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"Raidla Lejins & Norcous"
According to the Explanations on Definition of Dominant Position, acts of the state can be an obstacle to entering the market. However, to date there are no precedents.
Abuse of intellectual property rights is covered by Lithuanian competition rules as abusive behaviour.
The legislation does not provide for any special rules applicable to the unilateral conduct of non-dominant firms.
The LC follows the wording of article 82 of the EC Treaty.
Do companies harmed by abusive practices have a claim for damages?
According to the Lithuanian legislation, undertakings that have violated the LC (including the prohibition to abuse a dominant position) are obliged to compensate for damages caused to other undertakings or natural and legal persons according to the procedure established by the relevant laws. Therefore, an undertaking that suffered damages as a result of the abuse of dominance has the right to an action for damages. There are several pending private claims for the breach of the prohibition to abuse a dominant position in Lithuanian courts. But there is no guidance established in case law on calculation of damages in such cases.
Yes. Stemming from the provisions of the LC, Explanations on Definition of Dominant Position and the practice of the CC, it may be concluded that the concept of abuse covers both exploitative and exclusionary practices.
Yes. Article 9 of the LC, which prohibits abuse of a dominant position within a relevant market, only applies to undertakings that are already dominant at the time of the conduct in question. However, merger control rules require notification of concentrations that may significantly affect the structure of a relevant market. These rules allow the CC to block concentrations (mergers or acquisitions) that may result in the creation or strengthening of a dominant position, or in a significant restriction of competition in a given market.
There is no difference in the application of the LC to purchasers and suppliers. According to the Explanations on Definition of Dominant Position, the dominant position of the purchaser is defined in the same way as that of the dominant supplier.
Which authorities are responsible for enforcement and what powers of investigation do they have?
The national competition authority in Lithuania is the CC. National courts may apply competition law rules, too. The powers of investigation of the CC are as follows:
• with the warrant of a judge, to enter and check any premises, land and means of transport used by the undertaking;
• with the warrant of a judge, to examine the documents of the undertaking required for investigation, to obtain copies and extracts, to be given access to the notes of the employees of the undertaking, and to copy the notes as well as information stored on computers and on disks;
• to obtain oral and written explanations from the persons connected with the activity of the undertakings under investigation, to summon them to the office of the investigating officer to give explanations;
• to obtain from other undertakings, regardless of their subordination, data and documents or copies thereof relating to the economic operations of the undertaking under investigation, also from public and local authorities;
• to audit (carry out an inspection of) the economic activity of the undertaking and obtain findings regarding the material of inspection from the institutions responsible for expert examination;
• to take possession of any documents and articles having evidential value in the investigation of the case;
• to enlist the assistance of specialists and experts in carrying out the investigation;
• to use technical means for investigation purposes (for example, photography, voice recording); and
• to call for police officers for the maintenance of order.
In the electronic communications sector, the Communications Regulatory Authority (CRA) is the institution responsible for, inter alia, the supervision of the fulfilment of obligations imposed on undertakings having significant market power in the relevant market. The powers of investigation of the CRA are the following:
• to obtain necessary information;
• with the warrant of a judge, to gain access to and inspect premises, areas and vehicles used by an undertaking, to review such documents that are necessary for the investigation, to obtain copies of and extracts from such documents, and to gain access to information stored in computers and on magnetic media;
• to obtain oral and written explanations from persons related to the activity of the undertaking under inspection, and to request them to give explanations in the office of an authorised official conducting the investigation;
• to obtain from other undertakings any data and documents on the economic operations of the undertaking under inspection, irrespective of the subordination of such other undertakings, or copies of such documents;
• to obtain such data and documents or copies thereof from state and municipal institutions and persons;
• to audit (carry out an inspection of) the economic operations of the undertaking, obtain opinions from expert bodies based on inspection materials, carry out a detailed review of the cost or income accounting systems of the undertaking;
• to seize documents and objects necessary for or to be used as evidence in the investigation of an infringement;
• to use the services of specialists and experts for the investigation; and
• to use technical means during the investigation. All instructions given by the authorised officers of the CC and the CRA are obligatory to undertakings and their management and administrative staff. In performing their functions, both officials of the CC and the Communications Regulatory Authority may ask for police support.
