining position” on the other side creates probability in certain cases actions, which are not punishable as an abuse of monopoly or dominant position, to be violations of abuse of “stronger bargaining position”. As the undertaking with dominant position probably would be also with “stronger bargaining position”, in that case it would be a violation under the new Art. 37A.
• While the monopolistic and the dominant position are market position that uniquely defines the place of an undertaking on the market and refers to the entire market, then a stronger bargaining position concerns the relationship between separate participants, nevertheless in the final redaction are added many criteria for establishing stronger bargaining position. But the main focus of consideration is the characteristics of the relevant market’s structure on one side and the relevant legal relationship between the two enterprises on the other side. An undertaking does have a monopoly or dominant position or does not – this is its position of independence of the relevant market. In the concept of “stronger bargaining position”, the comparison is with a particular trading partner ( this is not clearly set in the provisions of the law, but interpreting the law, it could be determined that relations between consumer and trader are not included ) I.e. the undertaking may have such a position with regard to a particular partner, but does not have the same in relation to another. From the text of the new article it nevertheless necessarily follows the clear conclusion that the law protects only those partners who are in such a weak bargaining position, but not other market participants. Moreover, the law is not interested in the general distribution of power between the two contracting undertakings but in the particular legal relationship. By this follows the extremely important conclusion that in any particular transaction is possible for the CPC to conclude that such a situation exists, although it is possible in a previous transaction between the same parties to have been established that such a situation does not exist.
• Another feature again in this regard is that while the monopolistic and the dominant position are related to the relevant market, then for the “stronger bargaining position” is not so important the concept of relevant market, despite the fact that as a criterion for the assessment if there is a stronger bargaining position is used the structure of the market. Even more – the idea of the arrangements for this new position of the undertakings is such that the abuse usually occurs in the related markets. It is not excluded, the trading partners in the stronger undertaking to be also its competitors in the relevant market in which it operates, but it is logical for them to act on the upstream market (to be its suppliers) or to operate on a downstream market (to be its customers). In that regard there is a significant difference with the unfair competition in which protection can seek only an undertaking which is a competitor of the offender.
• In contrast to the dominant position, in the stronger bargaining position, the law does not require the possibility of preventing competition, nevertheless for both abuses infringement of the interest of consumers is required for imposing a sanction. The absence of this requirement is understandable insofar as the new text protects the interests of the particular other weaker party but not in a more global scale of the competition and the consumers

As with the dominant position, in the stronger bargaining position, the main question that will need to be answered in determining whether there is this specific position of the undertaking, is the issue of the dependence. It has to be noted that in the final redaction establishing a stronger bargaining position is possible even without dependency. The difference is that in the presence of the dominant position, the rated undertaking is independent of its competitors, suppliers or buyers, and this gives it the possibility to hinder the competition. Practically this means that the undertaking may undertake any decided behavior without the need to comply with the competitive pressure or pressure from suppliers or customers.

In the stronger bargaining position, the law does not examine the question whether the stronger undertaking is independent of the others. Such an independence do not need to be present. With the regulation of the new prohibition, it is envisioned such a situation in which one undertaking have the ability to force another one in a particular case, to follow an exact behavior or to agree with conditions imposed by it. This is so, when one of the parties in a particular negotiations have such a position, that may impose to the other certain conditions and the other party do not have the possibility or would be inexpedient to disregard the so imposed conditions. With the changes it is actually aimed to not be allowed such an undertaking to operate wrongful its suppliers or customers.

In contrast to the previous non published amendment, the current one does not provide the designation of undertakings with a stronger bargaining position to be carried out in accordance with the methodology adopted by the Commission. Therefore, before the accumulation of practice regarding stronger bargaining position, it can only be assumed on the basis of accumulated Bulgarian and European practice, and based on previous public appearances of the Commission of how the CPC will apply the law in this part. The CPC has had an occasion to comment on how it would apply the concept of a “significant market power” and on this position of the CPC could be drawn conclusions for future law enforcement and with regard of a stronger bargaining position.

