MKD on Competition Law

It has been five years since the creation of the Competition Agency and reactivation of the Law of Georgia On Competition. The law regulates competitive behavior of the undertakings operating on the Georgian market and imposes fines for violating the rules of competition. The Competition Agency has been active in the enforcement of the law.

To identify current trends and enforcement practices of the Competition Agency, GEORGIA TODAY interviewed Baqar Palavandishvili, lawyer and leading practitioner of Competition Law at the Mgaloblishvili Kipiani Dzidziguri (MKD) law firm.

MKD has been operating on the legal market of Georgia for over two decades, offering a full range of legal services to its local and international clients. The firm, among other matters, advises on legal and commercial issues in connection with various investment projects in Georgia, covering both the public and private sectors, as well as actively participating in the improvement of the Georgian regulatory framework.

MKD has advised wide range of clients on competition and merger control, including major international airlines, tobacco companies, hotel chains, online travel agencies, oil and gas corporations, local distributors, importers, and manufacturers.

MKD lawyers are regularly praised by the most renowned global legal directories (Chambers&Partners, The Legal 500, IFLR1000) for their extensive track record, commitment and for maintaining the highest professional standards.

According to rankings 2019 by the Legal 500, Baqar Palavandishvili received an individual recommendation as a ‘Next Generation Lawyer’.

Mr. Palavandishvili, what is the purpose of Competition Law and to whom does it apply?

The purpose of the Law of Georgia On Competition is to support the liberalization of the Georgian market and ensure free trade and competition. It regulates matters related to the issuance of State aid, concentration of undertakings, unfair competition and prohibits the abuse of dominant position and agreements which are restrictive of the competitive process.

The law applies to a broad spectrum of undertakings, such as manufacturers, distributors, importers, service providers and others. The State actors also fall within the ambit of the law.

The Georgian Competition Law is based on European Union law. In fact, the reactivation of the competition law in 2014 was one of the obligations Georgia undertook under the EU-Georgia Association Agreement, which required the creation of a functioning body administering competition law matters in the country.

In what terms is Georgian competition law similar to EU law and what does this entail?

Two main articles of the law, Article 6 on the abuse of dominant position and Article 7 on anti-competitive agreements, are very similar in wording to articles 102 and 101 respectively of the Treaty on the Functioning of the European Union. Besides, according to the explanatory note to the 2014 amendments to the Law of Georgia on Competition and Free Trade (as it was called before 2014), which reactivated the law, introduced major changes and created the Competition Agency, the law is based on and is in full compliance with EU regulations and directives.

The Georgian Competition Agency frequently relies on the decisions of the European Union court and European Commission. In its 2017 decisions on cases concerning tobacco companies and oil importers, the Supreme Court of Georgia also referred to the cases decided by the European Court of Justice.

Reference to and reliance on European Union law has very important implications: first, Georgia, in effect, subscribed to legal and economic reasoning prevalent in the EU to assess competitive practices; second, the Georgian business sector has to navigate through a completely new legal terrain, with its inconsistencies and unresolved matters; and thirdly, Georgian judges would have to embrace and apply new legal and economic concepts to decide competition matters.

How are competitive practices assessed in Europe?

The question can be best answered if we contrast European and American approaches to the abuse of dominant cases (monopolization as it is called in the US).

In the United States, the competition (antitrust) authorities would delay intervention into the conduct of the market participants to the last moment, leaving the market to provide as far as possible by itself for a definition of its own dynamics. In contrast, the European Commission seeks to prevent the risk of breach of competition law and distortion of the competitive process and inserts itself more frequently and earlier into ongoing market dynamics.

The approach of US authorities sets the boundary of public power as far ahead as possible, accepting the risk of private power. The European Commission, however, does not accept that risk and instead runs the risk of preventive intrusions by public power.

Georgian policymakers would have to decide which of the two approaches above would be most appropriate for the Georgian market. It seems to me that for the moment the enforcement practice of the Competition Agency of Georgia is akin to the US approach.

What does Georgian business think about compliance with the competition law?

Due to the novelty of the law and absence of Georgian court practice, it is not always clear what type of actions are permitted under the competition law and if economic actors are allowed to enter into particular transactions. In these circumstances, undertakings may opt for the avoidance of the risk altogether by not engaging in a particular course of action, which could potentially have a chilling effect on the overall economic activity.

For example, it is not infrequent that a client of ours asks if particular clause in the contract with its supplier, or its unilateral action in relation to other undertakings, complies with the Georgian Competition Law. This seemingly simple question requires legal and economic analysis before giving any specific advice. Various factors must be evaluated and taken into account, including the relevant market and the market definition, entry barriers, existence of inter and intra brand competition, existing web of agreements, market share and the market power of other participants, substitute goods and services and more.

Typically, our advice to clients includes citations of European law and cases which, at times, provide much needed clarity to important topics; however, in Europe too certain competition law matters remain opaque and unresolved.

You say that on certain competition law matters, there are no straightforward answers. Can you give an example?

Competition law is very fact-specific discipline; therefore, it is “safe” to claim that mostly there are no straightforward answers. One of the problematic topics that comes to mind (and which was the subject matter of my speech at a seminar organized recently by MKD and the Competition Agency) is conditional rebates.

Simply put, a conditional rebate is a discount which the customer (distributor, intermediary or other entity buying the product or service for subsequent resell) receives from the dominant undertaking if the customer buys more than a certain volume of a product. The discount may apply to only those purchased above a certain threshold (called incremental rebates) or all previous purchases (called retroactive rebates).

In certain circumstances, offering conditional rebates by the dominant undertaking to a customer may result in violation of the rules on competition. These circumstances are yet to be cleared by the European Union Court, which took a seminal decision in 2017 in the case of Intel and overturned nearly a 40-year long previous court practice regarding the analysis of conditional rebates and, generally, pricing practices of the undertakings having a dominant position.

What is the approach of the Georgian courts to the competition law?

Georgian courts are not particularly eager to apply and take into consideration EU court practice. Before giving specific reasons, it should be stressed that neither EU court decisions, not EU law has a binding effect for Georgia. However, given the influence of EU law on Georgian competition law and practice, it serves as a primary source for interpretation, provides authoritative guidance and offers thinking tools necessary to assess competitive practices.

There are objective reasons why Georgian courts are reluctant to refer to European law and practice: EU law is not part of the Georgian legal system, the judges are not trained in EU law and at times (especially in lower tiers of the court), there are language barriers preventing access to the relevant decisions. Hopefully, with the passage of time and development of competition law in Georgia, these barriers will be overcome.

What can you say about the enforcement practice of the Competition Agency?

The Competition Agency has been active in regulating State aid and the approval of the mergers between companies. Besides, there have been number of important cases with respect to anti-competitive agreements (including cartels) and abuse of dominant position.

Not infrequently, the Competition Agency embarks on a comprehensive factual, economic and legal assessment of various competitive practices, which provide a very useful source for future reference. The Agency is consistent in applying decisions of the European Union Court and the Commission in its analysis.

What would be your advice to Georgian businesses regarding competition law?

The Law of Georgia on Competition is in full force and effect. It is being consistently enforced by the Competition Agency, which is authorized to initiate the inspection and inquiry on its own initiative as well as on the basis of an application/complaint. Given the potential fines, it is much advised that Georgian companies remain complaint with the law.

There are important changes planned to be made to the current law. The changes will most likely enhance the enforcement powers of the Competition Agency, including with respect to the concentration of the undertakings and obtainment of the information from Georgian companies; and will introduce new types of fines for failure to comply.

16 May 2019 17:06