EU, Competition & Public Law Report 2009: A constant in a world turned upside down

The global financial crisis is clearly impacting on the Iberian economy, unemployment in Spain has reached around 14.4% with 3.3 million now jobless, and the slowdown is inevitably also beginning to impact on neighbour Portugal, of which it is the largest trading partner.

Even Iberia’s law firms have begun to feel the impact of the downturn, with reduced transactional and capital markets activity, billings down and clients taking longer to pay, and cash flow management now a real issue for some.

La crisis financiera mundial está afectando claramente a los despachos ibéricos en cuanto a transacciones y asuntos vinculados al mercado de capitales se refiere. Sin embargo, el reportaje anual sobre la UE, la competencia y el derecho público ofrece un panorama positivo de asuntos ligados a estas áreas. Los abogados afirman que los clientes no sólo buscan proteger a sus empresas de los esfuerzos continuos de la autoridad reguladora en su búsqueda de cárteles y/o actividad ilícita, sino que además éstos quieren entender mejor las implicaciones que tiene en su negocio las decisiones de los gobiernos en ciertos sectores económicos.

The global financial crisis is clearly impacting on the Iberian economy, unemployment in Spain has reached around 14.4% with 3.3 million now jobless, and the slowdown is inevitably also beginning to impact on neighbour Portugal, of which it is the largest trading partner.

Even Iberia’s law firms have begun to feel the impact of the downturn, with reduced transactional and capital markets activity, billings down and clients taking longer to pay, and cash flow management now a real issue for some.

Despite all this, one area of law firm practice in which managing partners can continue to have faith is the continuing strong client demand for competition expertise.

Renewed momentum

Merger control issues may be down, in line with lower M&A levels, but recent efforts to combat wholesale recession have seen an upturn in demand for state aid-related advice – as governments pump money into domestic economies and look to support key business sectors with soft loans and guarantee schemes.

Likewise, in the antitrust and enforcement arena, the renewed emphasis of national and European competition authorities´ in the fight against cartels, and the impact of new leniency and whistle-blowing legislation, has also now begun to take hold.

The President of Spain’s national competition Authority (Comisión Nacional de la Competencia – CNC), Luis Berenguer, is a seemingly constant presence in the country’s business newspapers. The past year has seen the CNC undertake a complete reorganisation, including changes to the major management roles and structure, and enjoy a large increase in overall headcount.

“Spain’s new Spanish Competition Act came into force in 2007, with which the competition authority´s investigative powers were increased and a leniency program subsequently established for the first time,” says Miguel Odriozola, head of competition at Clifford Chance in Madrid.

“Innovations that have led to a significant increase in cartel cases investigations, almost doubling the number opened when compared to previous years.”

There is no doubt that there is now much more active competition enforcement, and issues now have a much higher profile among businesses than even a few years ago, affirm lawyers.

“There is no doubt that the CNC now has the tools, the resources and the political support to maintain the intensity of its recent activity, particularly in the anti-cartel field,” says Pedro Callol, head of competition at Roca Junyent.

There is a sense also however, that the prevailing financial and economic crisis may also be emboldening the regulators, as they see an increased importance in ensuring markets function properly, suggest some. In difficult times there may be more temptation to talk to competitors.

“The coincidence of a new law and a new authority has meant more active competition law enforcement. When questioned about the impact of the current context in the CNC’s agenda, its President has been clear in defending an even stricter reading of the law in the current situation,” adds Marcos Araujo at Garrigues.

A similar sentiment is found among lawyers in Portugal, where the domestic Competition Authority (Autoridade da Concorrência – AdC) also continues to generate headlines, and in early 2008 saw a change of leadership, with a new three-person board led by Manuel Sebastião – an economist and former board member of the Bank of Portugal.

“The Portuguese Competition Authority is apparently less sensitive to the current difficulties that companies are facing,” says José Luís da Cruz Vilaça of PLMJ.

Others note however that the AdC is now taking a more flexible approach when required.

“At a domestic level, the regulators have been adopting a more co-operative attitude with regard to merger control, as opposed to restrictive practices enforcement. Additionally, the AdC has recently issued, for the first time, interim measures ordering the suspension of a dominant company’s practice,” says Frederico Pereira Coutinho at Cuatrecasas, Gonçalves Pereira.

The new AdC administration is looking to build and capitalise on the success of the previous administration – led by Abel Mateus – but it is nonetheless also hoping to avoid a repeat of the high profile overturning on appeal by the Portuguese Supreme Court of some of its early “successes”.

