Competition Law - how can businesses avoid penalties

KIA Poland - proceedings before the Polish Competition Authority, how to avoid a penalty?

The Polish Competition Authority has brought charges of price- fixing and market sharing against KIA Poland. In addition to the importer, 10 dealers and six managers have been charged. The Polish Competition Authority noted that KIA Poland is the exclusive importer and organiser of the selective distribution system for KIA passenger cars in Poland. In the proceedings, the Polish Competition Authority obtained evidence, inter alia during searches, that the vehicle importer and dealers may have entered into an agreement restricting competition.

What was the breach of the competition law supposed to consist of:

"We have evidence that, from at least 2013, the sale of KIA cars may have been conducted unlawfully," – The President of The Polish Competition Authority - Tomasz Chróstny stated. Potential customers may have been deprived of the opportunity to freely choose the dealer who would present them with the most favourable price offer.

The importer and dealers may have divided the market so that individual dealers sold vehicles only to customers who lived or did business closest to their dealership. When a customer contacted a KIA dealer, he had to confirm his place of residence. In such a case, he was referred by an employee of the dealership to the dealer that operated in the vicinity of his residence. When the customer did not specify where he was from, he was asked to go to the KIA dealer closest to his residence or to confirm that the dealership in question was the closest one.

In addition, KIA dealers, in their correspondence with customers, pointed to the consistent, uniform nature of prices across the dealer network, as well as the top-down discount groups defined in the KIA Policy, indicating that they did not have the ability to increase the discount. KIA Poland could have kept an eye on the market sharing and pricing arrangements. This could also have been done by the dealers themselves, e.g., by informing the importer and each other if, in their view, the selling price or the margin of another dealer was too low.

It should be emphasized that the kind of activities mentioned by the Polish Competition Authority is incompatible with both Polish law and EU competition law. It is prohibited to directly or indirectly fix prices and other conditions of purchase or sale of goods, similarly, it is prohibited to divide the sales and purchase market.

Potential penalties:

Entrepreneurs can be fined up to 10% of their annual turnover for restrictive practices.
In addition, in Poland, the Polish Competition Authority may impose a fine of up to PLN 2,000,000.00 on a particular manager if he or she intentionally violates prohibitions on entering into anti-competitive agreements; this is worth bearing in mind as not all European legal systems provide for the imposition of fines directly on managers.

How to avoid similar violations?

In order to avoid such violations, a company should be prepared, i.e. have procedures in place and trained employees, also in terms of cooperation with the Polish Competition Authority.

Unfortunately, many irregularities result precisely from an unawareness that the practices in question are illegal. In the first place, it is important to train employees, especially management and senior managers. Managers should be aware that an anti-competitive agreement does not necessarily have to take the form of a traditional written contract, it can also be concluded orally or even implicitly. Furthermore, managers should be aware of how to behave in a situation when they are present at an industry meeting where several companies conclude such an illicit agreement.

Entrepreneurs should have compliance programmes in place to mitigate the risks not only of competition law violations, but also to ensure the legality of corporate documentation and prevent possible financial losses or loss of reputation.

Crucially, even if the entrepreneur is not a party to the prohibited practice, it should know how to behave in the event of a visit of the Polish Competition Authority to its premises. It is worthwhile to develop a training policy in case the Polish Competition Authority visits and to indicate what to do when the representatives of the authority appear. Reception staff should have such knowledge. Key people from the company should have their phones turned on and there should be an in-house counsel who will respond to requests for assistance. This is extremely important, as the entrepreneur may also face a financial penalty for obstructing the inspection.

How to avoid sanctions when you have committed a breach of competition law?

Severe sanctions can be avoided through the leniency program. It gives the entrepreneur involved in the illegal agreement and the managers responsible for the breach of competition law the chance to reduce the fine. In some cases, it is even possible to avoid a fine. It is possible to benefit from the leniency program only if the entity cooperates with the Polish Competition Authority by providing evidence or information regarding the existence of an illicit agreement.

It is worth remembering that the proceedings before the Polish Competition Authority itself, as in the KIA Poland case, and possible fines are not the only sanction that may be meted out to the entrepreneur. It is also possible to pursue claims for damages for breach of competition law.

For further information please email Ewa Weinar at Ewa.Weinar@wlaw.pl

Further reading:

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About Wołoszański & Partners Law Firm:

As Alliott Global Alliance's law firm member representative in Poland, Wołoszański & Partners Law Firm specializes in rendering legal advisory services for entrepreneurs, with a focus mainly on commercial law, civil law, and company law.

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