Exclusive dealing and non-compete provisions are considered under the Explanations on Definition of Dominant Position obstacles to entering the market, and thus may constitute abusive behaviour.
Exploitative prices or terms of supply are also covered by the LC.
The practice of the CC in applying legislation relating to the prohibition of abuse of dominance may be illustrated as follows:
• in 2008, one investigation was conducted and one fine in the amount of 171,000 litas was imposed;
• in 2007, four investigations were conducted and the total amount of fines imposed was 308,000 litas;
• in 2006, two investigations were conducted and the total amount of fines imposed was 3.09 million litas;
• in 2005, one investigation was conducted and one fine to the amount of 32 million litas was imposed;
• in 2004, eight investigations were conducted and five investigations were cancelled; no fines were imposed;
• in 2003, six investigations were conducted and one fine in the amount of 3,000 litas was imposed;
• in 2002, six investigations were conducted and the total amount of fines imposed was 2.2 million litas; and
• in 2001, five investigations were conducted but no fines imposed.
Major market players have good knowledge of competition law requirements, so competitors of dominant firms invoke competition law arguments when abusive conduct is perceived.
The LC does not prohibit the holding of a dominant position per se, but only an abuse of a dominant position by carrying out actions that restrict or may restrict competition, limit without cause the opportunities for other undertakings to act in the market, or violate the interests of consumers, including the following:
• direct or indirect imposition of unfair prices or other purchase or selling conditions;
• limitation of trade, production or technical development to the prejudice of consumers;
• application of dissimilar (discriminating) conditions to equivalent transactions with certain undertakings, thereby placing them at a competitive disadvantage; and
• making the conclusion of a contract subject to acceptance by the other party of supplementary obligations that, by their commercial nature or use, have no connection with the subject of such contract.
The CC follows a form-based approach to identifying anti-competitive conduct of dominant firms, since the type of conduct involved determines whether a given practice is considered anti-competitive.
According to the LC and the Explanations on Definition of Dominant Position, an undertaking is considered to have a dominant position in the relevant market if it:
• does not face direct competition; or
• has a decisive influence in the relevant market by being able to unilaterally restrict competition.
An undertaking with a market share of not less than 40 per cent will be presumed to have a dominant position in the relevant market. Each of a group of three or fewer undertakings with the largest shares of the relevant market, jointly holding 70 per cent or more of the relevant market, will be presumed to enjoy a dominant position.
In accordance with the Explanations on Definition of Dominant Position, an undertaking is considered not to be facing direct competition when it is the only player in the market. According to the Explanations, a unilateral decisive influence means a possibility to act in a relevant market with sufficient independence from competitors, purchasers or suppliers and consumers by influencing prices, opportunities to enter the market, etc, when such powers of an undertaking result in the effective restriction of competition in the market.
The CC, to define a dominant position, has the right to examine any relevant factors (for example, market share, barriers to enter the market and the financial situation of an undertaking). Such factors are determined on an ad hoc basis and are subject to the economic sector and characteristics of goods. The CC first defines the market share, but the market share is not the sole and unchallengeable factor, as even a small market share may allow an undertaking to exercise a unilateral decisive influence.
What are the consequences of an infringement for the validity of contracts entered into by dominant companies?
In accordance with the LC, restrictive agreements falling within the regime of article 81 of the EC Treaty and article 5 of the LC are considered void ab initio. Contractual clauses containing provisions which infringe the prohibition against abuse of a dominant position may be regarded as invalid and unenforceable, since they contravene mandatory statutory requirements (ius imperativum). Invalidity of certain terms and conditions of the contract in question will not affect the validity of the remaining clauses.
The general definition of dominance set out in the LC (see question 10) covers collective dominance as well. According to the Explanations on Definition of Dominant Position, several undertakings are considered collectively dominant if as a group they are able to have a unilateral decisive influence in the relevant market by effectively restricting competition. Such a possibility occurs where there is no effective competition:
• between such group and other market players; and
• among members of the group. In addition to the collective dominance described in question 10, other forms of collective dominance are also possible.
