On November 4, 2011, the Council of Ministers approved a draft proposal for a new Competition Act (“Proposal”) later submitted to public discussion. The proposal is part of the commitments that Portugal has made to the European Union, the European Central Bank and the International Monetary Fund under the agreement on Portugal’s international financial assistance programme.
The government believes that the new legislation will foster a more competitive economy and boost confidence among economic operators as the Portuguese economy needs a Competition Policy that helps the country to recover.
MLGTS accepted the challenge and submitted a document with observations to the Proposal, pointing out some key-issues, at both formal and substantive levels, that, in our view, require further analysis. This update briefly summarises some of the main features of our observations.
At the formal level, two comments on the structure of the Proposal. First, the reasons why competition and clemency regimes are presented as annexes to the law are not clear, considering that these are in essence the regimes under review. There are clear advantages of having both regimes in the same legislative text, in particular, coherence and easy interpretation of law. In fact the structure as presented in the Proposal renders more difficult and complex the citation and referral of rules with unnecessary difficulties in the application of law.
At the substantive level, the shift from the principle of legality to the principle of opportunity in matters of promotion and defense of competition linked to investigative powers given to the Portuguese Competition Authority (“PCA”) is worth some comments.
Article 6 of the Proposal gives the PCA discretionary powers to decide by itself with no appeal to a court of law which complaints should or not be investigated. The PCA should be provided with the means and resources to better perform its duties regarding restrictive practices in accordance to priorities internally defined. However equilibrium between these concerns and the rights of the complaints is vital. The law should clearly establish the criteria according to which an investigation may not be opened pursuant to a complaint and impose upon the PCA an obligation to state the reasons that led to such decision.
The amendments presented in the Proposal about restrictive practices clearly throw out of balance the powers of investigation, decision and sanction given to the PCA, on one side, and the defense rights of the undertakings, on the other.
And this imbalance is evident in various matters, among which we highlight: a general rule that reduces to five working days the time limit for the defendants to exercise their procedural rights, and to ten working days the time limit to present their defense to the accusation, which are manifestly insufficient to the effective exercise of the defense rights and contrast with the absence of any time limit imposed upon the PCA to conclude the investigations; the increased investigative powers to conduct searches and seize documents without parallel in any other national misdemeanor regime; the possibility conferred to the PCA to present a new accusation after the production of evidence that may include a change of the facts and juridical qualification of the facts first alleged.
The legal recognition of suspensive effect to appeals against condemnatory decisions for restrictive practices (replacing the devolutive effect) raises serious doubts of its compatibility with the Portuguese Constitution, in particular with the principle of presumption of innocence (in dubio pro reo). In addition, there is no comparison between this legislative option and any other punitive regime in Portugal, penal or misdemeanor.
If the Proposal’s goal is to avoid dilatory pleading, there are other ways, less severe and that do not breach constitutional principles, to achieve that same end. The Proposal itself presents the most effective mean to deter an abusive use of the appeal mechanism: the reformation in pejus.
In addition, the legal recognition of suspensive effect to appeals against decisions which are not final but may include accessory sanctions such as the prohibition to participate in public tenders or the obligation to divest seems totally inadequate. What if the decision is reversed by the judicial court? What if the financial sanctions awarded are annulled or reduced by the judicial court? Are those sanctions refunded to the undertaking? What is the time frame? Are interests paid in those cases? Or maybe a monetary correction is done? The fact that the Proposal does not present a single answer to these questions strongly suggests that more reflection is required.
Related to restrictive practices, the Proposal proposes amendments in matters of studies, inspections and audits (Articles 61° and 62°) that do not, in our view, properly guarantee the rights of defense of undertakings. Once more the PCA is given powers similar to sanction powers (notably in matters of the search and seizure of documents) when performing inspections or audits without any jurisdictional control, which is not acceptable.
In matters of merger control, we highlight some features of the Proposal that should be, in our view, improved. Firstly, it is vital to clarify the scope of Article 36 regarding the criteria to notify a concentration. The wording of the Proposal is unnecessarily confusing, in particular the wording of the market share criterion.
The test for ascertaining the impact of a concentration on competition should include the criteria that both prohibit and authorise a concentration, and different from these two a third criterion to open phase 2 of the procedure. In this context, the criterion of “serious doubts” as established in the European regulation seems more appropriate. Moreover, the maintenance of the suspension of the time period for the PCA to decide whenever a request for information is sent to the notifying party(ies) as a general rule does not seem the best solution. We suggest an approximation to the European regime (which makes a distinction between simple requests for information and requests resulting from a formal decision) to induce more discipline and celerity for both PCA and undertakings. Finally, concerning the conduct of the procedure, legal certainty (element of importance to undertakings) and the flexibility required for the PCA to conduct the procedures more efficiently should be made compatible in the Proposal.
Finally, in matters of infractions and sanctions, it is our opinion that further analysis is required and should be performed. Particular relevance should be given to three aspects of the Proposal. First, the Proposal should clarify that fines applied by the PCA are calculated on the basis of the Portuguese turnover. Secondly, the regime established in the Proposal to association of undertakings deviates from the European regime, the national law, and, more importantly, from the national jurisprudence thus requiring further analysis. Lastly, the Proposal extends the statue of limitation which in some cases becomes longer than established by penal law, which is excessive and disproportionate.
Final comments
The public consultation is a unique opportunity for all interested parties to participate in the revision process of such important legal regime, particularly, at the economic level, and which the government intends to change so dramatically. It is also an opportunity for the government to receive opinions from undertakings, academia and legal professionals regarding the difficulties and concerns of over eight years of effective application of the current Competition Act.
The reform momentum should however ensure that constitutional rights of the undertakings are respected, in particular through an effective jurisdictional control, if the legislator wishes to strength the powers already conferred to the PCA.
The welcomed objective of discouraging anti-competitive behaviours through an effective and fast application of competition rules does not legitimate alone some of the rules drafted in the Proposal, as previously stressed. For these reasons, we believe to be of utmost importance to perform an additional thorough analysis of some key points of the Proposal. It is expected that the government openly review the document accordingly, at least in some matters, and ensure equity and legal certainty to all undertakings.
