Competition rules enforcement: The Hungarian Competition A uthority

Competition rules enforcement: The HungarianCompetition Authority Business environment in the EU Prepared by Dr. Endre Domonkos (PhD) 1 st Semester, Academic Year 2011/2012

I. The Hungarian Competition Authority I. • The Hungarian Competition Authority (Gazdasági Versenyhivatal - GVH; its English name used in the early years of operation was Office of Economic Competition) was established by Act LXXXVI of 1990 on the prohibition of unfair market practices, and started its operation on 1 January 1991. • The enactment of the prohibition of anticompetitive behaviour and the setting up of the authority was motivated by the will of protecting the freedom and fairness of competition. • The Competition Act, which is currently in force, is Act LVII of 1996 on the prohibition of unfair and restrictive market practices. • By Hungary's accession to the European Union, the GVH became a member of the European Competition Network.

I. The Hungarian Competition Authority II. • The task of the GVH in relation to the fairness and freedom of competition is to enforce the competition rules for the benefit of the public in a way, which increases long-term consumer welfare and competitiveness at the same time. • Furthermore, it promotes competition in general and, where no competition exists on the market, the GVH endeavors to create competition and promotes appropriate state regulation to be put in place. • The activities of the GVH in connection with the safeguarding of competition rest on the following three pillars. • Beyond the safeguarding of competition, the GVH fulfils other law enforcement tasks provided by other legal acts such as the Trade Act.

II. The legal status of the GVH I. • The GVH is a state administrative authority, which is independent of the Government and reports only to Parliament. • The GVH is headed by the President, whose work is assisted by two Vice Presidents. • The two Vice Presidents are nominated by the President of the Authority to the Prime Minister who, in agreement with the nomination, submits the nomination to the President of the Republic. • One of the Vice Presidents is the head (Chair) of the Competition Council, while the other directs and supervises the investigative sections. • The investigative sections are supervised by a Vice-President and organised by economic sectors (industries) and case types.

II. The legal status of the GVH II. • Beyond these, the investigative sections give their opinion concerning all measures drafted, and legislation in conception or drafted that have a bearing on the responsibilities of the GVH. • The Consumer Protection Section deals with complaints, informal complaints and conducts proceedings concerning unfair manipulation of consumer choice, while the secretly realized and most restrictive (e.g. price fixing and market sharing) cartels are detected and examined by the Cartel Section. • The Production and Services Section, which is organised on a sectoral basis, and the Network Industries Section are responsible for cases of all other types.

II. The legal status of the GVH III. • The Competition Policy Section: • The Legal Section: • The International Section: • Thechief economist: • The General Secretariat's Competition Culture Centre. • The Competition Council. • The Chair of the Competition Council: • In the course of the competition supervision proceedings, the members of the Competition Council are subjected only to the law.

III. The President • The President of the Gazdasági Versenyhivatal (GVH, Hungarian Competition Authority) is nominated by the Prime Minister and appointed for six years by the President of the Republic. • After the expiry of the six-year period the President may be re-appointed more than one time. • The President of the GVH - similarly to the Vice Presidents - must be nominated within the three-month period preceding the date of expiry of the term of appointment of his/her predecessor, and the procedure required for his/her appointment must be concluded as early as one month before the date of expiry of the preceding appointment. • Under the Competition Act the President tasks are the followings:

IV. The Vice president of the Authority • The Vice President, who is responsible for the supervision of the professional organisational units: • The GVH has two vice presidents. • Both Vice Presidents of the Gazdasági Versenyhivatal (GVH, Hungarian Competition Authority) are nominated by the President of the GVH to the Prime Minister who, in agreement with the nomination, submits it to the President of the Republic. • The Vice Presidents are appointed for six years by the President of the Republic.

V. Consumer Protection Section • The Consumer Protection Section: • It is guided by the professional supervision of the Vice President of the GVH. • It manages the settlement of complaints and informal complaints and the initiation and conduct of proceedings, relating to the unfair manipulation of consumer choice. • Its tasks are the followings:

VI. Cartel Section • The Cartel Section under the supervision of the Vice President detects and examines secret hard-core cartels (price fixing and market sharing), which are the most serious restrictions of competition and, on a case-by-case basis, also other restrictive agreements. • In the framework of these activities, its tasks are the followings: • Moreover, the Cartel Section also takes part in the elaboration of the GVH's opinion on draft measures or legislation concerning the scope of its duties and in other competition advocacy activities of the GVH; furthermore it takes part in the promotion and development of competition culture, too.