In accordance with the Explanations, if the largest shares in a relevant market are held by a group of three or more undertakings, or a group of undertakings with the largest shares of the relevant market jointly holds less than 70 per cent, this will constitute collective dominance if it is evident that such a group of undertakings has a unilateral decisive influence in such relevant market by effectively restricting competition.
The LC is a law of general application and no industries are specifically regulated by the LC. Sector-specific provisions on certain services (electronic communications, postal services, energy and transport) are contained in special legislative instruments.
The law provides for a sector-specific control of dominance in the electronic communications sector. According to the Law on Electronic Communications (15 April 2004, No. IX-2135), an undertaking is considered to have significant market power (SMP) if, either individually or jointly with others, it holds a position equivalent to dominance, that is, a position of economic strength affording it a power to behave to an appreciable extent independently of competitors, customers and ultimately consumers.
Further, where an undertaking has SMP in the relevant market, it may also be deemed to have SMP in a closely related market, where the links between the two markets are such as to allow the market power held in one market to be leveraged into the other market, thereby strengthening the market power of the undertaking.
An undertaking is considered to have SMP when this has been established by a decision of the Communications Regulatory Authority based on the market analysis, and it will be considered as such until the authority decides, based on another market analysis, that the undertaking does not have significant market power.
According to article 46(4) of the constitution (adopted in the referendum of 25 October 1992), the law prohibits monopolisation of production and the market and protects freedom of fair competition. The LC stipulates that the aim thereof is to protect freedom of fair competition in Lithuania. Based on the practice of the CC and case law, one may describe the object of the legislation as the protection of economic interests related to the efficiency of competition and consumer welfare, and not expressly including or excluding the protection of other interests (for example, small and medium-sized businesses).
As stated (see question 10), an undertaking with a market share of not less than 40 per cent will be presumed to have a dominant position in the relevant market. Each of a group of three or fewer undertakings with the largest shares of the relevant market, jointly holding 70 per cent or more of the relevant market, will be presumed to enjoy a dominant position. The burden of rebuttal of these presumptions lies on an undertaking (or undertakings) accused of abusing a dominant position.
Limiting production, markets and technical development are covered by the LC.
In 2002, following investigation, the CC concluded that a national telecoms operator, Lietuvos telekomas, held a dominant position in the fixed public telecoms network market and the market for the lease of telecoms networks when it decided to block the lines leased by UAB Interprova and approximately 30 more undertakings providing internet telephony services. Such actions were qualified as eliminating competition and consolidating the dominant position in the internet telephony services market, as well as restricting the internet telephony services and market monopolisation in breach of the LC. Therefore, the CC imposed a fine in the amount of 2.08 million litas on Lietuvos telekomas. The CC also stated that the restriction of trade or production, as forms of abuse, should be understood as market monopolisation striving to drive out competitors from the market or creating obstacles for the operation thereof in the market, thus limiting their decisions on the quantity, quality or price of the product.
In 2007, the CC declared that the State Enterprise Vilnius International Airport abused its dominant position in the upstream market for the management and organisation of services in the international airport of Vilnius. The dominant undertaking required the only competitor RSS Motors to submit contracts with customers, which could not be justified for purposes of administration. In addition, Vilnius International Airport refused to provide a location for the storage of the second fuel vehicle, thus restricting the possibilities of its competitor to compete in the relevant market. The CC imposed a fine in the amount of 50,000 litas.
As stated, the Lithuanian legislation does not provide for an exhaustive list of forms of abuse. Any type of conduct may qualify as an abuse if it restricts or may restrict competition, limit without cause the opportunities for other undertakings to act in the market, or violate the interests of consumers.
Predatory pricing is indicated by the Explanations on Definition of Dominant Position as an obstacle to entering the market and, therefore, may be considered as an abuse.
Price and non-price discrimination is covered by the LC and constitutes the major part of the CC’s practice.
In 2000, the CC imposed a fine in the amount of 100,000 litas on a national oil refinery and transportation company, Mazeikiu nafta, for granting exclusive conditions of distribution of its products to a limited number of companies and fixing exclusive discounts per ton of gasoline and diesel fuel. The discounts were not announced in the official price lists and discount protocols of Mazeikiu nafta, as required.
