According to our flash report filed from the event, the following were the most important topics discussed. The presentations will be available on the HCA’s website.

• As far as the auxiliary threshold for investigating concentrations [Hungary’s Competition Act, Section 24(4)] is concerned, a HCA official said that it was used only once since it was introduced in January last year. In all of the six cases where clients requested a pre-notification hearing, the HCA determined that an intervention was not warranted, and the parties were not required to file a notice.

• Slovenia must be a cartelist’s paradise. The presentation by a representative of the Slovenian competition authority painted a rather chaotic picture of the authority’s procedural rules. According to the bittersweet presentation, the authority first adopts a resolution in a multi-phase public administration procedure. It may not impose a fine in this procedure, and the resolution can be challenged in court. Once the court case concludes, the authority can file a lawsuit against the infringing company under Slovenian criminal law, and a fine can finally be imposed when that case is concluded. All this begs the question: How does Slovenia satisfy the requirements of Regulation 1/2003/EC (the obligation to apply EU competition law efficiently) with these rules?

• The Austrian authority is also in the process of implementing a merger reform. It was interesting to hear that the Austrians use time (retail outlets within a 20-minute drive) as the basis for determining the relevant market in the case of a merger between grocery shops, as opposed to the Hungarian practice (where distance from a shop, expressed in kilometres, is used for this purpose).

• Significant attention (an entire panel discussion) was devoted to the issues of compliance and cooperation with NCAs (we will discuss the related Hungarian developments in a separate post). In addition to the leniency policy, every Visegrad country has differing levels of other arrangements that are designed to encourage cooperation with the local competition authority. Also, it was an interesting bit of statistics that a warning, an option that has been available since September 2015 [Competition Act, Section 78(8)], has been used by the HCA only once, in a consumer protection case. Hopefully, the HCA will soon start using this arrangement, which is available in the case of the first antitrust offence by SMEs.

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In the real estate category, the jury decided that CHSH’s entry entitled “Millennium Towers – A Triumph of Innovation” showcased the most innovative solutions. In a high-value real estate transaction, CHSH resolved the conflict of interest between the seller and buyer by introducing a warranty insurance scheme.

In the antitrust category, CHSH succeeded with its entry “Dawn Raids – A Special Tool in Antitrust Enforcement”. To raise awareness of this highly effective weapon at the disposal of competition authorities and to provide assistance to companies that might be or become the target of a raid, CHSH’s antitrust team produced a guidebook that gives an overview of the most important rules applicable to dawn raids (that is, unannounced on-site inspections by the national competition authority) in Hungary. CHSH has made the guidebook available free of charge on a dedicated website, providing written research papers and analyses of the topic. It also organised a business breakfast with guest speakers from the Hungarian Competition Authority to help companies prepare for antitrust investigations. The guidebook can be downloaded free of charge from www.competition.hu, where CHSH’s antitrust experts also regularly write a blog.

Mr Tamás Polauf, Co-Managing Partner of CHSH Dezső & Partners: “We’re very proud that after last year’s award, two of our entries this year have also won awards. The secret to our success may well be that innovation and client focus, –two of the key principles that our law firm operates by, – were very successfully implemented in these two projects“. CHSH would like to take this opportunity to thank our clients, in particular the clients of our real estate and antitrust teams because without them we could not have won either of these esteemed awards. We will continue to work on offering innovative legal solutions to our clients in all areas of commercial law.

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By now everybody knows that there are “influencers” in social media. In the HCA’s definition, these are people who have the ability to influence the opinion of consumers and share content on their own website, social media platform or on other online platform as ad hoc partners or dedicated “brand ambassadors”, regardless of whether the content is their own or a guest post. These influencers (youtubers, bloggers and vloggers) usually have committed followers on their online platforms (Facebook, Twitter, Instagram, YouTube, Snapchat etc.). We follow them, we take their advice, and we buy from the same brand as them. But do they really buy the products or do they just advertise them, maybe even as a regular business? We don’t know whether they get something in return, because their message to their followers is that they are the consumers of the product as well. This practice can qualify as unfair market practice under Hungarian law, because consumers might not be able tell whether the influencer shares his/her own opinion or experiences, or he/she uploads a picture or other content out of financial interest. Since there is a growing trend for companies to rely on agents for popularizing their services, products and brand name, it is important that such practices are incompliance with the laws, because influencers have now caught the HCA’s attention.[1]

Who are concerned?