VII. Production and Services Section • The Production and Services Section under the professional supervision of the Vice President fulfils all of the functions of competition supervision in respect of the various production and service activities except of those, which are in connection with the unfair manipulation of consumer choice and secret "hard-core" cartels. • Among them, its tasks are the followings: • Moreover, the Production and Services Section also takes part in the elaboration of the GVH's opinion on draft legislation or concepts and in other competition advocacy activities of the GVH. • It also takes part in the promotion and development of competition culture, too.

VIII. Network Industries Section • The Network Industries Section under the professional supervision of the Vice President fulfils all of the functions of competition supervision in respect of network industries except of those, which are in connection with the unfair manipulation of consumer choice and secret "hard-core" cartels. • Among them, its tasks are the followings: • Moreover, the Network Industries Section also takes part in the elaboration of the GVH's opinion on draft legislation or concepts and in other competition advocacy activities of the GVH. • It also takes part in the promotion and development of competition culture, too.

IX. Competition Policy Section • It is the theoretical and methodological section of the GVH, dealing with competition policy research and development. • Among its activities, it -Gives theoretical and methodological assistance to the GVH-s competition supervision proceedings and competition advocacy; - Helps with its theoretical knowledge and by giving possiblymethodological support the elaboration of the general competitionpolicy of the GVH and prepares documents describing and reflectingthis policy;

X.International section • The International Section inside the GVH • The International Section is responsible for the initiation and maintenance of international relations. • Furthermore, it coordinates the related internal administration. • In the framework of these activities, its tasks are the followings:

XI.Chief economist • There are more and more competition authorities, which employ chief economists or establish separate units, which perform economic analyses, recognizing in this way the increasing role economic analysis and empirical analyses worldwide play. • In 2006, the GVH decided to look for an institutional solution, which would improve the quality of economic analyses and increase the role of analysing work. • The Chief Economist prepares comprehensive and thorough, theoretical or possibly empirical, analyses in some of the competition supervision proceedings, but he/she also participates in the answering of certain questions (including certain competition advocacy questions), which requires high proficiency in economics.

XII. Competition Culture Centre • The Competition Culture Centre (CCC)is a specialized unit within the Hungarian Competition Authority (GVH). • The developing of the competition culture, besides competition supervision and competition advocacy, constitutes the third pillar - expressly mentioned by the Competition Act - of the GVH's activity of safeguarding economic competition. • The CCC functions according to a public annual work plan. • It organises and operates, supported by the professional background given by the GVH, activities and programmes. • The CCC operates the Library of the Authority.

XIII. Competition Council • The Competition Council brings decision on the legal remedy application against the interim measures of the investigators in the course of their competition supervision proceedings too. • The members of the Competition Council are appointed and exempted by the President of the Republic for six years upon the suggest of the President of the GVH. • The Chairman of the Competition Council organises and conducts the work of the competition Council. • A three-member (exceptionally five-member) panel designated by its Chairman makes the decision in the particular cases. • The members of the Council are subject only to the law.

XIV. Chair of the Competition Council • The Chair of the Competition Council as one of the two Vice Presidents of the Gazdasági Versenyhivatal (GVH, Hungarian Competition Authority) is nominated by the President of the GVH to the Prime Minister who, in agreement with the nomination, submits it to the President of the Republic. • The Chair of the Competition Council is appointed for six years by the President of the Republic. • Chair of the Competition Council: • The Chair of the Competition Council, together with the President of the Authority, may issue notices explaining the foundations of the law-enforcement practice of the GVH.

XV. The Hungarian Competition Act • The Hungarian Competition Act contains all the substantive provisions of the Hungarian competition law. • In the case of other infringements (unfair manipulation of consumer choice, cartels and other restrictive agreements, abuse of dominant position), it is the GVH that applies the provisions of the Competition Act in its competition supervision proceedings. • Though the GVH is the authority to safeguard the public interest, as from November 2005 the Act provides for the possibility of the enforcement of civil law claims originating from infringements of the provisions in Chapters III to V. • The control of concentrations of undertakings belongs to the exclusive competence of the GVH.

XVI. Unfair Competition • The Act contains general prohibition on unfair competition, however, certain practices are listed, such as disparagement of competitors, unfair acquisition or make use of business secrets, boycott appeals, imitation and the infringing of the fairness of any bidding process. • It is to be underlined that these practices typically result in a lawsuit between competitors, as private rather than public interests are infringed by them. • Thus, these cases belong to the sole competence of the courts.

XVII. Consumer Protection I. • In order to protect consumers, the state interferes in the economic processes by legal acts adopted in various fields of law. • These consumer protection related provisions are in Chapter III of the Competition Act. • The most important of them (in Art. 8) prohibits the deception of consumers in economic competition. • Another prohibition (in Art. 10) relates to the unjustified restriction of the freedom of consumer choice. • The list of practices in the Act is of illustrative nature; thereby the authority is free to intervene whenever it detects any unlawful practices.