In 2007, the CC found one of the main central heating service providers in the city of Vilnius, Vilniaus energija, to be abusing its dominant position in the market for the lease of communication tunnels in the capital. The CC held that the dominant undertaking was charging unfair prices to lessees and imposed a fine of 178,000 litas.
In 2007, the CC declared that the national mailing company, Lietuvos paðtas, abused its dominant position in the market for reserved mail services. The Lithuanian Post Office was setting different prices for the mail delivery services and seeking to eliminate its competitors from a closely related market of invoice printing, binding and enveloping. The CC imposed a fine in the amount of 80,000 litas.
Price squeezes are indicated by the Explanations on Definition of Dominant Position as an obstacle to entering the market, and thus may constitute abusive behaviour.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or authority to order a dominant firm to grant access (to infrastructure or technology), supply goods or services or conclude a contract?
Private parties have the right to initiate an investigation and seek compensation for damages (see also question 37). A CC investigation may be started at the request of:
• undertakings whose interests have been violated;
• public and local authorities; or
• associations and unions representing the interests of undertakings and consumers.
In addition, an undertaking whose legitimate interests have been violated by actions performed in breach of article 82 of the EC Treaty or the LC may appeal to the Vilnius District Court to:
• terminate the illegal actions; and
• compensate for damages incurred.
According to the LC, the CC may oblige undertakings to cancel, amend or conclude contracts (see also question 34). As for the electronic communications sector, the CRA may impose obligations on an operator having significant market power in the relevant market to satisfy reasonable requests by other undertakings for access to, and use of, specific network elements and associated facilities.
Is there a directly applicable prohibition of abusive practices or does the law only empower the regulatory authorities to take remedial actions against companies abusing their dominant position?
Prohibition of abusive behaviour is directly applicable. Therefore, any person that suffered damages as a result of the abuse of dominance has the right to an action for damages (see also questions 36 and 37).
Discounting policies of dominant undertakings that are discriminatory and for which there is no economic reason are prohibited under Lithuanian competition law.
What is the most recent high-profile dominance case?
In 2008, the Supreme Administrative Court of the Republic of Lithuania partly approved a claim of the CC and remanded the case to the CC for supplementary investigation in the Mazeikiu nafta II case. In 2005 the CC imposed the highest fine for abuse of a dominant position in Lithuania in the amount of 32 million litas on the major oil refinery and transportation company in the Baltics, Mazeikiu nafta. The CC decided that Mazeikiu nafta had infringed both Lithuanian competition rules and article 82 of the EC Treaty. That was the first case of application of the EC competition rules by the Lithuanian competition authority.
The CC decided that Mazeikiu nafta had abused its dominant position by discriminating in favour of Lithuanian purchasers on a territorial basis against Latvian and Estonian purchasers when concluding similar contracts. In addition, trade practices performed by Mazeikiu nafta included restricting the abilities of buyers to freely choose the amounts of their purchases and discounts, and efforts to protect the gasoline and diesel fuel markets from import and potential importers by granting some inadequate rebates to certain companies, and discriminating against other minor purchasers–wholesalers. Mazeikiu nafta also affeced the trade between member states by forcing the undertakings operating in the Lithuanian, Latvian and Estonian markets to conclude contracts concerning the purchase of the amount of oil products meeting the major demand of undertakings in oil products. Mazeikiu nafta appealed the decision to the Vilnius County Administrative Court.
In 2007, the Vilnius County Administrative Court satisfied the claim of Mazeikiu nafta and rescinded the fine for abuse of a dominant position imposed on the oil refinery. Even though the Vilnius County Administrative Court repealed the decision of the CC as illegal on the basis of procedural infringements, the Vilnius County Administrative Court analysed the substantive assessment established by the CC. The Vilnius County Administrative Court stated that the CC had failed to correctly assess the product market and the boundaries of the geographical market, and therefore the CC erred in defining the relevant product market. Consequently, the Vilnius County Administrative Court concluded that the decision made by the CC with regard to the dominant position, the abuse of a dominant position and the conformity with the article 82 of the EC Treaty was erroneous. The judgment of the Vilnius County Administrative Court has been appealed by the CC.
