Draft EO amending Law 11/91 on unfair competition

A proposal Government Emergency Ordinance amending and supplementing Law 11/1991 on unfair competition (“Law on unfair competition”) (“EO Project”) was recently posted on the Competition Council’s (“RCC”) website. The EO Project is available for public consultation until 3 July 2020.

In order to enable a better overview of the amendments brought, the amendments are presented below, structured in accordance with the main topics:

  1. Law on unfair competition is designed to be applied only in business-to-business (B2B) relationships
  • Any former reference to consumers included in the Law on unfair competition was removed, as follows:
    • The reference to protecting the consumer’s interest was removed from the paragraph defining the purpose of the Law on unfair competition; [art. I, para. 1 from the EO Project]
    • The definition of consumers was removed; [art. I, para. 2 from the EO Project]
    • The definition of market participants (which included undertakings and consumers) was removed and the harm done to consumers is no longer considered when establishing whether a certain deed constitutes unfair competition; [art. I, para. 3 from the EO Project]

Key points: A clear distinction was drawn between the applicability and purpose of the Law on unfair competition and of the Consumer Protection rules, as (i) Law on unfair competition is designed to be applied solely in a business-to-business scenario and aims to protect the interests of undertakings, whereas (ii) Consumer protection rules aims to prevent harm done to consumers.

       2. Commercial practices concept is extended [art. I, para. 2 from the EO Project]

  • Commercial practices concept now includes also:
    • Activities related to the production of goods;
    • The provision, promotion and sale of services.
  • The EO Project has removed publicity-related activities from the scope of the commercial practices concept.

Key points: The unfair competition practices prohibited by the Law on unfair competition now also cover production-related activities, as well as activities concerning the provision, promotion and sale of services.

      3. Independent contractors can be subjects of unfair competition practices [art. I, para. 2 and 3 from the EO Project]

    • The definition for natural person was replaced with a definition for employees (which includes former and current (i) wage earners, (ii) representatives or (iii) independent contractors of an undertaking.).
    • Additionally, the EO Project clearly establishes that authors of unfair competition practices can be (i) undertakings and (ii) employees (thus, including wage-earners, representatives and independent contractors), as opposed to the current version of Law on unfair competition, which singles out undertakings, wage-earners and representatives.

Key points:  Former / current independent contractors can also be sanctioned under the Law on unfair competition as authors of unfair competition practices.

       4. RCC’s involvement is limited to cases where public interest is established [art. I, para. 4 and 8 from the EO Project]

  • The RCC will only investigate unfair competition cases where a public interest has been established, as only such unfair competition deeds are misdemeanors.
  • Public interest will be determined on a case-by-case basis, taking into account factors such as the importance or size of the economic sector, the number of undertakings involved or the duration of the practice.
  • If the RCC establishes that there is no public interest in the case, a decision will be issued in this respect. The relevant decision can be appealed before the Bucharest Court of Appeals in 30 days since the communication.

Key points: The RCC will only intervene and apply sanctions if a public interest is identified. However, even if the RCC has issued a decision not to intervene, an action for damages against the author of the unfair competition deeds can be filed directly before the national courts.

       5. Unfair competition practices[art. I, para. 2 and 3 from the EO Project]

a) Defamation can be done by any undertaking, not just by competitors

  • According to the EO Project, the defamation of any undertaking by spreading false information is deemed to be unfair competition. The current version of Law on unfair competition states that only the defamation of a competitor is regarded as unfair competition.

Key points: Any undertaking may be accused of unfair competition by means of defamation, not only competitors of the complainant even if the unfair practice was performed without a direct or imediate purpose (this would facilitate actions in court against indirect defamation practices).

b) Poaching of clients can only be sanctioned when the employee is aware of the confidential nature of the information

  • In addition to commercial secrets, the poaching of clients can be carried out with any other confidential information, if its disclosure would harm the company.
  • The employee has to be aware of the confidential nature of the information.

