On 11 June 2020 the Commission for Protection of Competition (CPC or the Commission) adopted Decision No. 466/11/06.2020 (the Decision) imposing fines in a total amount of c. BGN 4,410,000 (c. EUR 2,250,000) on CEZ Bulgaria, CEZ Electro Bulgaria and CEZ Razpredelenie Bulgaria (collectively CEZ) for abuse of a stronger bargaining position under Art. 37a of the Competition Protection Act (CPA).

The proceedings were brought by FastPay HD – a company providing cash payment services. The applicant claimed that in 2016 CEZ Bulgaria unilaterally terminated the contracts with Fast Pay and subsequently imposed agreements under more unfavorable terms. The new arrangements provided for no commission for the payments by CEZ customers processed by Fast Pay. In 2019 the Commission already found on the same facts that CEZ had not violated Art. 21 CPA due to absence of dominant position on the relevant market.

Abuse of stronger bargaining position cases pose numerous challenges to legal advisers trying to guide their clients on the fine balance between contractual freedom and abusive conduct. Since its introduction in 2015, there have been concerns that the novel concept may serve as a shortcut to sanction practices amounting to abuse of dominance or (excessively) limit commercial freedom of large non-dominant companies. This is why any new decision of the CPC is anticipated to bring more clarity on the role of Art. 37a CPA in the Bulgarian business environment.

Below we share some thoughts on why the CEZ case left us with more questions than answers.

The relevant market

As in any competition case, defining the relevant market is key to the review of alleged abuse of stronger bargaining position. The Commission has defined the affected market as the one for services related to the administration and cash payment of receivables on the territory licensed to the CEZ group. Curiously, the CPC defined the geographical market as national in the abuse of dominance case from 2019.

According to the Commission, cashless payment services are not a substitute to cash and, thus, not part of the same relevant market mainly due to the additional investments that a company should make to offer them. Further, the relevant market is geographically limited to CEZ’s licensed territory because “the plaintiff operates on the same territory [and] … consumer demand is concentrated on the same territory”.

One may find the Commission’s analysis of the product market insufficiently comprehensive, absent a more detailed review of the costs required for integrating cashless payments. However, what may be more troublesome is the CPC’s reasoning for adopting a narrow definition of the geographical market. The Commission has failed to provide arguments on how the fact that the plaintiff operates mostly on the territory licensed to CEZ is pertinent to defining the geographical market. The decision lacks analysis of the (non-)existence of barriers to the expansion of the plaintiff’s activities on a broader national level in the light of the national scope of its license as a payment services provider.

Stronger bargaining position

Having set a narrow definition of the relevant market, the CPC finds that CEZ has a stronger bargaining position due to its significant customer power, i.e. share in Fast Pay’s transactions, and lack of alternative similar clients – electricity distribution companies.

The CEZ decision brings again the question of the threshold for establishing a stronger bargaining position. In the A1 case (Decision No. 1308/22.11.2018) the Commission found a significant dependence of the applicant on A1, in particular due to the fact that Handy-Tel was a commercial representative working predominantly for A1 and has organized its branch network with the sole consideration to meet the needs of A1 customers.

Compared to the A1 case, the level of dependence between the parties in the CEZ case seems lower but apparently still sufficient to establish the existence of a stronger bargaining position. The Commission considered that, as a result of the long-standing relationship between the parties, Fast Pay “objectively organizes its business in accordance with the terms agreed” with CEZ. The sales volumes generated under the contracts with CEZ “cannot be compensated in the short term through other partners”. However, it appears that Fast Pay would not cease operations in the (hypothetical) event of complete termination of the contractual relationship with CEZ due to the existence of other clients.

Abusive conduct

Under Art. 37a of the Competition Protection Act abusive conduct is one which is contrary to good faith in commercial practice and harms or may harm the interests of the weaker bargaining party and consumers. The second sentence of the provision specifies the lack of “objective economic justification” as a prerequisite for establishing a bad faith conduct. The purpose of the latter, in our view, is to emphasize that a conduct which is detrimental to a business partner may not be abusive if it is based on legitimate economic considerations.

The Decision does not address CEZ’s arguments related to the economic justification of its conduct, i.e. the optimization of regulated costs affecting the price of electricity. Another drawback is the absence of identified standard of good faith in the sector. The reasoning of the Decision seems to ignore the finding that “the trend [on the relevant market] in the recent years is the decrease of the commission’s amount due” by the clients and that other companies also enter into “contracts that do not provide for remuneration in the form of a commission”. Instead, the Commission’s argumentation revolves around a more general concept that commercial transactions should normally be performed against consideration.

CEZ’s argument that the applicant is entitled to charge fees to the consumers when processing their payments is also vaguely rebutted by the Commission. The CPC suggests that consumers would always prefer to visit other operators that are not charging fees, leading to significant losses for Fast Pay. It is not clear whether this conclusion is derived from specific market data on consumer preferences accounting for other factors related to the quality of the service, the location of the offices etc. Furthermore, one may be left with the impression that the CPC did not consider necessary to identify a reasonable threshold above which the costs/losses incurred due to changes in the commercial strategy of a business partner may become an unlawful anti-competitive result.

The detriment to consumers, according to the Commission, is twofold. The fees related to the processing of the payments are transferred to the end clients and the decreased number of payment locations allegedly caused by the termination of the parties’ relations may lead to “slower services of poorer quality”. Based on the redacted version of the Decision, it seems that the Commission did not refer to an evidence for the latter finding.

Amount of the fine

To justify the amount of the fine, the CPC found that CEZ has committed a severe violation of the competition rules based on the following factors: the duration of the conduct and the severity of the impacts on consumers and on Fast Pay. As regards the last two factors, the CPC did not go farther than stating that consumers are “forcibly redirected” to other competitors of Fast Pay and that Fast Pay has incurred significant losses risking “termination of its activities”.

To illustrate the detriment to the applicant, the Decision refers to the amount of commissions charged by Fast Pay until the termination of the agreements in 2016 which were eventually lost as from 2017. However, it seems that the CPC has not assessed whether Fast Pay had managed to (partially) compensate the losses by charging fees on CEZ customers and how the overall profitability and viability of the company were affected.

On a separate note, it is surprising that the Decision does not contain a reasoning of the fines imposed on CEZ Electro Bulgaria and CEZ Razpredelenie Bulgaria considering that the two companies do not have contractual relations with Fast Pay or control over CEZ Bulgaria.

A lost opportunity

One of the major challenges in competition cases is that very often (proactive) competition authorities have to perform ex ante assessment of the anti-competitive effects of a practice. It is unfortunate that in the CEZ case concerning an abusive conduct of more than 3 years, the CPC has missed the chance to elaborate a more comprehensive ex post analysis and provide insight on its enforcement priorities based on ‘real-life’ data. The courts have already sanctioned the lack of sufficiently robust economic analysis in CPC’s decisions (e.g. Decision of the Supreme Administrative Court No. 16044/26.11.2019 involving conduct by Kaufland).

Overall, the CEZ case may be another reason for concern about the depth and proportionality of the CPC’s enforcement actions involving foreign/multinational companies operating in Bulgaria. As per the Commission’s relevant practice to date, mostly foreign owned/multinational operators have been targeted on grounds of abuse of a stronger bargaining position (electricity distribution companies, retailer chains like supermarkets, etc.).

* The opinions expressed in this article are not a legal advice and may not be relied upon as such. The author and the firm have no personal, financial or other interest in the outcome of the proceedings discussed.