EU, Competition & Administrative Law Report 2008: A new dawn in competition enforcement

Iberian Lawyer’s Annual Competition and Administrative Law Report reveals a dramatic upturn in demand for legal expertise in these areas of practice across both Spain and Portugal, a development driven by new legislation, increased client awareness, and the heavier hand of the regulatory authorities.

Across the Peninsula the increasingly aggressive approach of the national authorities, and the scale of penalties now being imposed on companies that engage in anti-competitive behaviour, is such that the importance of competition law and the demand for competition law expertise is at an all time high, say lawyers.

January 2008 saw the European Commission (EC) conduct “dawn raids” on the offices of a number of multinational pharmaceutical companies – believed to include AstraZeneca, GlaxoSmithKline, Sanofi-Aventis, Teva and Wyeth – as part of an investigation into potential dominant position and patent abuses intended to limit the supply of generic medicines.

The inquiry is in response to the EC’s concerns over the level of competition within Europe’s pharmaceutical markets: fewer new pharmaceutical products are apparently being brought to market, and there appear to be delays in the entry of alternative generic pharmaceutical products.

“If innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action,” Competition Commissioner Neelie Kroes said at the time.

Showing their muscle

The ability of competition authorities to undertake inspections against specific companies, in the course of investigations, is clearly a major tool in the fight against anticompetitive behaviour. Concerns over the increasingly aggressive stance now being taken by the national competition authorities in Spain and Portugal against anti-competitive behaviour is therefore, say lawyers, driving a dramatic upturn in interest among clients in compliance programmes, and accessing the most comprehensive competition expertise.

“The 2007 Spanish competition act creates a new regulator (Comision Nacional de la Competencia – CNC) with increased enforcement powers,” explains Jaime Pérez- Bustamante, Head of Competition at Linklaters in Madrid. “Over the last few months the CNC has clearly shown its muscle, as shown by frequent dawn raids, louder and clearer advocacy and higher cartel fines.”

Likewise say Portuguese lawyers, the national competition authority (Autoridade da Concorrência – AdC) is also taking a much more strategic, and forceful, approach to competition issues.

“The past year has seen the AdC make significant moves to tackle what it perceives as anti-competitive behaviour in the pharmaceuticals sectors, including levying record fines, and looks now to be focusing its attentions on the transport, telecoms and energy sectors,” explains Mário Marques Mendes, of Lisbon’s Marques Mendes & Associados. The result say lawyers, is an upturn in both the profile and potential pitfalls of anticompetitive behaviour and a trend they expect to continue – if not grow stronger.

Adapting to change

The implementation in September 2007 of Spain’s new Competition Law (15/2007) has brought with it a radical change in competition law awareness, say lawyers. Within many law firm practices the emphasis is now predominantly on ensuring client compliance with new anti-cartel regulation, which has brought the concept of “whistle-blowing”, and significantly also the introduction of a domestic leniency regime – the developing regulation for which, at the time of publication, is awaiting approval.

Until recently however Spain had experienced few cartel cases, and those that there were had resulted in very low fines, notes Luis Ortiz, partner at Garrigues. “The decision of the new Spanish Competition Authority (CNC) in October 2007 to fine four banking entities (las Cajas Vascas) €24 million for having operated a cartel, was a significant development.”

Such penalties reflect a trend towards heavier enforcement proceedings, say lawyers. In 2007, the value of fines imposed by the CNC exceeded €70 million, while notable also has been the decision of the CNC to publicise its investigations online ( echoing the practice of the European Commission.

In addition, says Ortiz, “For the first time the CNC has also opened infringement proceedings against a company that was uncooperative during Commission inspections of the company premises.”

Within Spain there is therefore a consensus as to what issues are likely to present clients with the major challenges over the coming year – and by extension law firms with the greatest opportunities.

“In the competition arena, anti-cartel investigations and dawn raids, private antitrust litigation, and legal uncertainty in merger control cases will dominate,” says Francisco Cantos, partner at Freshfields Bruckhaus Deringer.

Also, the possibilities for competition law enforcement have multiplied notes Iñigo Igartua at Gómez-Acebo & Pombo. “Private claims based on competition infringements can be brought before the Commercial Courts, be it in contract, damages or abuse cases. While the competition agencies of the Autonomous Communities are also becoming increasingly active.”

Emiliano Garayar, managing partner at Madrid’s Garayar Asociados also points to the likely impact of private enforcement by small players and “free-riders”, which will inevitably force clients to face increased litigation. “In certain types of cases, the battlefield will progressively move from the administrative to the jurisdictional arena,” adds Oriol Armengol at Pérez-Llorca.

The Portuguese market too is ever more aware of competition law issues, evident in the changing of behaviour of companies and the agreements they enter into, says João Paulo Teixeira de Matos at Garrigues in Lisbon.

