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Calculating fines for associations based on members’ turnover enters practice of the Czech Competition Office

Company: Bird & Bird s.r.o. advokátní kancelář

At the end of November 2022, the Chairman of the Czech Office for the Protection of Competition (“Office”) confirmed the decision to fine the anticompetitive conduct of the Association of Language Schools of the Czech Republic (“Association”). For the first time ever, the first instance decision had fined an association of undertakings based on the turnover of its members, who would be jointly liable for the payment of the fine. Following an appeal, the decision has modified the duration of the misconduct and a new first instance decision is now awaited regarding the recalculation of the fine amount. 

The Association is formed by around 40 language schools active in the Czech Republic. The Office’s investigation found that the Association had continuously been active in setting minimum prices which it permitted its members to charge for the language lessons they offered. These minimum prices were periodically updated and discussed by the Association, which also monitored its members' compliance and called upon them to adhere to the prices. The Office concluded that the Association’s conduct hindered competition and affected the customers in the language education market. 

Interestingly, for the first time, the Office made use of the option to impose a fine upon an association of undertakings based on the turnover of its members. This option is provided to reflect the fact that the turnover of an association is typically rather low, and a fine calculated on its basis would not fulfil its purpose. In such situations, the fine amount may reach up to 10% of the sum of the net turnovers of the members of the association in the last financial year. Each member is then jointly liable for the payment of the fine up to an amount equal to 10% of their net turnover from the last financial year. 

Based on the member turnover sum of over CZK 900 million (approx. EUR 37.5 million), the Association was initially fined CZK 9.1 million by the Office in the first instance decision in June 2022. The fine was therefore set at around 10% of the maximum possible amount. Only two competitors were excluded from the joint liability obligation, as it was proven in the investigation that they did not agree with the setting of minimal prices and had notified the Office of the Association’s conduct.

Upon appeal to the Chairman of the Office, the legal qualification of the anticompetitive conduct was confirmed. The Chairman however found that the proven duration period of the conduct was shorter than the period named in the first instance decision and that the fine calculation method was insufficiently substantiated in the decision. The appeal decision therefore annulled the imposed fine amount, and a new first instance decision will now be issued to recalculate the fine. 

The case illustrates how the possibility of a fine based on a wider reference point than the turnover of a sanctioned association itself should be taken into account if anticompetitive conduct is found. Provided the new first instance decision does not deviate from the method used in the June 2022 decision, it will be interesting to see how close the revised fine will be to the maximum possible amount.

The Office’s press release on the appeal decision can be found here (in English) and the press release on the first instance decision can be found here (in Czech). The texts of the decisions themselves are not yet publicly available.

For more information, please contact Vojtěch Chloupek and Martin Taimr.

Tags: Law |

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