XVII. Consumer Protection II. • Beyond these, some other factors may also influence the decision of the consumer. • Such other factors are in particular statements about - the method of distribution; - terms of payment; - possible discounts; - gifts associated with the goods or the chance of winning. • Under circumstances of fair competition, consumers must get precise, clear and objective information on the above factors. • The deception always comes along with an unjustifiable restriction of consumers' choice, as the consumers arrive at a decision based on wrong or incomplete information.

XVIII. Restrictive agreements I. • Both horizontal agreements (between competitors) and vertical agreements (between undertakings operating on different levels of the production and distribution chain, e.g. between manufacturers and distributors) restricting competition are prohibited according to the Competition Act. • However, certain restrictive agreements are excepted or exempt from the prohibition. • Agreements of minor importance are not prohibited, and where the undertakings engaged are not independent of each other, their agreement does not qualify as restrictive under the Act. • Block exemption regulations facilitate the application of exemption form the prohibition.

XVIII. Restrictive agreements II. • The most harmful restrictive agreements are the so-called hardcore cartels. • These agreements stipulate direct or indirect fixing of purchase or selling prices or other business terms and conditions or relate to the allocation of the market. • Therefore, neither an exception nor an exemption can apply to them. • Decisions made by associations of undertakings (social organisations of undertakings, public corporations or other similar organisations), which have as their object or effect the restriction of competition are also prohibited.

XIX. Abuse of dominant positions • The abuse principle applies to the dominant positions, according to which abusing rather than having a dominant position is prohibited. • An undertaking having a dominant position does not mean that there is no possibility to compete; it simply means that the undertaking concerned has a leading role on the market. • In the background of the most harmful practices of the undertakings having a dominant position there are strategies, the object of which is further to distort the weak competition by excluding competitors, hindering competitors- expansion or deterring them from efficient competition. • The market behaviours intending to exclude competitors can have different forms.

XX. Concentrations I. • Merger control (control of concentrations of undertakings) is based on a mandatory preliminary authorisation system. • The authorisation of the GVH is required for the merger of any undertakings with a turnover higher than the threshold determined by the Competition Act. • The application for authorisation must be submitted - with the simultaneous payment of the procedural fee. • If the undertakings fail to apply to the GVH for the authorisation of their merger, the GVH may launch a proceeding ex officio.

XX. Concentrations II. • As far as the effect on competition is concerned, it is fundamental for the assessment of the restrictive effect whether the merger in question is between competitors (horizontal) or between a seller and a buyer (vertical). • In general horizontal mergers directly create a change in the structure of the market while vertical mergers may have negative effects on connected markets. • Portfolio effects: • Conglomerate effects: • Separate legal norms may determine additional rules concerning the control of concentrations of undertakings.

XXI. Sectoral inquiries • The initiation of competition supervision proceedings examining competitive conducts of undertakings is not the only means of the GVH to promote competition. • The Competition Act authorises the President of the GVH to order a sectoral inquiry, if market processes in a sector suggest that the competitive process in the given sector is restricted or distorted. • In the course of the inquiry a report is made as a result of the detailed analysis of the information collected from the market participants. • The GVH has initiated sectoral inquiries among others in the mobile telecommunications, in the electric energy, in the home loan and in the media market.

XXII. Sectoral rules • Besides the Competition Act there are legal norms laws that in the narrow sense do not form part of the competition regulation. • Examples for such legal norms relate to certain regulated sectors and natural monopolies. • The authorities established for the supervision of the given sectors (the National Communications Authority, the Hungarian Energy Office and the Hungarian Rail Office) enforce these legal norms. • At the same time, in order duly to consider competition aspects, in some matters the law provides for the co-operation of these sectoral authorities with the GVH, the framework of which is established by co-operation agreements between them.

XXIII. Regulation relating to the EU market • Since Hungary's accession to the European Union, the Community competition law is directly applicable to Hungarian undertakings as well. • The Hungarian Competition Authority, the GVH and the Hungarian courts must apply the Community competition law in each case in which they would apply (or actually apply in parallel) national competition law to all the restrictive agreements and abuses of a dominant position that may affect trade between Member States. • The efficiency and uniformity of law enforcement are assisted by the co-operation within the European Competition Network (ECN), which consists of the European Commission, as the Community competition authority and the competition authorities of the Member States.

