Are the Portuguese antitrust sanctions sufficient to guarantee the proper functioning of the internal market?

  • Home
  • External Source
  • Are the Portuguese antitrust sanctions sufficient to guarantee the proper functioning of the internal market?
Isabel de Paiva (master’s student in European Union Law at the School of Law of the University of Minho) 
▪           

Competition and free economic initiative structure the regulation of markets. In a legal order that follows and preserves economic freedom – that is, in a market economy, or more precisely, in a ‘social market economy’ such as the European one – competition and free economic initiative end up boosting economic development and growth. The promotion of free enterprise is largely underpinned by the existence of competition (and vice versa). Competition promotes innovation, better allocation of resources between economic agents and, to that extent, better satisfaction of consumer interests.

     In any case, and regardless of the economic function and virtues of competition, there is also a sense of economic justice: competitive conditions must naturally be equal for all, and must not be distorted to the advantage of a few and to the detriment of the collective interest – which consists of the best possible allocation of available resources. This leads us to consider the importance of competition and guaranteeing its effectiveness from a perspective that goes beyond its strictly economic virtues: it begins as an imperative of economic justice and therefore has an ethical and normative aspect. A free market is necessarily a market with as high a level of competition as possible.

As Pedro Madeira Froufe teaches in his master’s classes on Internal Market at the University of Minho, this ethical dimension of competition is not always emphasised, and the need for ‘defence of competition’ and competitive regulation of markets is usually justified only by its functional side – in other words, only by the strictly economic virtues of competition.

The importance of ‘defence of competition’, in the context of economies and legal systems that are also based on economic freedom, requires special attention to be paid to its effectiveness. In other words, what is the best way to guarantee the effectiveness of ‘defence of competition’ rules? Are administrative sanctions a sufficient and appropriate coercive factor? Are there areas of economic activity that justify criminal liability for violators of competition rules? Is criminal liability for certain anti-competitive behaviour appropriate? Some legal systems have followed this path (in the case of the US antitrust system, for example, the creation or mere attempt to create monopolies triggers criminal liability). This reflection, in the context of the European internal market, and considering the need to guarantee the effectiveness of the right to ‘defence of competition’, may also prove useful.

Thus, with the creation of the internal market, the need to control the behaviour of companies in the markets became obvious. This is why today it is impossible not to talk about the common competition rules when discussing the internal market. The common rules on competition are laid down in Articles 101 to 106 of the Treaty on the Functioning of the European Union (TFEU), with Article 101 being one of the most prominent competition provisions of the Treaty, since its application tends to result in decisions which often impose very high fines. It is divided into three parts: paragraph 1 sets out a number of legal prohibitions; paragraph 2 provides that agreements or decisions prohibited under paragraph 1 are null and void; and paragraph 3 is the “exception” to the application of paragraph 1, for which an “economic balancing test”[1] must be applied. According to the European Commission, the “economic balancing test” must be based on what is most beneficial to the consumer.

In this context, it is important to analyse Law no. 19/2012 of 8 May (New Legal Framework for Competition), which establishes the legal framework for competition in Portugal. The New Legal Framework for Competition applies to all economic activities carried out on a permanent or occasional basis in the private, public and cooperative sectors. Articles 9 to 12 of the law list the practices that restrict competition. The purpose of this text is to deal with the application of Articles 67 to 72, which refer to the sanctions applicable to infringements of the rules laid down in that Law and in EU law.

The infringements described in Law no. 19/2012, as the name suggests, violate the legal regime of competition and also violate the common competition rules enshrined in Articles 101 to 106 of the TFEU. Where there is a breach of the competition rules, there is no doubt that the conduct has damaged and affected the internal market. Any behaviour that infringes the competition rules has, of course, consequences for the internal market. These consequences take the form of an advantage for one company over another, or an advantage for a group of companies and a disadvantage for consumers. Are the sanctions applied in Portugal sufficient to guarantee the proper functioning of the internal market?

