Finland: Pending Reform Of Finnish Competition Law

The Finnish competition legislation is currently in the midst of an extensive reform. This reform process is brought about mainly by the topical reform of the EC competition rules and, thus, the desire to bring the Finnish competition law provisions in line with Articles 81 and 82 EC and align them with the requirements set forth in the Council Regulation 1/2003/EC.

Despite its short existence, some characteristics of the Finnish merger control regime have in practice been found not to primarily contribute to the effective safeguarding of competition in the Finnish market, but rather considered cumbersome by both the business community and supervisory authorities. Therefore, in addition to the contemplated revision of antitrust and procedural provisions of the Finnish Act on Competition Restrictions (480/1992, as amended, the "Competition Act"), it is proposed that the scope of the Finnish merger control regime be streamlined in this connection.

The draft Government Bill, published in September 2003, is expected to remain largely unchanged through the legislative process, the results of which are intended to come into force on 1 May 2004. This article discusses some of the proposals set forth in the draft Government Bill that could be of importance also to foreign undertakings having operations in Finland or affecting the Finnish market.

In the field of antitrust, the proposals include, inter alia, the replacement of the current substantive antitrust provisions of the Competition Act with the wording of Articles 81 and 82 EC in order to provide for convergence with EC competition law.

At the outset, this proposal does not appear to bring about substantial changes to the current substantive law. Namely, although the current antitrust provisions of the Competition Act with respect to their wording and structure deviate from Articles 81 and 82 EC, there are in this respect only few minor differences in substance and/or interpretation which mostly relate to vertical competition restrictions, collective dominance and de minimis competition restrictions.

However, the current proposal does extend beyond the above-mentioned clerical changes in some respects. As an example, under the Competition Act, any unilateral practice by undertaking(s) or practice between undertakings in horisontal or vertical relationships could be prohibited, if such a practice were found to have harmful effects on competition. Unlike under the EC competition law, such prohibition could currently be imposed, even if no abuse of a dominant position or any existence of a prohibited agreement or concerted practice could be established. According to the draft Government Bill, this provision is now contemplated to be abolished from the Competition Act.

If adopted, the suggested amendments to the substantive antitrust provisions of the Competition Act will most likely be welcomed by undertakings that may currently be restrained, even theoretically, by the uncertainty brought about by the current provisions in respect of their operations affecting the Finnish market.

Along with Council Regulation 1/2003/EC abolishing the notification system, the draft Government Bill sets to abolish the national individual exemption and comfort letter regime.

This approach appears to have been adopted primarily due to the often very thin line between, on one hand, purely national competition restrictions and, on the other hand, competition restrictions with Community dimension to be assessed under EC competition law. This approach seems reasonable considering especially that due to the abolishment of the EU individual exemption regime, the Finnish Competition Authority (the "FCA"), currently vested with the powers to grant individual exemptions and comfort letters in Finland, would in practice have to ascertain that the competition restriction, for which an individual exemption or comfort letter is applied, would not be caught by EC competition law.

According to the draft Government Bill, the currently existing individual exemptions granted under the Competition Act are proposed to be repealed after a transitional period of two years, i.e. as from 1 May 2006, although their original term would have expired only after that date.

Both the proposal to abolish the existing system and the proposal to repeal the already existing individual exemptions upon expiry of a transitional period have already faced criticism as negatively affecting the level of legal protection of undertakings, although one of the arguments used in favour of the abolishment of this system (also set forth in the draft Government Bill) has been the alleged increased legal certainty provided by the adoption of a legal exemption, in accordance with Article 81(3) EC, to the Competition Act.

In Finland, the relatively modest level of competition infringement fines, as compared to the fines imposed on the EU level, has raised some concerns especially with supervisory authorities. The current sanction level in Finland, in particular with respect to cartels, as well as the basic range of competition infringement fines were recently also criticised by the OECD. Furthermore, in order to, inter alia, promote the uniform application of EC competition law and prevent forum-shopping, it has been pointed out that the sanctions imposed on competition infringements in the different EU Member States should be comparable to each other.

To meet these concerns and provide compliance with the Council Regulation 1/2003/EC, it is now suggested that the current scale of competition infringement fines be amended and that Finnish supervisory authorities be authorised to impose competition infringement fines also for breaches of Articles 81 and 82 EC, which until now has not been provided under the Competition Act.