XXIV. Community competition law I. • The competition rules laid down in Articles 81 and 82 of the Treaty establishing the European Community (Treaty) prohibit, in respect to the common market, the conclusion of agreements that restrict competition, as well as the abuse of a dominant position. • In case there is a suspicion of infringement, the GVH is authorised and also obliged to apply Community law (namely to start a proceeding against the supposed infringement of Community competition law, which may affect trade between Member States), where it would apply Hungarian competition law for the supposed infringement of its provisions. • In the proceeding, the GVH applies as substantive law Articles 81 and 82 of the Treaty, secondary Community legislation (regulations and Commission notices), furthermore, the legal principles arising from the decision making practice of the European Commission and the case law of the Court of First Instance and the European Court of Justice.

XXIV. Community competition law II. • The Community law is applied in procedures that are governed by the procedural law laid down in the Hungarian Competition Act, whilst the substantive provisions of the Competition Act may be applied in parallel with the substantive Community rules. • Council Regulation (EC) No 1/2003. • Hungary's accession to the European Union has brought about changes in the field of merger control as well. • Mergers having a Community dimension.

XXV. Competition supervision proceedings commenced ex officio I. • The GVH enforces the provisions of the Competition Act and the EC competition law in competition supervision proceedings. • The Competition Act and, as a background legislation, Act CXL of 2004 on the General Rules of Administrative Procedures and Services (Public Administrative Procedures Act, PAPA) contain the provisions on the initiation, performance and conclusion of the competition supervision proceeding. • The competition supervision proceedings of the GVH are initiated ex officio or commenced on application. • When approving commercial code of ethics, the GVH acts solely according to the provisions of the PAPA.

XXV. Competition supervision proceedings commenced ex officio II. • By the decision on the substance of the case adopted in proceedings initiated against unfair manipulation of consumer choice, abuse of a dominant position or restrictive agreements, the Competition Council may take the followings: • By means of commitment injunctions issued during the proceedings and terminating at the same time the proceedings, the intended effect may be achieved without any serious intervention: • This solution is also advantageous for the undertakings.

XXVI. Supervision proceedings commenced on application I. • The GVH also conducts authorisation proceedings commenced on application. • In the case of a failure of undertakings to submit an application it may initiate a proceeding ex officio as well. • Applications must be submitted to the GVH: - for the authorisation of concentrations, - for the extension of the one-year period of temporary acquisition of control or assets, and - based on a separate legal norm, for the prior authorisation of certain price increases. • The GVH makes its decision in a simplified procedure.

XXVI. Supervision proceedings commenced on application II. • The deadline for finishing a simplified procedure is 45 days, that can be extended one time by 20 days, where justified. • When the Competition Council has the opinion, that because of the complexity of the case the assessment of the effects of the merger would need a more extensive scrutiny, the length of the period open for the settlement is 120 days, that may be extended one time by a maximum of 60 days, where justified. • In other cases, where an application is required, the time limit of the proceeding is up to 120 days, which may be extended by 60 days. • By its decision the Competition Council may grant the application or it may refuse to grant authorisation.

XXVII. Investigatory powers • During the competition supervision proceeding, the GVH have the possibility to use the following investigative measures: • After finishing the competition supervision proceeding, the Authority controls the observance of the Competition Council's decision. • It controls the compliance with the prescribed commitment in the framework of a post-investigation.

XXVIII. Complaints and informal complaints • Any person can submit a complaint or an informal complaint to the Hungarian Competition Authority (GVH) when he/she observes a behaviour which infringes the Competition Act, the Act on Trade or the Act on Business Advertising Activity and which falls within the competence of the GVH. • The lodging of both complaints and informal complaints is free of charge. • Upon request of the complainant or the person making an informal complaint the GVH does not identify him/her to the undertaking(s) concerned.

XXIX. The complaint • A complaint can be made by the use of the form published by the GVH. • The complainant answers the obligatory questions in the form and submits it to the GVH. • The investigators of the GVH have up to 60 days to adjudge. • In practice, in most cases, the GVH makes its decision about the initiation of a proceeding in a shorter period of time. • When no proceeding is initiated on the basis of the complaint, the complainant may turn to the Municipal Court of Budapest for legal remedy against the injunction stating this.

XXX. The informal complaint • With the lodging of an informal complaint any person can send a signal to the authority without any formal constraint when he/she observes an infringement of the statutes mentioned above. • Hence, even handwritten notes or letters or e-mails can be used for making informal complaints. • Informal complaints are to be assessed by the GVH within 30 days of the date of receipt of them. • If the GVH does not initiate any competition supervision proceeding, the person making the informal complaint may not turn to the court for legal remedy.

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Competition rules enforcement: The Hungarian Competition A uthority