Therefore, it can be assumed that in future cases of CPC “stronger bargaining position” will be “connected and viewed in the context of the concept of “economic dependence” whose existence puts suppliers and buyers into a  weaker market position compared to its trading partner, creating an imbalance in their position in the negotiation of commercial terms and the execution of their contractual relations.” CPC will probably adopt “the determination of presence of “economic dependence” as a main question for the analysis.

Of particular importance in this regard is the categorical understanding of the CPC in accordance with European practice and the practice of other European institutions on Protection of Competition that the independence of the concerned undertakings always has an economic nature and therefore … cannot be a priori outputted, and should therefore be identified in terms of individual undertakings case-by-case. As stated above, this understanding is even more valid for the stronger bargaining position than for the dominant position or for “the significant market power”.

            Although the stronger bargaining position is a situation characterizing specific relationships between particular parties, in assessing whether it exists, the CPC must comply with the market structure. Therefore certainly for the Commission will matter the market share of the concerned undertakings, the number of competitors, as well as the definition of the relevant market. In general, the relevant market includes certain goods (services) in a defined territory in a way to have an interchangeability, i.e in case of small but significant non-temporary increase of prices of particular good (by particular competitor), the consumer would have bought another good falling within the relevant market, or would have bought the good from elsewhere (by another competitor) falling within the relevant geographic market. When the goods are interchangeable with each other, they fall in the same product market. Unlike the evaluation at the dominant position where the market share is considered the most important criterion, in assessing the presence of a “stronger bargaining position”, the relative weight of this criterion can be expected to be considerably less. In assessing whether there is a particular stronger position, the CPC will have to also assess the potential competition and barriers of entering the market, the number of alternative suppliers or buyers of the relevant undertaking and etc.

It should however be noted that with these assessments, of utmost importance is expected to be the position of the other undertaking, which is said to be in a weaker position. In assessing the dominant position, the CPC has always followed to assess the so-called “countervailing buying power”, but with analyzing of “a stronger bargaining position” it is completely natural the meaning of this criterion to increase exclusively. On one hand it is possible that the stronger undertaking to be actually the buyer in the transaction – in this case the analysis would focus mostly on its position. On other hand, if the other party is a provider, then to be established that it is in economically dependent position, a detailed analysis of its position on the market in which it operates, should certainly be made too. In general, although the law talks about a structure of the “the relevant market”, it can be expected that in most cases, the analysis will be in at least two vertically related relevant markets.

From the regulation of the “stronger bargaining position” follows that with the analysis of the CPC will be reported exactly what deal is in question, as well as will be reflected all aspects of the activity of the undertakings, and also on its scale. The CPC however, cannot be considered as a legally restricted on which criterion to take into account.

Abuse with a stronger bargaining position.

            The prohibition according the amendment is about any action or omission of an undertaking with a stronger bargaining position, which is in contradiction with the good faith commercial practice and harms or may harm the interests of the weaker bargaining party. As actions in contradiction with the good faith commercial practice in the Law is described the action without objective economic grounds as an unjustified refusal to be supplied or purchased goods or services, charging unjustified onerous or discriminatory terms or unreasoned termination of commercial relations.

By the author’s opinion these provision do not establish precise rules and it should be paid attention to several main aspects:

