Below we discuss two recent cases which should not escape your attention. The first confirms the Authority’s increasing interest in vertical relations, primarily in distribution agreements. The second points to the current development of decision-making practice of administrative courts examining the legality of dawn raids conducted by the Authority.

What you should look out for in the new year and what can we learn from these cases in relation to the Office's activities in 2022?

• UOHS seems more active than ever. The authority does not shy away from imposing astronomical fines for practices arguably less harmful than hard-core cartels, such as resale price maintenance with only limited impact on the markets.
• Companies should therefore exercise caution in their dealing with not only competitors, but also distributors and other business partners. Firms should review and if necessary, update their distribution agreements and policies in time before the new European Commission block exemption regulation for vertical agreements comes into force on 1 June 2022.
• Experience shows that the requirement for a competition awareness applies to not only dominants and large enterprises, but also to smaller local players, who are becoming frequent targets of competition law enforcement.
• We recommend getting your internal processes drawn up and updated, and your staff trained for potential on-site inspections (dawn raids). Only well-trained personnel can protect its employer’s best interests.

Record fine for RPM in distribution of garden equipment

In a bold start into the New Year, on 4 January 2022 UOHS imposed a fine of approx. €3,7 million (CZK 96,8 million) for resale price maintenance (RPM) on GARLAND distributor, s.r.o., a supplier of garden machinery, equipment and hobby tools in the Czech Republic. This is the highest-ever fine imposed by UOHS for an anticompetitive vertical agreement.

In the Authority’s view, the agreements initiated by GARLAND aimed to exclude price competition between its distributors to the clear detriment of final consumers for almost 6 years. Not only did GARLAND monitor the distributors by a threat of sanctions, such as blocking the distributors’ accounts in the ordering system if they deviated from the price restrictions, but also encouraged the distributors to check up on each other for a possible non-compliance with the scheme and report to GARLAND to restore the set price level. On the other hand, it seems that GARLAND’s distribution agreements covered only a part of the relevant market and some competition in fact existed throughout the time.

While the fine is record-high, it is not an isolated example but rather the latest iteration of what appears to be UOHS’ intensifying crack down on RPM practices. Throughout 2021, the UOHS’s President acting as the appellate body confirmed the authority’s earlier decisions imposing fines of approx. €1,6 million (CZK 40.8 million), the then-record, on BABY DIREKT s.r.o., a supplier of strollers and child seats, and smaller but still appreciable fines on RITCHY EU, s.r.o., an e-cigarettes supplier, and V-GARDEN, a garden machinery supplier, among others, all for clear RPM violations. This trend of ever-increasing penalties stems from the UOHS’ revamped fining guidelines effective from April 2018, which have significantly upped the share of sales that the authority takes as the basis for calculating the fine.

In line with its previous practice in the area, in addition to imposing the fine UOHS requires GARLAND to inform all its customers about the prohibition and automatic invalidity of the vertical agreements. GARLAND may appeal the decision to the UOHS’ President and eventually courts.

New dawn raids on the horizon

In January 2022, the Czech Supreme Administrative Court published its 21 December 2021 judgment in case of Fortuna Game a.s., v UOHS (case no. 2 As 295/2019 – 99). The judgment is a major win for the competition authority further consolidating its powers to conduct unannounced on-site inspections known as dawn raids.

In 2019, the competition authority got suspicious of two Czech betting companies Fortuna and Tipsport engaging in a cartel and opted to dawn-raid their business premises. Fortuna challenged the raid decision claiming that, at the time of the inspection, UOHS did not have a reasonable suspicion of the unlawful behaviour, which is a condition necessary for launching a dawn raid. What UOHS did – in Fortuna’s opinion – was a clear and unlawful fishing expedition. Fortuna also argued that the complaint submitted to UOHS by Sazka, its betting business competitor, was supposed to be a retaliation move intended to misuse the competition authority as an instrument to outcompete a rival.

The lower administrative court essentially agreed with Fortuna and annulled the authority’s dawn raid decision. On appeal to the Supreme Administrative Court brought by the UOHS, however, the ruling got overturned and Fortuna’s fishing expedition arguments ultimately rejected.

The Supreme Administrative Court recalled that, indeed, before launching a dawn raid, the competition authority must have a reasonable suspicion of an anti-competitive conduct. However, such suspicion does not have to amount to certainty. Such a high standard would require UOHS to carry out extensive investigations beforehand and thus render the power to conduct dawn raids de facto useless.

The court considered that in the case at hand UOHS received two extensive submissions from complainants, possessed information from its previous experience in the betting and gaming sector, and conducted further qualified searches and evaluation of publicly available media information. The court concluded that a combination of these sources of information was sufficient to give the authority a reasonable suspicion of foul play, thus justifying the raid.

Emboldened by the judgment, on 6 January 2022 UOHS issued a press release announcing its intention to exercise the power to conduct unannounced inspections even more actively.