Cartels and other horizontal agreements

Horizontal agreements refer to concerted actions and agreements between business undertakings on the same production or distribution level, i.e. in competition with one another, which aim at limiting mutual competition.

All agreements between business undertakings, decisions by associations of business undertakings and concerted practices by business undertakings which have as their object the significant prevention, restriction or distortion of competition or which result in the prevention, restriction or distortion of competition shall be prohibited under Section 5 of the Competition Act.

If the competition restriction may affect the trade between the Member States, the provisions of Article 101 on the Treaty on the Functioning of the European Union apply to it.

Under Section 5, in particular, agreements, decisions or practices which:

  1. directly or indirectly fix purchase or selling prices or any other trading conditions;
  2. limit or control production, markets, technical development, or investment;
  3. share markets or sources of supply:
  4. apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or
  5. make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connections with the subject of such contracts

shall be prohibited.

Forbidden horizontal cooperation may manifest itself as express agreements between companies or as corresponding mutual agreement. Forbidden are also decisions or arrangements whereby the conduct of companies is effectively limited or controlled on a horizontal level. Such forbidden arrangements may e.g. be born on the initiative of or within trade organizations. Price or fee recommendations given by trade organizations may thus also qualify as cartels.

The most common cartels include

The exception provision of Section 6 of the Competition Act

Not all the competition restrictions forbidden by Section 5 of the Competition Act are unlawful, however, as they may be covered by the legal provision of Section 6. The aim of the exception is to allow competition restrictions in which the pro-competitive impacts outweigh the restrictive effects.

The companies shall assess themselves whether their actions violate Section 5 of the Competition Act. For the exception provision of Section 6 to apply, all the criteria shall be separately fulfilled. The responsibility for fulfilling the criteria lies with the companies appealing to the exception provision.

When making the assessments, the companies may use the EC block exemption regulations and the related guidelines, as well as the FCA’s guidelines, as signposts.

It should also be borne in mind that arrangements of minor importance are entirely left outside the sphere of application of the Competition Act.

Price-fixing cartels and other price cooperation

A price-fixing cartel is an arrangement whereby the sellers of products or services on the same production or distribution level either directly agree on the prices of their products(purchasing and selling cartels) or other factors affecting the price or the pricing principles, such as discounts, provisions, terms of payment or guarantees. In a price cartel, it may also be agreed that a certain price may not be undercut or exceeded.

Statistical cooperation or other exchange of information between undertakings may also be forbidden if the undertakings exchange detailed information on prices, sales or costs with each other. In addition to the nature of the information, what is decisive is the structure of the market, the age of the information exchanged as well as its frequency and transparency.

The above-mentioned price cooperation is forbidden by the Competition Act, whether it be based on written or oral agreement or tacit understanding. The legal form of the cooperation is not decisive either.

Examples:

The Market Court found the forestry companies Metsäliitto Osuuskunta, Stora Enso Oyj and UPM-Kymmene Oyj guilty of national forbidden price cooperation and sharing of procurement sources in the purchase of raw wood during 1997-2004. It was a price-fixing cartel formed by the purchasing party. The directors in charge of forestry had e.g. convened regularly to discuss issues pertaining to the availability and price of timber. The development of the procurement price of timber had been examined in the light of statistical information per forestry centre and timber assortment. The company price had been compared to average price or the price of other companies. No specific decisions were made in the meetings but they sought to influence future pricing. The regional heads had also discussed issues relating to the availability and price of timber. The price development was examined in the light of statistics per timber assortment and even per municipality. The regional heads reported their own procurement prices to each other, and these were compared to the average prices. No exact prices were agreed on in these meetings but the aim was to influence future timber trade so as to stablise price development. (Decision by the Market Court of 3 December 2009, diary no 407/06/KR, no 614/2009.)


The Market Court found that HL Group Oy, oy Kaha Ab, Koivunen Oy, Örum Oy Ab and Oy Arwidsson Ab active in the wholesale level of automobile spare parts were guilty of price cooperation between competitors i.e. a price-ficing cartel during 2004-2005. Five major wholesalers of automobile spare parts conformed their discount practices in relation to the Osaset dealers, who were their customers, after the Osaset chain announced that it would start a new kind of cooperation with Atoy Oy competing with the above-mentioned whoelsalers. The cartel members started, by mutual agreement, to boycott the Osaset chainby granting reduced discounts to complicate the dealers' cooperation Atoy Oy. The significant reduction of the discounts previously granted to the Osaset dealers amounted to a de facto refusal to deal with the Osaset chain, because on the current prices, the trade was financially unprofitable as a rule. The FCA and the companies convicted of a cartel appealed the case to the Supreme Administrative Court which rejected the appeal in it's decision dated 31 May 2012. (Decision of 20 february 2009 by the Market Court, diary no 216/06/KR, no 91/2009.)


The FCA found that the three biggest companies in the roofing-felt sector – Icopal Oy, Katepal Oy and Lemminkäinen Oyj – and the construction industry federation Rakennustuoteteollisuus RTT ry were guilty of information exchange forbidden by the national and EU competition rules in 1996–2001. The companies submitted detailed sales information to the federation each moth, of which the federation made sales statistics to its so-called Bitumen group. The statistics showed e.g. the competitors detailed sales and market share information per month. The combined market share of the companies party to the information exchange of the retail sales in the hardware stores was 90% during the period under inspection. In the contracting sector, the same number was roughly 70%. (FCA’s decision of 16 February 2007, diary no 1011/61/2002.)

