Several shocks hit the globe over the past ten years affecting and sometimes seriously disrupting the economy, people’s social life and overall well-being. Digitalization and recently home offices became an integral part of our lives, sustainability and climate change are hotter topics than ever and the Covid-19 pandemic caused major economic upheaval and unprecedented legal issues. Each country has faced these challenges and addressed them differently.
In this article we examine how the Hungarian Competition Authority (“GVH”) coped with its tasks of competition control, advocacy and developing a culture of competition during these challenging years. The start of our retrospective account of key trends in GVH’s practice over the past ten years is landmarked by the initiation of the current president of the Competition Council – the decision-making body of the GVH shaping the competition law landscape in Hungary, who will step down this year as his second term in office expires.
I. Consumer protection in focus
2019 brought a drastic change in terms of the amount of fines given out by the GVH in consumer protection cases. While fines ranged from a maximum of a few hundred million HUF beforehand, this went up to HUF billions.
In 2019 and 2020 the GVH’s scrutiny in consumer protection was focussed on major online and telecommunication companies and the investigations ended with several fines in the range of HUF 1.2 to 2.5 billion. These two years were the only years, where the GVH imposed a higher total fine in consumer protection cases than in cartel cases. 87% of the total fines imposed by the GVH in 2020 was imposed in consumer protection cases, which is quite unique given that huge fines are generally imposed on cartel cases by other competition authorities and the European Commission. However, this trend reversed in 2021, when the GVH turned back to cartel investigations and imposed a record-breaking fine. The question is, which trend will take the upper hand in 2022 and the upcoming years under the prospective new leadership of the GVH?
Interestingly, the number of consumer protection cases investigated by the GVH showed a declining trend over the past ten years. While between 2010 and 2016, the GVH initiated and closed approx. 50-60 consumer protection cases per year (51 cases initiated and 55 cases closed in 2012, 62 cases initiated and 61 cases closed in 2013), this number has been reduced by half in recent years (21 cases initiated and 29 cases closed in 2020, 23 initiated and closed in 2021). This means that half of the cases the GVH dealt with in the early 2010s were consumer protection cases, which fell to 20-25% in recent years.
As the abovementioned consumer protection cases brought with them more and more serious sanctions, companies have turned to alternative ways in order to avoid or reduce the negative effects of the GVH’s investigations and jointly shape market practice, submitting commitment proposals in several cases. In fact, the significant decrease in the number of cases initiated by the GVH over the years did not have the same effect on the number of commitments, as those remained at about the same level from year to year (an average of 2-5 commitments per year). While approximately 3-6% of closed consumer protection cases ended with commitments in the early 2010s, this spiked to 14-20% in recent years (18% in 2018, 14% in 2019 and 20% in 2020).
In the early 2010s, when fines were lower for consumer protection infringements, it was sufficient for the commitments to include the changing of the commercial communication under investigation, providing for consumer education and a compliance program. Recent practice, however, suggests that these measures should be supplemented by compensatory elements that directly reach consumers in order for the GVH to accept, which practically means direct monetary “compensation” to consumers for the alleged infringement tailored to the specific characteristics of the case. Moreover, there are already examples in the GVH’s practice where even the compensatory element did not result in the acceptance of the commitment, but was only sufficient for the GVH to take into account as a fine mitigating factor.
The threat of high fines and the increasingly sophisticated approach of the GVH are incentivising companies to try and close consumer protection investigations with commitments in spite of the increasing expectations of the GVH as to the scope and value of a commitments package. Therefore, we expect the trend going towards commitments in consumer protection cases to continue in the future.
II. Cartels: an emerging trend of discovery and intelligence
The GVH’s cartel practice has been cyclical over the past ten years, both in terms of fines imposed and the number of proceedings initiated and closed. The level of fines imposed shows a downward trend from the mid-2010s until 2021, which year shows a trend reversal, where the GVH made a resource reallocation in favour of cartel investigations. The result of this reallocation is extremely striking: a record fine of HUF 16.3 billion was imposed on companies involved in agreements restricting economic competition (mostly cartel cases) and a record-breaking HUF 14.1 billion on the participants of the artificial fertilizer cartel in Hungary.
While in the early 2010s transportation, food and beverages and bank sectors were in the focus of the GVH’s cartel investigations, this shifted towards the pharmaceuticals, real estate, waste management and energy sectors in the mid and late 2010s. The Covid-19 pandemic further increased the GVH’s attention on pharmaceuticals and medical devices, energy market and most recently, the construction industry has been under scrutiny of the GVH.