“I think we will now see the AdC take a much more discreet approach in some respects. There may be less cases but there will be, I hope, a much more rigorous and efficient approach in the analysis of matters,” says Nuno Ruiz, head of competition at Vieira de Almeida.


Lawyers across Iberia note however the continuing strong emphasis of the domestic Spanish and Portuguese, and EU authorities, towards fighting cartel activity. Such a focus is being given added importance, suggest some by the potential for companies in the current difficult economic times to want to protect their market positions.

“We are seeing an increasing focus on cartels, with 80% whistle-blowing cases at European level,” says Antonio Creus at Bird & Bird.

“From a domestic perspective, the legislation adopted in Spain in 2007 has, to a certain extent, changed the nature of competition work. The authorities have focused most of their attention on anti-cartel investigations initiated in connection with a leniency application and after a dawn raid has been carried out,” says Oriol Armengol of Pérez-Llorca in Madrid.

“In the past, periods of economic downturn have led to an infringement of competition rules as a result of defensive strategies followed by companies. In particular there may be more cases of cartels and collusive practices, and abuses of dominant position – both exclusionary and exploitative abuses,” notes Jaime Pérez- Bustamante, partner and head of competition at Linklaters in Madrid.

The current CNC stance in this respect is an almost reversal of Spain’s previously fragmented competition authority, as a result of the enhanced investigatory and enforcement tools now at its disposal, say some.

“In many respects, the issues presented in Spain are similar to those presented elsewhere,”

says Andrew Ward of Cuatrecasas. “Since the introduction of leniency under Spanish law in February 2008 the competition authorities have opened a number of cartel cases and have carried out a large number of dawn raids.”

The result, lawyers agree, is that the CNC has become much more aggressive in its investigation of alleged cartels and their conduct of those cases, and in particular dawn raids, have been widely criticised. Given the significant changes in structure and management of the CNC and the importance of the cases that have been subject to criticism, legislation clarifying the rights of those being investigated and subject to “dawn raids” would be welcome, say many.

“Some of the last dawn raids developed by the authorities have generated an important debate about the scope and limits of such powers and the convenience of having clearer rules as regards some legal issues, such as the protection of legally privileged documents,” notes Gerard Pérez Olmo of recently launched firm Gómez Olmo & Da Veiga Abogados.

Such a stance is in line with the prevailing trends emanating from the European Commission, which lawyers note has confirmed its intention to fight EU-wide cartels. “The current level of fines, which keeps increasing every year, is reaching astronomical proportions, even close, in some cases to €1 billion,” adds Pérez Olmo.

State aid: a misnomer?

A key issue facing national and European regulators is how to manage state aid issues and to balance existing competition rules against the continuing desire of governments to inject stability – through recapitalisations, loans and debt guarantees – into their economies in the face of the global crisis.

The money being made available to banks, and automobile manufacturers, some lawyers suggest, is distorting competition – comments echoed by some within the industries themselves. Others query how much further governments will have to go and whether calls for cash injections, for example, into the real estate, construction and airline sectors will be forthcoming.

The European Commission (EC), say some lawyers, is clearly now “back-peddling” on its previous anti-state aid stance. It is not a question of governments holding a few “golden shares”, they are injecting billions of euros into companies.

Some even question whether the decision of governments to intervene economically has been a success, and whether the EC may yet have to investigate and rule on the validity of many such cases, or whether this would simply create new panic in the markets.

“Internationally, the authorities are struggling to make state aid, derived from the crisis context, compatible with competition law principles,” says Inigo Igartua, at Gómez-Acebo & Pombo.

Others however, suggest that the ability of regulators, including the EC, to adapt its decision-making to the prevailing economic situation proves both the strength and flexibility of European competition rules.

“Recent material changes have produced a much more flexible and even ‘overnight’ application of merger and state aid rules at an EU level, which would have been at odds with a better economic environment,” says Ainhoa Veiga, competition partner at Araoz & Rueda in Madrid.

But some lawyers nonetheless question how long some now “disadvantaged” companies will be willing to sit on their hands, as severely weakened competitors begin to bounce back. The surprise €7.2bn rights issue undertaken by Banco Santander last December, suggest some, was a direct response to the government-backed recapitalisation programmes enjoyed by some of its competitor European banks.

“It is clear that in the months ahead state aid issues will rise in importance, as companies begin to accept the ‘advantage’ some now have as a result of the recent government interventions,” believes Pedro Callol, head of competition at Roca Junyent.