Key points: If the information wouldn’t typically qualify as confidential, its confidential nature should be expressly indicated, in order to ensure that the conditions for sanctioning such behaviour are met. This text would require appropriate marking and protection to be applied to confidential information.

c) Discrediting the activities, products or services of an undertaking (by other means than those specific to defamation)

d) Destabilizing an undertaking by actions of a competitor and the affected undertaking’s employees

  • This includes, for example, mass poaching a competitor’s employees at such a scale that it exceeds any good commercial practices and destabilizes the relevant undertaking.

Key points: Despite the removal of the “other commercial practices” point, the list is not a restrictive one, therefore any commercial practices that may qualify as unfair can be used as a basis for a complaint to the RCC, should there be a public interest involved. The amendments above have the role to further clarify and exemplify the potential unfair competition practices.

e) Exploiting the superior bargaining power

  • A non-dominant undertaking active on a market that facilitates the occurrence of significant commercial imbalances is said to have a superior bargaining power over its current or former contractual partner when (i) there is a commercial imbalance of forces, for example due to significant market share discrepancies, (ii) the commercial relationship is significantly more important for the weaker undertaking or (iii) the weaker undertaking doesn’t have an equivalent alternative.
  • The superior bargaining power is deemed to be exploited in the following scenarios:
    • Refusal to deal by the stronger undertaking;
    • Discrimination by the stronger undertaking;
    • Excessive pricing by the stronger undertaking;
    • Contractual non-compliance by the stronger undertaking;
    • Unjustified amendment or termination of contract by the stronger undertaking

if any of the above may cause significant damages to the weaker contractual partner or may significantly affect competition on the market.

Key points: The amendment is one of the most sensitive ones considering that it generates additional obligations to non dominant players similar to a undertakings holding a dominant position. For example, undertakings having a market share between 20 – 40 % have a significant risk to be caught under this article. The amendment is not clear as it does not further detail each of the examples provided above, do not include the reference to the lack of objective reasoning or other safeguards for the undertaking. Also, there is no presumption of lack of bargaining power, thus any undertaking may face the risks of being analysed under this agreement when it has a better bargaining position against another undertaking.

       6. Procedure before the RCC [art. I,  para. 4 from the EO Project]

  • The procedure before the RCC as regards unfair competition was further updated to resemble the procedure applicable under the Competition Law. Thus, the RCC may start an investigation ex officio, may send requests of information, perform dawn raids or interviews, take statements and finalize the analysis with a decision (similar to the mechanism regarding competition rules breaches).

       7. Sector inquiries [art. I,  para. 7 from the EO Project]

  • The EO Project introduces the possibility of the RCC carrying out sector inquiries in order to identify best practices applicable, as well as potential unfair competition deeds.

Key points: Similar to the Competition Law, it’s likely that the sector inquiries introduced by means of the EO Project to be used as a tool to identify specific cases which will later on would develop into  targeted investigations, either in accordance with the Law on unfair competition or in accordance with the Competition Law.

       8. Sanctions [art. I,  para. 8 and 9 from the EO Project]

  • The fines imposed upon undertakings in accordance with Law on unfair competition have been updated, as follows:
    • 0.01% – 1% of the undertaking’s turnover in the year previous to the sanctioning for unfair competition deeds (but not less than RON 5,500 and not more than RON 100,000);
    • 0.01% – 0.1% of the undertaking’s turnover in the year previous to the sanctioning for other procedural aspects (but not less than RON 1,000 and not more than RON 50,000);
  • The exact percentage will be determined by the RCC in a proportional manner, also according to the duration of the relevant behaviour (as opposed to determining the fine by reference to the sanctions applied in the last 2 years). A reduction of fine ranging between 10% and 20% can be granted to undertakings which acknowledge their participation in unfair competition deeds. Such an acknowledgement should come following after the conclusions note is issued. The reduction is lost if the relevant undertaking seeks to challenge the decision as regards the previously acknowledged facts.
  • The statute of limitations was established at 3 years, regardless of the misdemeanour concerned (namely, unfair competition or procedural misdemeanour).

Key points: The fines, although capped, are considerable also considering that the limitation applies per breach (thus, several breaches would result in higher fines). Also, the range of the fines allow room to maneuver for the authority and clear rules related to computation of fine should be implemented.

This information is not legal assistance. For further details, please contact us.

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