The GVH’s practice shows that approx. 60-70% of cartel cases are reported to the GVH by contracting authorities in public procurement procedures. This high number is mostly due to the reporting obligation of contracting authorities if they detect or have reasonable grounds to suspect a clear infringement of prohibition of agreements restricting economic competition. The GVH also initiated a so-called cartel-chat in 2016 which led to an increasing number of notifications. Although the GVH makes continuous efforts of raising the attention of the companies on the positive impacts (fine reduction) of leniency applications, their number is still relatively low.
Despite the Covid-19 pandemic, the number of dawn raids more than doubled in 2021 compared to the average of previous years. These figures were driven by two key factors: the transposition of the ECN+ Directive expanding the range of properties, vehicles and data carriers (media and devices) that can be investigated on site and resource reallocation within the GVH.
III. Abuse of dominance a rarity
Over the past ten years, around or even less than 5% of the total number of cases the GVH had dealt with were abuse of dominance cases yearly. The GVH initiated about 2-5 cases per year and did not impose fines more than two times per year for the abuse of dominance. These numbers show that abuse of dominance caught by the GVH is rare in Hungary.
Nevertheless, in 2021, the GVH has been dealing with the suspicions of abuse of a dominant position in eight ongoing cases, which is a record year in this respect compared to the previous decade. The markets concerned by these investigations are – amongst others – technology, beverages and the construction industry in Hungary.
IV. Speeding up merger control with less red tape
The merger control process in Hungary was significantly streamlined during the past ten years. This was a combined result of legislative reforms, introduction of new types of procedure, the increase of the thresholds for notification as well as the reduction of the administrative burden on companies.
At the beginning of this period, the GVH dealt with around 36-37 merger notifications within an average of 30-40 days. The number of days of completing the merger process have gradually decreased, while the number of notifications increased to an average of 60-70 notifications a year.
Effective as of 2017, the merger control process received a major uphaul with the raising of the notification thresholds and the introduction of the so-called “summary procedure” for straightforward mergers with no competition law effect. In a summary procedure, the GVH only issues a one-pager official certificate approving the transaction within eight days from filing, instead of the general process with an administrative deadline of 30 days. This new tool has drastically reduced the number of days of completing the merger process on the side of the authority.
In 2021, 92% of the notified transactions have been approved by the GVH with this so-called official certificate within an average of four days from the submission of the complete notification form. The quick approval process is also the result of the companies’ willingness to participate in a pre-notification meeting, where the GVH’s investigators provide feedback on the draft notification form before submission.
To further develop the practice in Hungary, the GVH has just initiated a public consultation regarding the merger control rules and best practice, including its guidelines and the notification form. The Budapest competition law is working together with the Hungarian Competition Law Association to contribute to this public consultation.
V. Sector inquiries
With the involvement of the market players, the GVH has conducted several sector inquiries into hotel online bookings, bank card acceptance market, television broadcasting and distribution market, beverage procurement practices in the HoReCa sector as well as market analysis into the data assets in e-commerce, comparison websites and the movie and film distribution market. All have led to suggestions to market players and legislators.
In 2021, the accelerated sector inquiry was introduced as a response to the Covid-19 pandemic and its economic effects, which has been frequently used by the GVH ever since. The GVH was able to quickly conduct review and intervene (if necessary) into, among others, the ceramic bricks market, the construction wood market or the coronavirus rapid tests market with this new tool. Most recently, the GVH was even granted the competence of conducting dawn raids in the frame of an accelerated sector inquiry procedure.
VI. Developing a culture of competition: guidance to market players and consumers
Throughout the years, the GVH has always been proud of its innovative solution to guide the market players and to educate consumers, as well its experience and expertise amongst other national competition law authorities.
Indeed, the GVH deserves praise for its openness to cooperation with market players, boldness to incorporate change and proactive approach to provide guidance on contemporary competition law issues. A few interesting steps to note would include the cartel-chat, the competition compliance campaigns, useful tips to consumers on hot topics through its website (e.g., holidays, airline tickets, scam websites), guidelines on green marketing ad influencer marketing and regular press releases about new developments of competition law as well as about closed investigations which are usually picked up by major Hungarian news outlets.
However, competition law enforcement is never without its challenges, and we remain vigilant on how the trends of the last ten years will carry over to the next era. We continue to advise our clients on competition law compliance and, should it come to that, how to best handle competition law issues and GVH investigations taking into account the GVH’s past practice and the unfolding trends through a forward-looking yet retrospective view.
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For further information, please contact:
Gábor Kutai, Bird & Bird
gabor.kutai@twobirds.com