Anyone, even a minor, who occasionally or regularly promotes products on his/her site, including social media sites.

What sort of content is affected by the problem?

The list is rather long; even a hashtag can constitute an unfair commercial practice, but it can also be an emoji, opinion, comment, link etc.

What can rate as consideration?

It can be any kind of incentive that the influencer receives in return for sharing the content. It can be a financial benefit, allowance, gift product, but even barter arrangement, where the influencer receives a free product sample for the promotion.

Commercial practice – what is it?  

Hungarian law defines commercial practice as a conduct, activity, omission, advertisement, marketing activity or any other commercial communication by a company or by a person acting on its behalf or in its interest that is intended to affect the sale of a product to consumers.

In the light of this, it is obvious that a typical influencer’s activity qualifies as a commercial practice, are therefore it has to be treated as one. This means that private individuals, including those under the age of 18, who share content online in return for any kind of consideration have to comply with the applicable consumer protection regulations.

What is the solution?  

It is important for the consumer to know that the shared content is an advertisement. So, when content is shared, the fact that it is done for consideration has to be marked in a noticeable, highly visible, clear, understandable and simple way.

First of all, the indication of the advertisement has to be in a right place; for example it cannot  be displayed in a section that is accessible after clicking on a “further information”, “read on”, “more” or similar link, because in that case consumers have to search for the indication. However certain hashtags, such as #advertisement, #paidcontent etc. can satisfy the requirements. On Facebook, it is useful to use the “branded content tag”, which displays the sponsor and the sponsored nature of the product automatically. Another requirement is that the sponsor’s brand has to be displayed as well, for example with the wording “sponsored by XY”. However, a simple acknowledgment and the indication of the brand are not enough, since they obviously do not indicate that it is a for-profit promotion.

If the promotion is not clearly identified as such, not only the owner of the site (i.e. the private individual who shares the commercial content) can be held liable, but the advertiser and even the company who contributes to the publication and formulation of the post as well.

It can be useful if advertisers set up contractual terms and conditions, systems and programs that can guarantee that the influencers who they formally hire or with whom they otherwise have a relationship are aware of the relevant regulations. It is also advisable for advertisers to create a system that allows them monitor whether the content shared is in compliance with the regulations and also enables them to intervene if necessary. To this end, both advertisers and influencers are advised to seek competent legal assistance.

Lili Albert

[1] http://www.gvh.hu/en/press_room/press_releases/press_releases_2017/the_gvh_s_first_case_concerning_an_influencer_is_c.html

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The German car industry’s troubles started with the diesel scandal in 2015. As everyone knows, it was discovered in 2015 that Volkswagen used various forms of manipulation to ensure that its diesel cars achieved lower pollutant emissions in environmental testing than under real-life driving conditions. The diesel scandal has affected almost the entire global car industry in one way or the other, and has resulted in a multitude of lawsuits and regulatory procedures. The intense regulatory attention may have caused VW to admit, after a dawn raid associated with a steel cartel, its participation in the cartel to the German competition authority in a leniency application. As things stand, it seems that the diesel scandal is a small element of a decades-long cartel in the auto industry.

The Commission joins the battle

The Commission’s officials carried out unannounced inspections at several German car manufacturers last summer and autumn. This was explained by earlier news reports according to which the five leading German car manufacturers, Volkswagen, Audi, Porsche, BMW and Daimler were suspected of having been involved in a cartel (in the cartel, the alleged wrongdoers referred to themselves as the Fünfer-Kreise or “circle of five”). As we saw, the case started when VW reported itself to the authorities and revealed that since the 90s, the manufacturers had had ongoing secret discussions and agreements on technological and supplier matters and on the costs of production in more than sixty working groups with the participation of more than two hundred employees. According to the news reports, the aim of the discussions and agreements was the elimination of competition. Der Spiegel, a German newsmagazine, reports that the five companies agreed on the selection of suppliers, the harmonization of productions costs of various parts and even on certain technical details of the retractable roof of convertibles.

