This is a brief summary of the main points of the latest draft amendment to the Hungarian Competition Act1, which has attracted much interest and press coverage and which, if adopted, would significantly increase the powers and means of intervention of the Hungarian Competition Authority (“HCA”). The three most important new elements are as follows.
I. Essential undertakings
Under the proposed new rules, the HCA would have the power to designate an undertaking as an “undertaking of essential importance” (“essential undertaking”)2 in an administrative procedure and impose a wide range of obligations on such an undertaking, regardless of whether the essential undertaking has committed an infringement.
The draft bill states that a company must have essential importance across several markets from a competition perspective and from the perspective of consumers in order to qualify for essential undertaking status. In addition, the bill lists examples for the criteria that should be taken into account when qualifying a company as an essential undertaking, such as its market share, market power and access to other resources; vertical integration or activities in otherwise related markets; access to data relevant for competition; the essential importance of the relevant services or goods for consumers or the economy; and whether its activities are significant to third parties or consumers and provide access to supply and sales markets. However, the above list is not exhaustive and it is possible that the HCA may consider an undertaking to be essential on the basis of other criteria. The bill is also silent on how the above criteria should be assessed in such a procedure.
According to the bill, at the end of the administrative procedure, the GVH would have the power to:
i) prohibit the essential undertaking from preferencing its own offers (even within its own group of companies), from using its customers' data for its own purposes without their consent or combining them with other data, and from hindering interoperability or data portability (similarly to the EU's requirements for gatekeepers under the Digital Markets Act);
ii) require information on the performance, quality and success of the services provided to the essential undertaking's customers;
iii) require the essential undertaking to change its operation for security of supply reasons if the undertaking is, or there is an imminent risk that it will be, unable to meet its obligations. In such a case, the HCA may require the (forced) sale of the undertaking in part or in full; oblige the undertaking to transfer the necessary assets/records/data to other service providers (designated by the HCA) for operation; initiate the appointment of an additional senior official to the board of directors; order the sale of shares or suspend voting rights; require a general meeting to be convened, put specific items on agenda of the meeting, and call attention to the need for the shareholders to take specific decisions.
With regard to point (iii), the bill stipulates that these measures must be applied in accordance with the (general) principle of gradual approach.3 However, a number of critical issues (e.g. what “obligations” an essential undertaking should have, who should designate the buyer to which the essential undertaking should be sold, who should select new directors for the board, what legal guarantees should the essential undertaking have in such a procedure, etc.) are not yet fully clarified in the bill, despite that fact that it would restrict the fundamental right to private property.
In the event of non-compliance, the HCA would have the power to impose a fine up to thirteen percent of the net turnover realised by the essential undertaking or its entire company group in the previous year. It would be a notable sanction in cases that do not even involve a breach of conventional competition law.
As the HCA's procedure is a single-instance pro-cedure, its decisions are final upon service. Therefore, although an essential undertaking would be able to challenge the decisions of the HCA in administrative litigation with regard to both the designation and the obligation imposed, the filing of such a lawsuit would not affect the en-forceability of the HCA's decisions. The essential undertaking would therefore only be exempted from complying with the obligation imposed if a court were to grant preliminary injunction, a rarely used measure. Although the HCA would have the option to review the designating decision (in the framework of a so-called ex-post review) on its own competence, the review could not be requested by the essential undertaking for one year from the date of the decision.
II. Continuous distortion of competition without infringement
The new feature of the draft legislation serves to further expand the HCA's toolbox, allowing it to use the results of a market analysis or (accelerated) sector inquiry to establish that competition in the relevant market have been distorted/restricted in a significant and continuous manner for three years prior to the opening of the inquiry even in the absence of an in-fringement. The innovation is that the HCA could now impose a necessary and proportionate obligation, whether behavioural (operational) or structural (e.g. via divestiture of a shareholding), on an undertaking contributing to the distortion of competition, even without finding an infringement. The HCA would only be able to apply this mechanism if, in its judgment, the distortion of competition was unlikely to disappear within two years in the absence of the obligation.4
III.Guidance for courts
The bill includes explicit guidance to courts on the judicial review of HCA’s decisions in administrative litigation, as it would require courts to "ensure that the effective enforcement of competition law is not compromised in the resolution of a dispute".5 Of course, practice will only show how this provision is eventually applied by independent courts. However, it is not yet clear from the language of the bill what the purpose of this provision is, since the function of administrative proceedings concerning the HCA’s decisions is not to restrict the application of competition law, but to guarantee the principle of fairness by having administrative courts review whether the HCA uses its regulatory powers in accordance with the legislation in force.
However, it should be stressed that this is just a draft bill at this stage, and so it could very well be amended during the legislative process, and, even if adopted as is, the President of the Republic could send it back to Parliament for reconsideration or initiate a review of the legislation by the Constitutional Court on the basis of constitutional concerns.
Along with businesses and other competition experts, we will continue to follow developments in this legislative process with great interest. Please do not hesitate to contact us if you have any questions about the draft legislation.
Authors: Anna Pintér and Márton Kocsis
More information:
Márton Kocsis
Partner
Competition & Compliance
marton.kocsis(at)cerhahempel.hu
Tel: +36 1 457 80 40
1 Act LVII of 1996 on the Prohibition of Unfair Market Behaviour and Restriction of Competition ("Hungarian Competition Act")
2 Pursuant to Section 22/A of the Hungarian Competition Act, as amended by the bill
3 According to Section 76/A of the Hungarian Competition Act, as amended by the bill
4 According to Section 43/F of the Hungarian Competition Act, as amended by the bill
5 According to Section 83/A of the Hungarian Competition Act, as amended by the bill