Currently, under the Competition Act, the basic range of competition infringement fines is EUR 840.94 to EUR 672,751.70, but if the competition restriction and the circumstances so require the quoted maximum amount may be exceeded and, thus, amount up to 10% of the preceding year’s turnover of each undertaking or association of undertakings participating in the infringement.

Now, it is contemplated that the above-mentioned basic range of competition infringement fines be abolished and that the Competition Act instead would only provide the upper limit for the fines, which would be the same as the previously applicable upper limit and, thus, also equal to that the Council Regulation 1/2003/EC, i.e. for each undertaking and association of undertakings participating in the infringement, 10% of its turnover in the preceding year.

However, in addition to legislative changes, a general upgrade of the level of competition infringement fines in Finland appears also to require a comprehensive change of attitude by the Market Court and the Supreme Administrative Court that are vested with powers to impose competition infringement fines.

In connection with the above proposals aiming at better correspondence with the EU regime in terms of sanction levels, provisions governing leniency from sanctions under the Competition Act are proposed to be introduced.

The draft Government Bill provides that undertakings, or associations of undertakings that have significantly assisted in the finding out of a competition restriction may be exempted from competition infringement fines or such fines may be reduced. This provision is intended to be applied to all prohibited competition restrictions, including horizontal and vertical restrictions as well as an abuse of a dominant position.

In addition, the draft Government Bill sets forth a separate provision providing for a full immunity from competition infringement fines relating to the most serious competition infringements between competitors. Such an immunity would be limited to a single undertaking that is the first to disclose decisive information on the competition infringement and fulfils a number of other prerequisites set forth in the draft Government Bill.

The above proposals are as such welcome as they provide for further convergence with the corresponding systems in force within the EU. Still, it seems that the success of the leniency scheme under the Competition Act will ultimately be dependent on the level of sanctions to be imposed on competition infringements in the future.

The draft Government Bill also suggests that the Finnish merger control regime be amended in two important respects in an attempt to narrow down its admittedly wide scope.

Historically, a large number of foreign-to-foreign mergers and acquisitions have had to be notified in Finland. This has been largely attributable to the relatively low world-wide turnover thresholds set forth in the Competition Act (approximately €336.3 million in respect of all parties to the concentration, and €25.2 million in respect of at least two of the parties to the concentration). In addition to meeting the said criteria, the acquisition target is currently required to "conduct business" in Finland, which concept has given a lot of room for interpretation, and as such, de facto widened the scope of the Finnish merger control regime.

While the first turnover criterion referred to above is proposed to face a minor uplift from €336.3 to €350 million, the second turnover criterion would be revised substantially. According to the draft Government Bill, under the second criterion, each of at least two parties to the concentration would be required to have a turnover accrued in Finland, including sales into Finland, exceeding €20 million in order for the concentration to trigger a notification obligation in Finland (provided, naturally, that the first criterion simultaneously is met by the parties to the concentration).

According to the draft Government Bill, the turnover accrued in Finland is to cover such sales revenues of the parties to the concentration that relate to the sale of goods and offering of services in Finland. In this respect, the turnover would be geographically allocated, as a rule, according to the location of the customer at the time of transaction, but further guidelines in this respect would be published at a later stage.

Consequently, the purpose of the above amendment would be to set certain materiality threshold for parties’ operations in Finland, which until now has not been provided for in the Competition Act. This amendment would appear to not only rationalise the Finnish merger control regime, but also to increase its transparency by providing objective and clearly measurable criteria for the assessment of notification obligation under the Competition Act.

Secondly, the draft Government Bill furthermore sets to abolish the so-called extended two-year rule. According to this provision, the turnovers of such previous acquisition targets, in which the acquiror has acquired control during the past two years and that operate in the same industry in Finland as the current acquisition target, shall currently be included in the current acquisition target’s turnover. This provision, thus, also applies to acquisitions that otherwise would be unrelated and not caught by the two-year rule relating to partial acquisitions under the Competition Act, which is similar to that currently existing under the EC merger control regime.

The above-mentioned rule has led to a large number of merger control notifications where the actual acquisition target has only had an insignificant turnover, but where the turnover thresholds of the Competition Act have been exceeded.

According to the draft Government Bill, and as one can read from many of the FCA's decisions in the field of merger control, the concentrations notified on the basis of the extended two-year rule have, generally, had no significant impact on competition in Finland. Therefore, the abolishment of this rule would certainly be a further helpful move in rationalising the Finnish merger control regime.