“Clients are now more active in adapting business practices to the law and in reacting to unlawful practices from their competitors. This is a natural effect of the competition authorities increasing the number of investigations and sanctions.”

The focus in Portugal of the AdC, says Miguel Gorjão-Henriques at Sérvulo & Associados, is mainly therefore being felt in the area of antitrust procedures for breach of article 81 and 82, and the national equivalents.


But significant also, say competition lawyers, has been the impact of regulatory change, and regulatory behaviour in the merger control issues.

The impact of an apparent increase in the complexity of national merger investigations in Spain, suggests Andrew Ward at Cuatrecasas, is a result of the return of industrial company mergers – as opposed to the private equity and financial investor-driven transactions of recent years. “We are seeing a more rigorous approach by the CNC, which now has greater flexibility and powers under the new Competition Act.”

Merger control proceedings are clearly very different from only a year ago, agrees Miguel Odriozola at Clifford Chance. “The procedure is much more transparent and the possibility of offering and negotiating undertakings allows the buyer to shorten the clearance process by more than two months. This flexibility is key because every day gained amounts to considerable savings for the client.”

Lawyers in Portugal note however that merger control investigations continue to present problems – notably the lack of a simplified notification procedure, says Nuno Ruiz at Vieira de Almeida. There is however acceptance that the AdC is now operating more efficiently.

The delays and difficulties associated with the unsuccessful 2006-07 Sonaecom-Portugal Telecom and Millennium BCP-Banco BPI mergers were certainly a low point, experts say, but since when there has been much improvement.

The appointment in March 2008 of a new head of the AdC will, says Gorjão-Henriques at Sérvulo & Associados, likely bring with it a new agenda. “Some changes in the functioning of procedures, the speeding up of merger procedures and strengthening antitrust investigations would mean both better regulation and competition scenario for the Portuguese economy and competitiveness.”

Other potential competition concerns raised include recent European Commission initiatives in state aid. “It is a field where the EC has been recently taking a more active approach, especially regarding measures adopted by either the central Spanish policy-makers or the Autonomous regions,” notes Javier Manchado at Garrigues.

For Mario Marques Mendes in Lisbon, state aid is however both an issue and a non-issue. “There have been a number of domestic cases, mostly related to investment contracts, but also in the television sector. But the extent to which this will develop further is limited by the jurisdiction of the AdC.”

Administrative issues

As in the competition arena, the prevailing administrative law issues include the impact of more active regulation, and the prospect of increased litigation, along with the implementation of new legislation, says Paulo Pinheiro Head of Public Law at Vieira de Almeida in Lisbon.

Two new statutes particularly stand out: the Public Sector Contracts Law (30/2007) and the new Land Law (8/2007), which combined are expected to give rise to an increase in the construction and operation of public infrastructure, and help to streamline and stabilise the real estate market, say lawyers.

Law firms’ response

An upturn in demand among clients for competition and administrative expertise clearly raises issues but also opportunities for Iberia’s law firms. Increasingly important say lawyers, is the need to bring an “holistic” approach to competition and administrative law issues.

“We believe that our ability to bring expertise to bear using crossdisciplinary groups such as those dedicated to civil antitrust enforcement and in the telecoms and energy sectors is a major strength and has enabled us to achieve some significant recent successes,” says Cani Fernandez at Cuatrecasas.

It is a significant issue also at Pérez- Llorca says Oriol Armengol. “We are already benefiting from significant synergies between our competition and administrative/regulated markets teams, particularly involving the recently liberalised markets such as electricity and gas, rail and transport.”

For Francisco Cantos, partner at Freshfields Bruckhaus Deringer, the key issue is however managing conflicts in the antitrust area. “Given the strategic nature of this advice for most clients this is a real headache for firms like us. Clients are, for instance, reluctant to agree to parallel mandates – which are commonly accepted in the corporate finance area – when the firm is already advising on the antitrust front to one of the bidders.”

“The increasing level of potential litigation between undertakings on competition law matters, either through complaints addressed to the competition authorities or direct litigation against a competitor, creates significant challenges to the management of conflicts of interests, especially for firms with a large dimension,” agrees Teixeira de Matos at Garrigues in Lisbon.

But conflicts is a significant issue in the public contracts area also, say Paula Teixeira da Cruz and Miguel Lorena Brito at Lisbon’s F Castelo Branco & Associados. “The concentration of client investments in specific business sectors and projects, presents increasingly higher risks.”

A fundamental issue for firms’ practice growth also is the ability to continue to secure legal talent in an era of falling junior lawyer numbers and greater competition between law firms, say many. These are hugely demanding and often very technical practice areas, which expertise is often not easy to grow organically.