The Supreme Administrative Court has since declared that the CC did not perform a comprehensive assessment of competition law infringements and respective evidence, opinions of international experts of oil industry and essential case law of the EU. The Supreme Administrative Court also held that the definition of the product market was not sufficiently reasonable and that peculiarities of distribution of oil products on different levels should have been analysed. Moreover, the it considered that the CC did not carry out an exhaustive analysis of the geographical market and that the competetive environment outside the Baltic region, the supply and demand of oil products in the region of the Baltic Sea in the relevant period and the impact of import on pricing of oil products were not sufficiently assessed. Finally, the Supreme Administrative Court has concluded that the abuse of a dominant position could have been assessed solely upon precise definition of the relevant market. Therefore, according to the Supreme Administrative Court it was necessary to perform a supplementary investigation.
Refusal to supply goods and access to essential facilities may be regarded as abusive conduct under Lithuanian competition rules.
In 2002, the CC started an investigation at the request of undertakings supplying vessels with food stocks, ship equipment and spare parts. The CC analysed the permit issuing practice of Klaipedos juru kroviniu kompanija, owner of the pier, to undertakings to access the vessels, within the provisions of the LC. The CC stated that Klaipedos juru kroviniu kompanija was in a dominant position in the market for issuing permits to render the services concerned to final consumers. Dominating the market, the company established different competition conditions for undertakings servicing ships. The company was issuing to ship servicing undertakings single charged permits to access, on foot or by car, the vessels at the pier, subject to the condition that the undertakings provided, in advance, the order of the owner, the captain of the vessel or their authorised representative. The subsidiary of Klaipedos juru kroviniu kompanija was exempted from this requirement. The CC concluded, therefore, that the actions of Klaipedos juru kroviniu kompanija were abusive and the company was obliged to issue permits to undertakings supplying and servicing vessels for access to the vessels across the land rented by Klaipedos juru kroviniu kompanija at the same (non-discriminatory) terms.
In 2008, the CC imposed a fine of 171,000 litas on the State Enterprise Vilnius International Airport for preventing a potential competitor, Naftelf, from entering the downstream markets for the supply of aviation gasoline and jet fuels to aeroplanes in the Vilnius international airport. The CC considered that the undertaking with the market share of 100 per cent was holding a dominant position in the upstream market for the management and organisation of services in the international airport of Vilnius. The CC declared that Vilnius International Airport is the owner of necessary infrastructure and found its refusal to grant access to essential facilities, which was objectively unjustified, to be an abuse of dominance.
Which sanctions and remedies may they impose?
For failure to act in compliance with the competition law rules, the CC may impose the following sanctions:
• a fine of up to 10 per cent of the gross annual turnover in the preceding business year, for abuse of dominant position;
• oblige undertakings to terminate unlawful activity, to restore the previous situation or eliminate consequences of infringement, including the obligation to cancel, amend or conclude contracts. Also to set time limits and lay down the conditions for fulfilling these obligations; or
• where the parties failed to notify, or have not received approval for, a concentration that is subject to notification – and such concentration is implemented and it resulted in a dominant position and subsequent considerable restraint of competition in a relevant market – oblige undertakings or controlling persons to:
• sell all or part of the enterprise;
• sell all or part of the assets of the undertaking;
• sell all or some of the shares;
• reorganise the enterprise; or
• cancel or change an agreement.
If an undertaking fails to comply with the penalties imposed, the CC may impose the following restrictions under the authorisation of the Vilnius District Administrative Court:
• suspension of import–export operations;
• suspension of bank operations; or
• suspension of the validity of the permit (licence) to engage in certain economic activities.
In 2005, the CC imposed the highest fine for abuse of a dominant position in Lithuania in the amount of 32 million litas on the oil refinery and transportation company, Mazeikiu nafta.
As to the electronic communication sector, the CRA has the right to impose sanctions, which, depending on factors such as the severity and duration of the infringement and the annual gross income of the undertaking, may reach a fine of up to 5 per cent of the annual gross income from activities associated with electronic communications. The CRA may also oblige undertakings to compensate for any damage caused by illegal activities.
The Lithuanian legislation also sets out administrative penalties (fines) to be imposed on natural persons (for example, general managers) for obstructing the exercise of functions of the authorised officers of the CC. These fines range from 500 litas to 5,000 litas. For obstructing CRA authorised officers from exercising their functions, fines range from 500 litas to 3,000 litas.