Another interesting detail of the case with wide-ranging implications is that the automakers also agreed that the size of the storage tank of the AdBlue additive, which is designed to clean diesel cars’ exhaust gas, should be smaller than necessary in order to reduce their costs. However, the smaller tank was insufficient to allow the proper admixture, which in turn was the issue that ultimately triggered the diesel scandal in 2015 (the lower level of the additive led to higher emissions of pollutants in the case of diesel cars). On 20 October, the Commission announced that its officers raided a German car manufacturer four days earlier. The EU officers were accompanied by investigators of the German competition authority (Bundeskartellamt). BMW admitted in an announcement that they were the subject of raid. On the same day, Daimler AG issued a press release stating that they filed a leniency application with the Commission in connection with the case. On 23 October, the Commission announced that on that day, its officers once again raided the premises of the German automakers, including the offices of VW in Wolfsburg, Audi in Ingolstadt and Daimler in Stuttgart. The EU officials were once again accompanied by the investigators of the German competition authority, since the Bundeskartelamt also has its own investigation in the wide-ranging case. These visits are the first steps in the investigation of the suspected anticompetitive behavior but do not mean that the companies are in fact guilty. The investigation of such a high-profile and complicated case can last several years, and there is no fixed legal deadline for the Commission. The success of the investigation will, to a large extent, depend on the parties’ cooperation. As its, VW and Daimler have already indicated their willingness to cooperate with the Commission.

Serious consequences

Without knowing the details of the case, it is really hard to predict the outcome; however, it already seems obvious that if the accusations are proven to be true, the German car manufacturers will have to worry about more than the fines, even though those can amount to billions of Euros. Several lawsuits have already been filed against the five automakers in the US, while in Europe; the EU introduced a new directive just this year that makes it easier for the victims of a cartel to seek compensation for the damage or loss they suffered as a result of the infringement. Therefore, the car manufactures will have to face claims for damages that will even exceed the fines.

All in all, the German economy might be hit hard by the cartel case, since the car industry is a key industrial sector of one of the world’s leading economic powers. In any case, competition lawyers are watching with keen interest what the next developments in this complicated case will be.

Márton Kocsis, Lead competition law expert

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Case history

With its decision on 13 September 2017, the French Supreme Court (Cour de Cassation) opened new chapter in the issue of the validity of clauses that suppliers impose on their authorized distributors to prohibit sales on certain (primarily online) marketplaces such as  Amazon or E-bay.

Caudalie is a French company that produces cosmetics products and distributes them to pharmacies and drugstores. eNova operates an online platform called “1001 pharmacies” to provide sales opportunities to pharmacies. Caudalie noticed that some pharmacies sell their products on this platform, while the vertical agreements between them authorize the pharmacies only to selling on their own websites. Caudalie initiated a summary procedure against eNova because of the violation of the agreement. Caudalie won the suit, and eNova should have suspended the distribution of Caudalie’s products on its “1001 pharmacies’ website.

eNova submitted an appeal against the decision, and on 2 February 2016, the Paris Court of Appeals (Cour d’appel de Paris) rules that Caudalie limited market competition by only allowing the online sale of its products on the pharmacies’ own websites, because it restricted access to different platforms. According to the Court of Appeals, this also meant that the exclusion of platform selection in Caudalie’s contracts qualified as a serious restriction of competition. Therefore, the Court of Appeals overruled the prohibition on eNova’s sales.

The French Supreme Court disagreed with the decision of the Court of Appeals, and found that prior decisions by the German and French authorities cited as the basis for the decision were unfounded. The Supreme Court also emphasized that Caudalie had the French competition authority’s approval for the contracts that placed limitations on distribution channels.

The Supreme Court remanded to the Court of Appeals.

Online sale: what’s next?

When making the second decision, the Court of Appeals will be in the position to take into account the European Court of Justice’s decision in the Coty case. This much-awaited decision should answer whether the limitation of authorized distributors’ sales channels qualifies as restriction on competition or not.

At the same time, the Supreme Court’s decision has probably come as a surprise not only to eNova, which unexpectedly lost a case that had seemed to be won, but to the competition law community. After the Commission’s investigation of the online sector and another key French case, the Pierre Fabre case[1], authorizing manufacturers to exclude online sales from commerce seems to be a backward step. However, we are curious to see whether the fortunes of online merchants will turn in the Coty case or in the repeated French procedure, or we will return to the era when we have to put on a hat and a scarf in the cold to get a cosmetics product.