“Despite the increasing work load in the recent past concerning administrative matters there remains a lack of credible administrative lawyers,” says Pedro Melo at PLMJ.

Many firms have to date therefore relied on recruiting from the public or academic sector – Morais Leitao notably added administrative law professors Pedro Gonçalves and Miguel Nogueira de Brito in 2006 and 2007 – but experienced and credible lawyers are a finite resource. In any event, note some, the introduction in Spain of legal education reforms in 2010 will limit the practicality of such a practice there.

The demand for renewable energy sources presents significant planning and zoning issues, while more generally says Rui Chancerelle de Machete at PLMJ is the increasing emphasis on environmental law issues. “Almost all of the new projects to be built imply environmental and zoning assessment,” agrees fellow PLMJ partner Pedro Melo.

In Spain, a significant issue is the increasing interplay of local, regional and central decisionmaking bodies, and the conflicting findings of each can present a recurring issue for clients, says Alfredo Fernández Rancaño at Garrigues. “Such legislative diversity substantially increases the complexity of the processes in which legal players are involved.”

Important also has been the introduction of a new Public Sector Contracts Law (Law 30/2007) affecting public procurement procedures, says José Miguel Fatás at Uría Menéndez. Also significant have been developments in the construction and operation of public infrastructure, and the demand for legal advice in administrative and judicial review proceedings.

EU-Competition growth

When it comes to the relative emphasis of law firms’ competition practices, the workload of most is unsurprisingly dominated by national issues – with the average alignment of emphasis among firms both in Spain and Portugal close to 35% (international): 65% (national).

Many in Spain identify however a recent upturn in demand for international expertise as a direct result of the growth and expansion of clients. “We have experienced a significant growth as transactions and authorities have grown in size and complexity, but also as a result of the increases in competition awareness of recent years,” says Fernandez at Cuatrecasas.

For others such growth is they say a result of increased international interest in the domestic market. “We have seen a significant increase in EU law matters, closely linked to the growth of the firm and its more frequent participation in top M&A transactions,” says Armengol at Pérez-Llorca

Luis Ortiz at Garrigues suggests however that the broad scope of Spain’s new Competition Act, and the increase of public enforcement may move firms’ practice emphasis back towards domestic issues.

Lawyers in Portugal too are predicting an increase in demand for domestic advise, also in line with the increased activity of the AdC, notably the use of leniency regulation suggests José Luís da Cruz Vilaça at PLMJ.

João Paulo Teixeira de Matos however sees continued growth in EU advice. “The horizon of Portuguese undertakings no longer ends at the Spanish border. We have recently been coordinated advice to clients in relations to their dealings with the EU institutions, as well as in jurisdictions such as Germany, Greece, Romania and Slovakia,” he says.

Miguel Gorjão-Henriques at Sérvulo agrees, predicting that. “In response to the increasing demand to cope with competition law issues we believe that we will be considering a 20% (national) 80% (EU) ratio by the end of 2008.”

Dawn raid

While some may query the likely success of some of the recent legislative developments in Spain and Portugal, particularly the authorities’ ability to implement effective leniency regimes – given that it is a “foreign” concept – the continued emphasis on cartels by the EC is however likely to be echoed by the national regulators, say lawyers.

“Certain studies suggest that it takes some time before companies react to the new legal environment and start filing leniency applications, but we are convinced that we will not have to wait until 2009 to see the first Spanish whistleblower,” predicts Armengol at Pérez-Llorca.

“Although leniency may initially be viewed with a certain suspicion by Spanish companies, I believe that in the mid term, a growing number of companies will consider it as a way to soften the consequences of an infringement, agrees Casto González-Páramo Rodríguez at Lovells.

The EU experience, say many, demonstrates that companies facing potential sanctions for participating in cartels increasingly apply for leniency. While for the authorities, it allows them to pierce the cloak of secrecy in which cartels operate and to obtain evidence of the cartel infringement from an insider.

The strong hand adopted by the CNC and AdC in tackling anti-competitive behaviour has already produced high profile results, and as a strategy looks likely to continue, coupled with an increasing efficiency and improvement in their operations, say lawyers.

Ultimately therefore says Jorge Santiago Neves at Barrocas Sarmento Neves, “We now have a more active local competition authority, which are proving to be more effective in controlling collusive behaviour. Accordingly clients must be more cautious in their drafting of agreements and their market practices.”

Others believe that what is required among many companies, particularly among the former monopoly companies, is also a fundamental change of culture. Despite the best efforts of law firms to guide their clients away from anti-competitive practices, and to prepare them for all possible eventualities, it may be the continuation of outdated practices that will ultimately lead to some general counsel being woken at dawn by a knock at the door.