Limiting production or sharing markets or sources of supply

Limiting production or sharing markets or sources of supply between mutually competing undertakings is prohibited as a rule. However, the arrangements may, in certain cases, be covered by the exemption provision of Article 5.

Examples:

The Supreme Administrative Court found that, during 1994-2002, a national asphalt cartel cmposed of all the main actors of the field operated in Finland. The companies were found guilty of grave and extensive long-term market sharing and bidding cooperation breaching the Competition Act. According to the Court, this was one uniform cartel composed of several elements that had as its objective the elimination of competition from the asphalt market. The companies agreed in advance on the regional and quantitative sharing of the asphalt works commissioned by the state, the municipalities and private citizens. This was maintained by agreeing in advance on the prices to be offered in tenders, and by supervising that the the prices were adhered to. The Supreme Administrative Court ordered that Lemminkäinen Oyj, VLT Trading Oy (former Valtatie Oy), NCC Roads oy, Skanska Asfaltti Oy, SA-Capital Oy, Rudus Asfaltti Oy and Super Asfaltti Oy pay penalties for a total of 82.55 million euros. It is the maximum sum permitted by the law and also the sum proposed the FCA. The combined market share of the cartel members during 1994-2002 was roughly 70%. (Decision by the Supreme Administrative Court of 29 September 2009, KHO:2009:83).


The agreement between the owner of the Noutopizza chain and Kotipizza Oy included a ten-year non-competition clause. The non-competition agreement formed part of an arrangement composed of five other arrangments, whereby Kotipizza acquired the business of the Noutopizza chain. In its decision, the Competition Council held that the non-competition clause was an ancillary restraint related to the deal on the Noutopizza chain's business. However, the clause was unreasonable content-wise, regionally and temporally, because it limited the seller and his family's freedom of action more than was necessary for implementing the deal and securing the investment by Kotipizza. The Competition Council found that the clause breachedSection 6(2) of the Competition Act, since the non-competition clause also applied to other fields of the restaurant business than the pizza and fast food sector, extended further than the established operating area of the Noutopizza-chain i.e. the Finnish market, and involved the seller’s family in purposes which were not necessary to avoid the use of so-called dummies. It was also found to violate the Competition Act that the non-competition clause had been agreed to be effective for more than three years.(Competition Council’s decision of 22 January 1999, diary no 8/359/1998.)


Banks granting payment cards had agreed in the organs of the Finnish Banking Association on the use of the payment cards and published terms for using the cards, which e.g. included the minimum (FIM 30) and maximum (FIM 200.000) limits for the use of the cards. The FCA found that the setting of limits equalled a production limitation under Article 6(2). According to the FCA’s investigations, cooperation on the minimum limit could not be seen to boost efficiency and it was hence considered prohibited cooperation. Agreeing on a minimum limit was estimated to decrease competition between different modes of payment and between the cards offered by the banks. The minimum limit was also seen to limit customer choice as well as the options of retailers receiving payments. Cooperation regarding the maximum limit was seen to boost efficiency, however, and to benefit customers, as defined by Section 6(2). (FCA’s decision of 1 September 1998, diary no 344/61/97.)

Bidding cartels

A forbidden bidding cartel is an agreement or a concerted arrangement whereby in a tender concerning the sales, purchase or rendering of service the bidders cooperate with each other. A prohibited bidding cartel may take the form of a price cartel pr other price cooperation, or of sharing or allocating customers or geographic market areas.

OECD, the Organisation for Economic Co-operation and Development, published the OECD Guidelines for Fighting Bid-Rigging in Public Procurement in the spring of 2009. Also published in Finnish, the Guidelines e.g. describe how cartels typically operate and how the procurement process can be planned so as to minimise the risk of a cartel. Also included is information on features that may be indicative of a bidding cartel. The Guidelines have been planned for public procurement authorities in particular, but other parties arranging bidding contests may also use it.

Examples:

The Supreme Administrative Court imposed on Kuopion Taksiautoilijat ry, the association of taxi drivers from the city of Kuopio, a competition infringement fine of 5,000 euros for forbidden cooperation a tender arranged by the city of Kuopio. Authorised by its members, the association of taxi drivers from the city of Kuopio had made a joint bid for managing the city service. Due to the large number of members (93) behind the joint tender, few outside bids were obtained in the tender and they would not have been sufficient to manage the traffic which the tender concerned. The unlawful collaboration of the taxi drivers considerably weakened the possibilities of the city to obtain savings through the tender. The gravity of the infringement further increased because it involved statutory transports and the municipality could not withdraw from purchasing them even if it meant paying a higher price for them than what was the competed level. Further, the FCA had advised the taxi drivers how to avoid forbidden practices in the making of bids.The Supreme Administrative Court found that individual taxi drivers had also violated the cartel ban but it dismissed the Market Court’s decision to the extent that it has imposed a penalty payment to individual drivers as well. (Market Court's decision of 27 December 2002, diary no 66/690/2001; the decision by the Supreme Administrative Court of 14 October 2004, diary no 325 and 398/2/03.)

The Finnish Competition and Consumer Authority (FCCA) began operations on 1 January 2013: www.kkv.fi