Cooperation with the Competition Authority and Transactional Institutions in Hungary – Do they Work in Practice?

Transactional institutions in Hungary

In a leniency application a company which provides sufficient evidence to an authority to justify conducting a dawn raid or to prove the cartel may receive full immunity. Full immunity is only available to the first undertaking which makes a satisfactory leniency application. Any subsequent applicant may be granted partial immunity, ie, a reduction of fines in the range of maximum 20 – 50 %; the degree of the fine reduction depends on the rank of the application in chronological order.

Under the newly introduced settlement proceeding¹ of 2014, a company receives a 10 % decrease in the amount of a fine if settlement proceedings are successful. The cost is that the company must admit and acknowledge the infringement and waive certain rights, such as the right to appeal the authority’s decision before court.

Undertakings may only apply for leniency in horizontal hard-core cartel cases (eg, cases involving price fixing, market allocation (including bid rigging), and/or fixing of quotas). Leniency may not be obtained in cases of vertical infringements, such as resale price maintenance. Settlement proceedings may take place in both horizontal and vertical restraint cases, as well as in abuse of dominance cases.

Leniency proceedings were introduced into Hungarian competition law as early as 2003, whereas settlement proceedings are only applicable since 2014.

Both institutions are known and widely used in competition law proceedings before the European Commission (“Commission”). There, the undertakings often opt for both options so that a second leniency applicant can also agree to a settlement proceeding, potentially receiving 60 % (50 % from the leniency application and 10 % from the settlement proceeding) of the applicable fine.

Reluctance of companies towards these solutions?

However, in Hungary few applicants have submitted a leniency application to the Hungarian Competition Authority (“Authority”) in the period between 2004 and 2014. Only eight cartel proceedings were initiated by the Authority based on leniency applications. Many of the other leniency applications were safety submissions which were submitted in Hungary, along with several other countries, and which did not result in opening a proceeding in Hungary. There have been settlement proceedings made public so far.

Thus the Authority itself has acknowledged at public events and conferences that the Hungarian system of leniency does not work in practice. This has not changed since the recent amendment of the leniency rules and issuance of a new leniency notice. The Authority has recently indicated that it plans to introduce a special campaign in upcoming months to promote leniency proceedings.

As for settlement proceedings, the Authority has just published a notice containing detailed rules for the procedure to encourage undertakings to opt for settlement proceedings.

It is in the Authority’s interest that more companies resort to these institutions which would allow the Authority (in the case of leniency) to receive evidence sufficient to initiate new cartel proceedings, as well as (in both leniency and settlement proceedings) saving time and resources. Moreover, fewer companies would contest the Authority’s final decisions, because for example in settlement proceedings the right of appeal must be waived.

What reasons could companies have for not resorting to these institutions in Hungary?

For one, there are undertakings which are not aware of these institutions. Alternatively, they are not willing to admit their involvement in an infringement, and instead continue hoping for exoneration. Another reason may be that companies are not entirely familiar with the extent of advantages and disadvantages of these proceedings. For instance, a successful leniency/settlement does not exempt the company from a declaration by the Authority that an infringement took place, and thus other negative consequences of this declaration in the final decision, such as possible damage claims against infringing companies. However, the Hungarian legislature has already taken steps to decrease negative consequences for leniency applicants in the context of damage claims – by incorporating special rights for successful immunity applicants in the Competition Act, and recently by limiting access to the leniency/settlement statements. Moreover, the first steps of transposing the European Damages Directive (Directive 2014/104/EU) into Hungarian law have already been taken, which could further enhance the rights of companies which have successfully participated in leniency and/or settlement proceedings.

An education campaign and a detailed explanation of these institutions at compliance seminars could raise awareness and allow companies to weigh all relevant aspects before deciding whether or not to resort to these options.

If the current rules and the Authority's campaign do not result in an increase in the number of leniency applicants, an amendment to the law may be the consequence (eg, by increasing the "reward" for cooperation), in order to give more incentive to undertakings to cooperate.

¹A Settlement proceeding: Companies which admit participation in certain infringements and waive certain procedural rights may receive a 10% decrease of the fine.

author: Anna Turi