The administrative offences described in Law no. 19/2012 are punishable by fines, ancillary sanctions and periodic penalty payments. As a general rule, anti-competitive behaviour is adopted by companies that already have a prominent place in the market and, therefore, high economic power. In principle, the imposition of a fine will not have the desired effect on the offender’s sphere of influence, since the offender has a large influence on the market and can quickly remedy the damage caused. If the seriousness of the infringement and the culpability of the offender justify it, the Competition Authority may impose additional sanctions in addition to the fine. The accompanying sanctions provided for by law are as follows: publication of an extract from the judgment of conviction in the Official Gazette (“Diário da República”) and in one of the newspapers with the largest national, regional or local circulation; exclusion from participation in procedures for the conclusion of contracts whose object covers services typical of works contracts, public works concessions, public service concessions, the leasing or acquisition of movable property or the acquisition of services, or in procedures for the granting of licences or authorisations; the latter sanction has a maximum duration of two years. The Competition Authority may also decide to impose a periodic penalty payment of up to 5% of the average daily worldwide turnover of the offending undertaking in the year immediately preceding the decision for each day of delay in complying with a given obligation.

The fact is that the ancillary sanctions provided for by the law do not appear to be sufficient and are not aimed at achieving the main objective, which is to prevent the offender from continuing to engage in behaviour that infringes the competition rules and has a negative impact on the market. This impact is, of course, passed on to the consumer.  For the application of an additional sanction to be effective, it must have a negative impact on the offending company’s position in the market. For this to happen, the Competition Authority cannot be obliged to apply the two sanctions described in Article 71 of Law no. 19/2012; it must have the autonomy to apply sanctions appropriate to each offender and the economic activity carried out.

The obligation to apply the sanctions provided for in the law creates a situation of inequality between offenders, since the sanctions are likely to be more damaging to certain activities, depending on the target group and the objectives set for business continuity. It would be appropriate for anti-competitive practices to be punishable with ancillary sanctions appropriate to each activity in order to discourage the continuation of certain behaviours. However, it must be borne in mind that sanctions must be proportionate to the infringement committed and must not harm the consumer. The Competition Authority and the Competition Tribunal would therefore have to consider whether an appropriate sanction should be applied and whether this sanction would not be detrimental to the functioning of the market. The competent authorities must therefore intervene more actively and apply exemplary sanctions, taking into account general and specific prevention to prevent the recurrence of illegal behaviour.

The question also arises as to whether there is any advantage in criminalising all anti-competitive practices with the aim of reducing them and compensating those who have suffered damage. As J. L. Cruz Vilaça points out, the effectiveness of European law also depends on the possibility of compensating consumers harmed by anti-competitive behaviour.[2] The criminalisation of anti-competitive practices is a current trend, but not a recent one.[3] However, it is important to know whether it will bring real benefits to the internal market.

The great advantage that criminal proceedings could bring to the victim is the possibility of filing a civil action for damages and obtaining compensation for all the damage suffered as a result of the unlawful conduct. Although it is understood that it would be excessively difficult for the victim to prove the damage, the truth is that if the claim for compensation is upheld, the conviction would only serve to increase the amount that the company would have to pay at the end of the process. As mentioned above, competition law infringements are usually committed by companies with a high level of economic power and, for this reason, the effects of this conviction may not deter the commission of future infringements. In addition, the high costs incurred by the injured party would always have to be taken into account and it is true that, where the injured party is a consumer, the amount of damage caused by certain conduct may often be less than the amount to be paid in legal costs. Furthermore, court cases usually take several years to resolve, so criminalising all anti-competitive practices would lead to an increase in the number of court cases, which would further delay the delivery of decisions.

Given that the penalties in criminal proceedings are the same as those in misdemeanour proceedings, it is not clear that there is any advantage in criminalising anti-competitive behaviour other than that which is already considered a crime under Portuguese law. It is important to contribute to the reduction of anti-competitive practices, which naturally have a negative impact on the internal market. It will therefore be essential to reformulate the ancillary sanctions applicable to administrative offences in order to make it increasingly difficult for offenders to find their way. It is clear that the necessary change may not be in the criminalisation of certain anti-competitive behaviour, but in the sanctions applied to it as an administrative offence. These should be of a general and specific preventive nature, which has not been the case so far.


[1] “Juízo de Balanço Económico”, in Portuguese.

[2] J.L. Cruz Vilaça, “Politicas de Concorrência: o caminho da modernização”, Revista CEJ, Almedina (2004).

[3] C. Harding, “Forging the European Cartel Offence: The Supranational Regulation of Business Conspiracy”, European Journal of Crime, Criminal Law and Criminal Justice, Volume 12 (2004).

Picture credits: by AuraFinance on Pixabay.

 
Author: UNIO-EU Law Journal (Source: https://officialblogofunio.com/2024/09/27/are-the-portuguese-antitrust-sanctions-sufficient-to-guarantee-the-proper-functioning-of-the-internal-market/)