In part IV of our series on antitrust and the political system, Christoph Haid, partner at Austrian law firm schoenherr, reviews the last year that brought significant changes to the Austrian authority and the competition law regime.
An abrupt ending to a year long reign, with a new election scheduled for 2022 – what sounds like Austrian politics actually concerns the Austrian competition authority: The Director General for competition and head of the authority, Theodor Thanner, announced on 30 November 2021 that he would not seek re-election in 2022 and would step down with immediate effect after 15 years in charge. Unlike the Austrian Chancellor’s successor, who had to step aside after a few weeks, the replacement of Mr Thanner (Ms Natalie Harsdorf Borsch) has remained in charge since his resignation.
Political jokes aside, one can say easily that 2021 was quite a year for the Austrian competition authority (AFCA). It has been involved in merger control proceedings (see e.g. here) and cartel cases (see e.g. here) that caught European wide attention. However, true to the motto of this blog, this post will not focus on the interesting cases that the authority has dealt with, but on the intersection of antitrust, politics and foreign investment screening that was on display last year.
Changes to the competition regime following the ECN+ Directive
In 2021, Austria finally transposed the ECN+ directive into national law (see here). Like several EU Member States, Austria was late with the implementation and only published the first draft of the implementing act in April 2021. The bill was approved by Parliament in July 2021 but entered into force only in September 2021 after a legislative hiccup. This was because the Federal Council, in which the ruling coalition did not have a majority, did not approve the act after it had been adopted by Parliament. The representatives of opposition parties believed that the implementing act failed to secure the independence of the AFCA as foreseen by the ECN+ directive. This non-approval triggered a delay of eight weeks before the act was also deemed adopted by the Federal Council and subsequently entered into force.
The draft law was prepared by the Ministry for Digital and Economic Affairs (FMDEA), competent for the AFCA, together with the Ministry of Justice, competent for the Federal Cartel Prosecutor as well as the cartel courts. The draft not only introduced changes to the Austrian competition laws warranted by the ECN+ Directive (changes to the investigative powers of the AFCA, enforcement of rights before the cartel court, the leniency program and related issues as well as the cooperation of the national competition authorities in the EU), but used the occasion to introduce further changes.
Most notably, a second domestic threshold was introduced to the merger control regime, thereby taking Austria off the list of domestic single-trigger countries for all transactions that close as from 1 January 2022 (as also reported here). What will remain is the notoriously expansive interpretation of the domestic effects doctrine by the AFCA.
As a side note, the new domestic turnover threshold also triggered an adjustment of the local nexus of the transaction value threshold: Until the end of 2021, the authority had mentioned a threshold of EUR 0.5m domestic turnover as one of the proxies for the target to have significant domestic activity, as required under the transaction value thresholds. This was increased to EUR 1m as from 2022 in the latest iteration of the guidance on the transaction value threshold, published jointly by the Austria FCA and the German FCO (provided that revenue adequately reflects the market position and the competitive potential of the target company).
What might have gone unnoticed outside the Austrian community is the significant role the AFCA played in getting this second threshold introduced. Indeed, the original draft circulated for evaluation left the jurisdictional thresholds untouched, for fear of an enforcement gap despite the transaction value threshold. In response to this draft, the FCA submitted a comprehensive opinion in which it laid out in detail what different levels of a second domestic threshold would mean (the comprehensive comments submitted by the Studienvereinigung Kartellrecht can be accessed here), noting that many of the transactions caught only have little bearing on the Austrian market and do not raise significant competition concerns. To counter the claim of an enforcement gap, it also showed that – looking at filings in 2016 and 2017 – the introduction of a second threshold of EUR 1m would mean that 11 cases would not have been caught, none of which, however, would have given rise to substantive concerns.
It is expected that the second domestic turnover threshold will result in a reduction in submitted filings of ca 40% per annum. On average, the authority received some 400-450 filings per year over the last five years; however, in 2021 it was more than 600 filings. To alleviate any negative consequences on the AFCA’s budget, the expected 40% reduction in number of filings was met by an increase of the phase 1 filing fee by 70% from EUR 3,500 to EUR 6,000 – which is still moderate compared with other EU Member States.
Independence and Competence of the AFCA
The domestic turnover threshold was, however, only a minor point in the AFCA’s statement on the draft implementation act. The focus was on what the authority perceived as impairments of its independence and competences. The three most controversial aspects concerned the following:
Extensive reporting obligation to the competent ministry
Under its new reporting obligations, the AFCA has to submit promptly a written report on all its matters to the competent ministry upon request. After an outcry by political parties over the draft bill covered by several news outlets (see e.g. here), which included the director general appearing in the main Austrian television news broadcast criticizing the planned reporting obligation, at least imminent or ongoing dawn raids were excluded from the reporting obligation. Still, the AFCA believes that the obligation is disproportionate as it compels the authority to submit sensitive business information to the Minster, whereas the ECN+ Directive only refers to proportionate accountability requirements (one should not forget, however, that in Germany, for example, the competent Ministry can – at least in theory – even issue instructions to the Federal Cartel Office; more on that on this blog). This includes the publication of periodic reports on activities, rather than extensive reporting obligations, which, as some fear, might open the door to politically motivated interference
Insufficient budget and resources
The AFCA has been fighting to be afforded more personnel and budget for many years and has repeatedly voiced concerns over its resources, compared both with other regulators in Austria and other comparable national competition authorities (NCA). With no significant changes on the horizon in the context of the draft implementation act, the FCA complained that the legislator is breaching obligations under the ECN+ Directive, pursuant to which NCAs must have a sufficient number of qualified staff and sufficient financial, technical and technological resources to ensure effective enforcement of competition rules.