Lili Albert

[1] C-439/09 – Pierre Fabre Dermo-Cosmétique

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The Commission’s inspection started when MAN, another truck manufacturer, revealed the existence of the cartel in its leniency application. MAN, Daimler, Iveco, Volvo/Renault and Scania fixed the price of medium and heavy trucks. MAN received full immunity from the fine because of its cooperation. In a settlement procedure, the other manufacturers admitted their participation in the cartel, and so they were granted a 10% reduction from the fine, which was imposed by the Commission in the summer of 2016. Scania did not agree with the settlement, and therefore the procedure was continued against it on the basis of the normal procedural rules.

The Commission found that Scania and the other companies had shared information on senior management level, often in meetings during trade fairs, or through phone calls or e-mails.

It was established that:

• the manufacturers had set the wholesale price of the trucks in the EEA, and
• the manufacturers had agreed on the timing for the introduction of new emission technologies to just meet the increasingly strict European emissions standards, and to pass the costs of these new technologies on to customers.

The case is also remarkable because the collusion went on for 14 years in the entire EEA. The Commission pointed out that the companies involved in the cartel produce 91% of the trucks sold in Europe, and therefore their fixed prices had caused damage to a wide range of consumers. In another important consequence of the Commission’s findings, now that the cartel agreement is proven to have taken place, companies that bought, licensed or rented trucks can seek to recover the damage they suffered. The related financial implications cannot be quantified until the claims for damages are filed after a final decision is reached in the case, but it is certain that the manufacturers’ woes have not ended with the record fine, because the damage claims can exceed the fines many times.

As expected, Scania confirmed that it would appeal the Commission’s decision, so it will be quite some time before the case ends.

Márton Kocsis, Lead competition law expert

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Our firm’s attorneys contributed to the professional event as lecturers. Attila Dezső, the firm’s Managing Partner, gave an interesting presentation about the relationship between public procurement and competition law. The main message of his presentation was that public procurement law (which is ultimately grounded in German law) is related to competition law at its core. One of the most significant issue is the connection between the EU directive designed help private actions for damages in the case of antitrust infringements and claims under private law concerning public procurement violations, where, as Mr Dezső pointed out, the Directive relies in many instances on case law concerning public procurement violations.  A procedure known as self-cleaning, a recent addition to public procurement law in Hungary, is designed to strengthen competition by allowing companies that were fined and disqualified from public tenders due to a cartel infringement to prove their trustworthiness by describing the actions they took after the infringement and to demonstrate that they have gotten rid of their bad practices.

Márton Kocsis, our firm’s competition law expert, led a panel discussion about the changes in merger regulations. The panel include Attila Dudra, a member of the Hungarian Competition Authority’s (HCA) Competition Council and Dr Adrienn Piskóti, transaction expert of a major international law firm. The topics included matters that are attributable to the unique features of competition law, such as the standstill clause and merger-related restrictive practices, which largely determine the legal steps that an M&A expert will structure an acquisition. Members of the audience also engaged in a lively discussion with the panel, especially about the validity of merger contracts under civil law in the period before the HCA actually authorises the transaction.

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Dawn raids are special tool in competition law: as part of their mandate to combat cartels that are considered particularly harmful for the public, competition authority officials can enter and search the premises of any company, make copies of documents, phones and entire IT systems and can even access the private correspondence of executive officers. The overwhelming majority of cartel cases start with a dawn raid, which can mean that as much as 40 or 50 Hungarian companies go through one in a single year.

In a conference organised jointly by CHSH Dezső & Partners and the German-Hungarian Chamber of Industry and Commerce, prominent experts of the issue and officials from the Hungarian Competition Authority (HCA) gave presentations about the practices that the HCA has followed in unannounced on-site inspections and highlighted mistakes that companies can make during a dawn raid and that can potentially result in heavy procedural fines. Nothing illustrates the effectiveness of dawn raids better than HCA’s own calculations, which show that the Hungarian economy saved HUF 98 billion between 2009 and 2014 as a result of zej HCA’s efforts to uncover cartels and penalise the infringers.