Tying is also covered by the LC as abusive behaviour.
The dominance provisions apply to the undertakings – which, according to the LC, are enterprises, combinations of enterprises (for example, associations, consortia, etc), institutions or organisations, and other legal or natural persons – that perform or may perform economic activity in Lithuania or whose actions affect, or whose intentions, if realised, could affect, economic activity in Lithuania.
The LC (including rules on abuse of dominance) is also applicable to an activity of undertakings incorporated outside the territory of Lithuania if such activity restricts competition in the Lithuanian market.
Lithuanian public administration and local authorities are considered to be undertakings if they engage in economic activity (ie, any type of manufacturing, commercial, financial or professional activity associated with purchase or sale of goods).
Draft amendments to the LC are pending and should be considered by the Parliament of the Republic of Lithuania in 2009. The Lithuanian government approved the proposed amendments that mainly deal with the procedural aspects of regulation of dominance:
• authorisation of the CC to pass confidential resolutions;
• extension of the rights of the authorised officers of the CC to perform dawn raids in residential and other premises of respective managers and other employees;
• approval of the exhaustive list of circumstances lessening the liability for infringements; and
• abolition of the application of the leniency policy in respect of cases related to abuse of a dominant position.
Defence tactics used in abuse of dominance cases vary subject to the specifics of a particular case. A dominant undertaking accused of abuse may invoke various legal and economic arguments, such as incorrect definition of a relevant market, denial of dominant position (by expanding relevant market and reducing market share) or actions of abuse, breach of procedural rules by the CC, etc.
The primary legislation is the Law on Competition (23 March 1999, No. VIII-1099) (the LC), which prohibits abuse of a dominant position within a relevant market and provides a non-exhaustive list of conduct likely to constitute an abuse.
On 17 May 2000, the Competition Council (CC), which is a national competition authority in Lithuania, adopted the Explanations on Definition of Dominant Position. In addition, on 24 February 2000, the CC adopted the Explanations on Definition of Relevant Market, which it follows to define a dominant position in situations of concentrations and abuse of dominance.
The LC sets out the general competition law rules and is applicable in all areas of economic activity. If the specific law that governs an individual area of economic activity provides for exemptions and permits certain actions prohibited under the LC, however, the special law will prevail.
Undertakings in a dominant position usually invoke economic arguments in defending their cases and use economic experts in proceedings before the CC. The CC itself analyses the behaviour of dominant firms in the economic context and courts invoke economic experts to perform economic evaluation of conduct in question. Even so, there is a need for a more economic-based approach towards application of the LC in the field of abuse of a dominant position. It is expected that the future changes brought by review of article 82 of the EC Treaty will be reflected in the practice of the CC.
The LC does not provide a test for market definition. According to the Explanations on Definition of Relevant Market, a relevant market is defined as follows:
• the product market must be defined by determining the goods that may be substituted;
• the geographical market must be defined by determining the territory in which the goods may be substituted;
• when determining the product market and geographical market, the supply substitution may be analysed only after analysis of the demand substitution; and
• after the definition of the relevant market, market players and their market shares must be determined.
The LC provides for the following definitions of a relevant market, product market and geographical market:
• ‘relevant market’ means a market of certain goods in a relevant geographic territory;
• ‘product market’ means the aggregate of goods, which from the consumers’ point of view are appropriate substitutes according to their characteristics, application and prices; and
• ‘geographical territory’ (or ‘geographical market’) means a territory in which the conditions of competition in a relevant product market are in essence similar for all undertakings and which, taking this into consideration, may be distinguished from adjacent territories.
The Explanations on Definition of Relevant Market are applicable to the same extent for dominance and merger control purposes.
The Lithuanian competition rules do not prohibit holding of a dominant position, but only an abuse of the dominant position by carrying out certain actions (see question 15). The Lithuanian competition rules and practice of the CC do not show clearly whether an abuse of dominant position committed on the dominated market, but the effects of which are felt in a separate market on which the undertaking concerned does not hold a dominant position, may fall under the prohibition of abuse of dominance.