• Punishable are the acts in contradiction with the good faith commercial practice. According to CPA “Good faith commercial practice” shall mean the rules determining the market behavior resulting from the laws and the ordinary commercial relations and not infringing the good morals. In other words, having regard the new article, any action that violates any other law or violates good morals and is made by an undertaking in a strong bargaining position may fall under the blows of the law. However the second sentence provides which actions are considered male fide. The explicit citing of good faith commercial practice suggests that the definition of it in the additional provisions is applicable. Nevertheless, the second sentence unveils, that the legislator’s will probably was to give another content of this concept in connection with the stronger bargaining position. If that is true, then the legislator should not use a legal notion, especially a one, regulated in the same law. The future practice of CPC and the Supreme administrative court will show how this text will be applied.
• The new prohibition proclaims as mala fide actions, which has no objective economic grounds. By the author’s opinion that is very wide concept, which is prone to broad interpretation and gives the Commission and the court wide margin of appreciation whether an abuse has been done.
• For the violation of this text is needed to be threatened the interests of the weaker party and the consumers. As it was commented before, this requirement for cumulative infringement of interests could be interpreted as limitative towards the possibility of the Commission to establish a violation. From the longstanding practice of the CPC in applying the prohibition of unfair competition can be concluded that it would not be necessary to establish that such damage have occurred. Fully enough for punishing the stronger undertaking is the real danger of such a damage to exist. This understanding gives а quite wide possibilities to the CPC to establish an occurred violation in any given case.
• The listing in the new composition of the violation is exemplary. Unjustified refusal to be supplied or purchased goods or services, charging unjustified onerous or discriminatory terms or unreasoned termination of commercial relations are only typical examples of actions without objective economic grounds and therefore unfair. In any such a case, it can be assumed that there is if no harm of the interests of the weaker party in the negotiations, then at least a real possibility of such a harm. But even if there is no any of these typical manifestations of abuse, any action of the stronger undertaking, which do not have objective economic reasoning (or using the legal definition – in contradiction with the good faith commercial practice) and threatens the interests of the weaker undertaking and the consumers would be a violation. The assessment is carried out for each particular case. That is why there is no prior certainty that if an undertaking does not perform any of these actions, the same will not be penalized.

In case of violation of the prohibition is provided an imposition of a pecuniary penalty of up to 10 percent of the offending undertaking’s turnover  from the sale of the product subject to the offense for the previous year, but not less than 10 000 BGN. When there is no turnover realized, the Commission imposes a fine of 10 000 to 50 000 BGN. It should be pointed out that an interesting approach was chosen. Regarding the prohibition of abuse of dominance is completely natural the sanction to be according to the part of the activity if the undertaking that is associated with the particular commodity. This is because, as pointed dominance always affects a relevant market i.e. relates to interchangeable goods / services. When an abuse of a stronger bargaining position is analyzed, however, is not considered the extent interchangeability of products so determination of turnover to be taken into account is more complicated. Strange legislative approach is the sanction to be dependent on the turnover of sales of the product. It looks as if the legislator believes that it is more likely the abusive undertaking to sell the goods to the other party. However, this is not mandatory. It is fully real this company to purchase goods from the weaker one. The regulation of “bargaining power” does not include a requirement the stronger undertaking to be a seller. Provisions on liability, however, can not be interpreted broadly, and the Commission will be forced to account precisely turnover from sales of the product. It should be pointed out however, that if the offender is a buyer, then the turnover to be taken into account, is realized in the related, but still another market and not in the market in which the abuse occurred.

It is interesting that there is a minimal amount of the penalty – if the enterprise has realized small turnover, the lowest possible penalty is 10 000 leva. This approach is positive, although it gets strange result, such a minimum exists only in relation to this offense, but not in bans of abuse of dominance, anti-competitive bargaining, unfair competition, unauthorized concentration.

It is important to bear in mind that should be taken into account the whole turnover of the realization of the product, not just turnover in the relationship between the two parties concerned. CPC should protect the weaker trading partner, but the calculation of the fine takes into account revenues from any other undertakings.

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In conclusion it can be said, that the adopted amendment aim to expand the scope of the regulatory control over certain stronger undertakings. In their final adoption, however, provisions sets more limited towards the expansion of the scope of that control in comparison to the draft bill and the bill from 2014. Despite adding the concept of “stronger bargaining position”, there is no legal definition for it. In addition, this legislation puts some questions on the matter of application of the new prohibition, which are to be answered in the practice of CPC and the Supreme administrative court. There are also significant changes, introduced in the sector of food trade.