In his introductory remarks at the event held on 12 June 2017, Tamás Polauf, Co-Managing Partner of CHSH Dezső & Partners, emphasised that legal advice on these matters is not intended to show companies how they can evade the rules and find loopholes, but to make sure that they are aware of their rights and obligations and that they are prepared for a potential dawn raid. The primary goal is always to avoid any infringement of competition rules that could serve as the grounds for a raid. If this is not possible – as even the most prudent companies can commit an infringement (whether due to the actions of an employee who is just bit too overeager or too willing to cross red lines to earn a year-end bonus, or as a result of wrong interpretation of an ambiguous rule) – the next best option is to be prepared for the HCA’s visit.

Cooperation pays

 In a slight departure from the traditional setup, the keynote speech was given jointly by Anna Miks, a member of the HCA’s Competition Council, and Márton Kocsis, CHSH’s leading competition law expert. The speakers pointed out that the objective of this unorthodox format was to convey information about lessons learned in dawn raids by both the authority and legal counsels who represent the companies that are subject to the raids. As Ms Miks emphasised, it is for the HCA’s benefit if they can work with prepared, professional and cooperative companies during an investigation.

Cooperation by a company that is under investigation is not only on obligation, but also an opportunity; and probably this was the overall message of the presentation. Mr Kocsis emphasised that a cooperating company can have an easier time enduring an unpleasant visit from the HCA, and a civilised discussion on professional terms with the investigators will not jeopardise its chances of effective defence.

Whistleblowers can receive 1%

 You should not be surprised if the HCA has very detailed information about your operations: they may have carried out their own reconnaissance or may have been informed by a leniency applicant (who may be exempted from fines in return for disclosing the existence of the cartel before the investigation begins) or a whistleblower. A whistleblower can expect to receive 1% of the fine if he or she provides evidence that is indispensable for the HCA to launch its investigation. As Ms Miks emphasised, the HCA’s investigators may even search private homes if they have the necessary warrant.

A receptionist might be key to avoiding fines

 Mr Kocsis pointed out that receptionists and security personnel have a very important role in a dawn raid because they are the first to meet the HCA investigators and they are responsible for letting the investigators enter the company’s offices. The investigators may rely on police assistance to gain entry, and therefore they cannot be prevented from doing so for long. Mr Kocsis noted that the HCA also has the power to examine private phones, tablets and satnav devices if they contain evidence of the alleged infringement. It is very important to rely on the assistance of competition law experts in during a raid, because lawyers who are not very well versed in this field can easily become hesitant to act in the face of the special procedural and substantive rules of competition law, no matter how well they know their own area of expertise. Communication with an attorney is subject to legal professional privilege and is exempt from the HCA’s investigation as long as it is associated with the company’s right to defence. During the conference, participants raised the interesting question of how the application of the proposed new Act on Attorneys to in-house counsels might impact the issue of legal privilege (communication with in-house lawyers is not exempt from investigations under Hungary’s Competition Act or European case law).

Broad powers for the HCA 

Ms Miks stressed that the HCA has broad powers in a dawn raid: they can seize, copy and seal any evidence (in an EU investigation, a company that was eventually cleared of any wrongdoing at the end of the procedure had to pay a fine of EUR 38 million for breaching a seal), and may make copies of entire mailboxes and servers. The HCA has the capability to restore deleted and manipulated files and monitor all communications channels (chat, text and other messaging services). Therefore, attempting to delete or otherwise hide data is not a good idea. Similarly, claiming diplomatic immunity by presenting a diplomatic passport or claiming privileged treatment for state secrets, as some people have tried, has little chance of success. Ms Miks noted that in such cases the HCA contacts the Ministry of Foreign Affairs or the relevant intelligence agency to confirm whether the claim has any legal basis, and if it does not, they will impose a procedural fine.

A handbook to help

 In his closing comments, Ms Kocsis cautioned that the real challenges only start after the raid ends. Once the investigators leave, companies should sit down with experts and identify any evidence and documents that can represent competition law exposures and immediately start working on formulating a defence strategy. The decision on whether to submit a leniency application should be made as soon as possible, because a company that shows “penitence” earlier than others can count on a greater reduction of the fine, and therefore every minute counts. Finally, Mr Kocsis said that a guide to dawn raids prepared by CHSH’s competition law group and the recently launched www.competition.hu website can offer useful practical advice not only to competition law experts but to corporate executives and in-house counsels as well.