To corroborate its position, the AFCA’s made clear that its regular budget in 2020 was not sufficient to cover even personnel costs, rent and maintenance of its IT infrastructure for the whole year (as a side note: the AFCA’s annual training budget was merely ca EUR 1,900/FTE in 2018 and ca EUR 1,400/FTE in 2019; see the last point of the minister’s response to a parliamentary enquiry over the AFCA’s independence). These expenses could only be covered through significant regroupings and additional funds from cartel fines. The authority also made clear in its comments on the draft implementing bill that the AFCA has been vested with fewer resources than other comparable NCAs (see recital 35 of its submission).
What is grist to the AFCA’s mills is that it has not been afforded any further personnel and resources to cope with its new competences under the very recent Fair Competitive Conditions Act (see here), which transposes the UTP Directive into Austrian law. Under this act, the AFCA has been designated as the authority competent to investigate unfair trade practices, which – leaving aside possible fines for breaches of the Austrian Cartel Act – provide for fines of up to EUR 500,000 for buyers of agricultural and food products that engage into certain unfair trade practices (NB: Austria has opted for a gold plating when it comes to relevant unfair practices compared with the UTP Directive). The legislator mentioned in its impact assessment (see here) that the AFCA would not require further resources to deal with its additional competences give (i) an increase in positions at the AFCA that has already been implemented earlier and (ii) freed resources at the AFCA due to the expected reduction in merger control flings as from this year.
Competition advocacy / restricted ability to give opinions on competition policy
The AFCA’s statutory competence to prepare independent opinions on general issues of competition policy was limited. In 2020, the AFCA submitted a total of 15 opinions on topics related to competition policy (e.g. on digitalization and competition law; see here). According to the new bill, the AFCA can only publish opinions and statements on aspects of competition policy if requested by the FMDEA. This was criticized because, besides individual case law, also general statements on competition policy help companies and advisors understand the authority’s position on key topics and economic developments.
Besides, the AFCA was also critical of other organizational changes that were imposed on the authority in 2021:
Since September 2021, the AFCA has to forward all merger control filings to the FMDEA as the ministry responsible for the screening of foreign direct investments. The AFCA questioned this obligation as it creates more red tape and seems an inefficient use of authority resources. The rationale is to make the FMDEA aware of all transactions pending for review with the AFCA in order to alert the FDI authority over any transaction that might not have been notified for screening (NB: unlike in merger control, the Austrian investment control act requires that an FDI filing is to be submitted promptly after signing the transaction).
It seems there was uncertainty between the two authorities as to the starting date of the forwarding obligation. Reportedly, there were also technical issues that impaired the forwarding as the FDI Authority could not access the electronic submission system of the AFCA. All of this has been resolved and parties working on merger control filings should take extra care in analysing whether an FDI filing obligation exists as well, particularly given the expansive interpretation by the authority of relevant industries caught by the screening mechanism. The two authorities have also agreed on mutual secondments of staff.
The CPC network – no member no more
The AFCA expressed its unease and surprise (see here) that, after building up know how and track record over 13 years, the AFCA was deprived of its consumer protection competences (CPC). As many will know, the EU consumer protection framework is composed, on the one hand, of horizontal rules applicable across different sectors and, on the other, vertical rules applicable to specific sectors. The CPC Regulation ensures that all Member State authorities have a harmonized set of powers, much as the so-called ECN+ Directive did for Member State antitrust authorities. On 17 January 2020, the new EU regulation on consumer authority cooperation came into force. This also made changes to the Consumer Protection Authorities Cooperation Act (VBKG) necessary in Austria. In the course of this amendment, there was also a change in the enforcement authority: The Federal Office of Metrology and Surveying (BEV) will take over the competences of the AFCA. There might be a question mark whether the BEV is well equipped and best placed for its new competences.
A busy 2021 and a busy year ahead
As many readers will know, these are challenging times for the Austrian political system. Several ministries have come under fire, to say the least, for (alleged) interference into the Supreme Court, respected regulators and investigative bodies.
The interplay of antitrust law and politics will continue to gain in importance, and hope springs eternal that authorities will continue to be vested with powers and resources to go after their business independently and effectively.
Christoph Haid is a competition lawyer and partner at Austrian law firm schoenherr in Vienna.