Based upon the experiences of the years passed since the commencement of the 1996 Act on the Prohibition of Unfair Market Practices and Restriction of Competition ("Act"), a package of modification affecting almost the complete Act came into effect on February 1, 2001. When drafting the respective bill, legislators paid special attention to the competition laws of the European Union, thus the modified Act is even more harmonized with the respective rules of the Union.
Below the most important new provisions are highlighted concerning cartel, abuse of dominant position, merger control, the organization and procedure of the Economic Competition Office ("Office").

Cartel regulations

It is an important novelty that according to the Act the so-called "hard-core" restricting agreements containing price-fixing and division of market will get out of the effect of the de minimis rule (until now generally 10% market share). The reason for changing is obvious: such agreements have exclusively an effect restricting competition, even in the lack of significant market share. However it is query if the Office will in practice check up violations of law of such small importance.

A package of modification relates to the exemption from the general cartel ban: according to a new section, the respective block exemptions shall not apply, if due to the cumulative effect of agreements otherwise to be exempted, the grounds for the exemption do not sustain. This rule is the equivalent of cancellation well known in the EC, which has been really lacking (theoretically) from the Hungarian system. Because of the separation of the Hungarian adoption and application of law (i.e. the government adopts the Decrees on block exemptions, the Office merely applies them) the cancellation cannot come into question, so the statutory exception is the appropriate solution, that raises however several serious problems: the retroactive effect, fining and so the question of legal security. The legislator settled this question by the rule that the Office may state only for the future - and without imposing a fine - that a block exemption does not cover a specific agreement. The chosen solution is correct from the point of view of rule of law, however dogmatically it can be queried.

In the rules of individual exemption it is new that the exemption will be granted for a definite period and it can be granted even bound to preliminary (suspensive) or posterior (resolutive) condition(s).

Prohibition of abuse of dominant position

In this regard, the definition of dominant position has changed applying the principle of real independence of a business operation from the competitors, instead of the former approach, which was based rather on the reasonable replaceability of the concerned goods or services at largely the same conditions.

Merger control

As to the rules of concentration, a more precise provision has been worked out concerning the definition of concentration expressly referring to both direct and indirect control. The definition of significant influencing of an undertaking by another one includes now also the mere de facto ability to influence, furthermore a slight widening in the scope of obligation of registration with the Office has been implemented.

The rules of merger established by holdings, banks, insurance companies and investment funds exempt from the duty to register has become stricter: permission is not required only if the direction after obtaining control lasts not more, than one year (however extendable upon request), and if the rights of control are used only to a necessary extent of remarketing. This modification has been induced by the demand of legal harmonization with the European Directive.

Organisation of the Economic Competition Office

The altered provisions of the Act affecting the organisation of the Office do not show any radical intervention in the actual structure, however, they affect the competence and appointment of its Chairman as well as Deputy Chairmen.

The Chairman of the Office jointly with the Chairman of the Competition Council may issue announcements not legally binding, which are adequate to diminish the legal insecurity deriving from the general clauses by making the competition authority’s practice more calculable. It should be noticed that such announcements – beside that they really serve with some support for undertakings – cannot substitute for an instrument which is legally binding, serves for inner use, but a public legal instrument, that could really integrate the practice with consideration to the total independence of the members of the competition council.

According to a new section the Chairman of the Office – when perceiving disturbance on the market during conducting sectorial inquiries – can oblige the undertakings in a given sector of business to supply data and has also the right of fining with immediate enforceability. This order will have a function in the case if only a general suspicion arises and investigation is in course against those not drawn under concrete procedure.

It is a significant novelty that the appointment of the Members of the Competition Council will change from the previous undetermined period to a determined 6-year period. This change indicates the unsaid perception that the Competition Office – and the Competition Council as part of it – is not a court but an administrative authority, to which no such severe guarantee requirements should be stipulated as to courts, considering also that against the decision of the Competition Council one can file a lawsuit before the independent courts.

Competition Supervisory Procedure

The new procedural regulations support a more effective procedure of the Office implementing even more provisions which render the competition procedure exempt from the applicability of the general administrative procedure in many aspects.

The amount of procedural fine - which can be imposed on a party causing delay to or putting obstacle in the way of the procedure - has become higher (instead of HUF 10,000 up to HUF 100,000 (cca. USD 330) as a minimum and from HUF 50,000 to one percent of the total net turnover of the company as a maximum). It is still a question of future practice, whether the Office would tend to impose high procedural fines frequently.

The legislator in conformity with the EC law has corrected a continuously criticized insufficiency of the former Act by fixing the maximum amount of leviable fine at 10 percent of the yearly total net income of the concerned undertaking. At the same time this regulation is informative for the undertakings and for the Competition Council as well. The former ones get supposedly influenced according to the legislator’s intention, the latter one will presumably result in considerable higher fines in practice.

In the case of mergers the proceeding fee has been also increased from the previous HUF 500,000 to HUF 2,000,000 (cca. USD 6,600) in simple cases and to HUF 10,000,000 (cca. USD 33,000) in complicated cases.

Another modification results in the extension of the procedural deadlines, as the previous short time limits often made the inquiries symbolic in complicated matters. With respect to the fact that e.g. in the EC there is no such time limit, the newly set deadline of 90 days or 180 days if lengthened cannot be considered as too long deadline (that can be extended twice). Naturally so much time is not always necessary to arrange, so in simpler merger cases the new deadline is 45 days.

A really important strengthening to the Office is that the examiner of the Office - further its previous rights - is entitled to enter the premises of the company and to examine the same with the consent of the Court. The examiner is entitled to exercise these rights also using the help of the police.

The competition office has the new power that in its decision it can oblige an undertaking to a certain activity, which is really justified mainly in dominant position cases - in conformity with the EC regulations (e.g. establishing business contact).

The new Act also contains a clause on supporting informants such like the laws of the EC and the USA. Betrayal is not nice, but apparently considered as useful for the Office, for the informant, for the economy - of course not for the betrayed other parties, but nothing is perfect.

A very important modification is that the decision of the competition office is immediately enforceable irrespectively of any challenge of the same at court. This provision reflects a new principle, which obviously will result in more imminent serious effects (such as heavy fines) on companies, therefore to seek for in advance professional legal advice on competition law aspects in Hungary will be more advisable in the future.

Dr. Tamás Gödölle
Attorney at Law

Bogsch & Partners