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The investigation concerned certain practices by the alleged infringers in the construction of the M4 motorway, because the HCA suspected that the tenderers acted in concert during the relevant public procurement procedure in order to restrict competition.

We advised our clients during the investigation in connection with a large number of procedural actions that also required knowledge of construction and public procurement law. The HCA concluded the investigation without any findings. Our clients greatly benefited from the fact that in addition to the assistance of our competition law group, they could also rely on the advice of our highly experienced public procurement experts. It is important to note that the HCA had to accept our clients’ arguments and conceded that its suspicion was completely unfounded.

“We are pleased that we had the opportunity to assist our clients in the construction industry in the M4 cartel case. It is very important for us that we successfully assisted our clients, who won their contracts in a fair competition, in clearing themselves of the charges brought against them” said Tamás Polauf, the leader of CHSH Dezső & Partners’ competition law group. Márton Kocsis, lead competition expert, and Zoltán Kolodzey, associate, also participated in the procedure.

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In 2015, the HCA made a decision on a total of 10 cartel cases and launched 12 new investigations. The amount of fines in cartel related cases exceeded HUF 3.3 billion in 2015. In seven of the 10 closed procedures, the investigation started with an unannounced on-site review, otherwise known as a “dawn raid”. In 2015 and 2016, the Commission, which oversees infringements under EU competition law, imposed more than EUR 4 billion in fines in 11 cases for cartel infringements, and started each case with a dawn raid.

What is a dawn raid?

Competition authorities have wide powers to investigate cartels with a harmful effect on the public good. Dawn raids are a special tool in competition law: competition authority officials can enter and search the premises of any company, make copies of documents, phones and entire IT systems and can even access the private correspondence of executive officers.

Additionally, evidence obtained in a raid can be used in a criminal procedure against the relevant company’s management in certain cases – in Hungary cartel infringement committed in public procurement procedure is punishable by up to five years in prison – and the company can be disqualified from the relevant public procurement tender. Clearly, any company that is in the focus of the HCA’s or the Commission’s attention is exposed to serious financial risk.

Even investigators are not allowed to do everything – SMEs in the crosshairs

The notion that companies that suffer a dawn raid need proper help and assistance, sometimes even before the raid takes place, is supported by the latest EU case-law. As a consequence of an investigation by the Commission against Deutsche Bahn, the European Court of Justice ruled that the powers of competition authorities during raids are not unlimited. Deutsche Bahn’s lawyers successfully argued that the Commission’s officers overstepped their authority when they had copied documents that were not connected with their original suspicion. In the competition law enforcement jargon, this is known as a “fishing expedition”.

However, not just multinational companies have to fear down raids anymore. The HCA has started to visit SMEs in growing numbers, and it appears that no business sector is safe for companies accused of cartel activities. Over the years, the HCA launched investigations into road salt spraying, contact lenses, airborne mosquito control, on-line cash registers and driving schools. These diverse markets are connected by the fact the companies investigated were Hungarian SMEs. Experience suggests that SMEs are not prepared for handling a dawn raid immediately and professionally.

The rules of the raids are changing

A modification of the Competition Act that enables the HCA to conduct raids in case of mergers (larger M&A transactions are subject to the HCA’s approval) makes the topic even more important. As opposed to cartel cases, merger cases are more amicable procedures based on cooperation between the authority and the companies, where each party has an interest in completing the procedure as soon as possible.

However, as the leaders of the HCA noted in a recent conference, the authority suspects that the parties in M&A transactions often hold information back in order to obtain the HCA’s approval more easily. When a company is suspected of holding back information, the HCA’s investigators can raid its offices. In these kinds of cases, it is advisable to seek advice from a specialist in order to have protection in the face of the HCA’s broad powers, say the experts from Dezső & Partners.

Expert legal representation can have the greatest importance during the raid itself, because even the management of the company may not be aware of what are they are lawfully allowed to do in this kind of situation and at what point the HCA’s investigators might be overstepping their authority. In addition, as the European cases shows, competition law experts can influence the outcome of the entire procedure with planning a post-raid defensive strategy.

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