Inevitably it is an area of practice in which competition teams clearly expect to be busy over the coming year. “State aid law will also be a strategic area in 2009, because some governments and even the EC seems to be more benign in the evaluation of state aids, and Member States may make further use of state funding in order to promote economic growth and investment and tackle the crisis,” says Miguel Gorjão-Henriques of Sérvulo & Associados.

The CNC is also now preparing a notice on fines, say Charles Prat at Baker & McKenzie in Barcelona. “This is welcomed as it will be very useful to determine the amount of the fine to be imposed for antitrust violation. It will give greater legal certainty.”

But some suggest that the recent amendment of EC guidelines on the calculation of fines may yet see levels increase, and many lawyers suggest as significant the increasing alignment of EC and national competition authority strategies, specifically the impact of ongoing investigations into the pharmaceuticals sector (particularly the ability of generic treatments to reach the market), and investigations by the CNC and AdC into the transport, fuel, telecoms and media – notably affecting film and football rights – sectors.

“As the AdC has become more proactive, certain sectors have become more sensitive to security,” says Jorge Santiago Neves at Barrocas Sarmento Neves.

But while the CNC saw a queue of applicants the day Spain’s leniency law came into effect, lawyers in Lisbon note that according to public available information, not one single leniency application has come to light, and there is still little use of its whistleblowing legislation – which came into force before that of Spain.

“There is clearly a benefit in assisting the AdC in its investigations under Portugal’s new leniency rules, and likely avoiding a significant fine, but it is in effect an admission of guilt and thus offers no defence against follow-on private antitrust claims, by affected individuals or companies,” notes Eduardo Maia Cadete at Morais Leitao Galvao Teles de Soares (MLGTS).

The ability of affected parties to bring private damages claims is one however that raises debate among lawyers across Iberia.

Although now allowed under legislation in both Spain and Portugal, many lawyers nonetheless dispute its practical application.

“It is often advisable to let the CNC investigate and make its findings first. Anticompetitive activities have in the past been very difficult to prove – discovery is so limited, and the CNC seems to have made it clear that it will not allow access to its own files,” says a Madrid lawyer.

Different approaches

Despite regulators’ strategic similarities lawyers note that the enhanced regulatory and investigatory tools now at the disposal of the CNC, AdC and EC, mean that there are evident differences in the ways in which they exercise their powers.

“A dawn raid, for example, can be very intrusive and the inspectors may actively search through materials that would normally not be allowed under normal data protection rules,” says Pérez-Bustamante at Linklaters. “I think it is important therefore that concerns are raised over the use, potential abuse, and limit of inspectors’ powers.”

Some even suggest that questions can be asked over the professionalism of some staff, particularly when compared to their EC counterparts.

“In our view, the publication of guidelines setting out the limits of the authority’s investigation powers during dawn raids would be a positive measure,” says Álvaro Iza, partner at Freshfields Bruckhaus Deringer.

Others also highlight the need for a more consistent approach and understanding of competition issues among even domestic regulators. The issue was evidenced, by some, by the July 2007 decision of the EC to levy a €151.9 fine on Telefónica for uncompetitive activity in the wholesale broadband market, despite it having sought and received prior clearance from the Spanish Telecoms Regulator (Comisión del Mercado de las Telecomunicaciones – CMT) – and which Telefónica is now appealing.

“The issue is arguably one between the national and European regulators. It makes it very difficult to offer complex advice to clients when the regulators themselves do not know the law,” says another Madrid lawyer close to this.

Despite such concerns, some lawyers nonetheless praise the relative efficiency of the domestic Iberian regulators, and highlight that much of their remit – notably cartel enforcement – is a relatively new area of operation.

“The CNC takes a very pragmatic though principled approach to its operations, which is not necessarily the case across Europe, where, on occasion, a rather legalistic and rigid approach continues to be taken by some national regulators,” notes Francisco-Enrique González Díaz, competition partner at Cleary Gottlieb Steen & Hamilton in Brussels.


Some lawyers suggest also that there is a sense of pressure being applied on the regulators to tackle issues surrounding those business sectors with a clear inflationary influence.

“The regulators in Portugal are under pressure from both the media and political parties to increase their surveillance on some sectors – particularly financial, oil and gas operations. Further legislative changes are expected, with the Portuguese Competition Law likely to be subject to amendments in 2009,” says Ricardo Oliveira of PLMJ.

Some in Portugal sense that procedural changes are however already occurring. “We have observed an effort from the Competition Authority to issue merger control decisionsmore swiftly, as well as trying to avoid unnecessary more in-depth phase II proceedings, encouraging also parties in complicated mergers to offer solutions and commitments within the first phase of the investigation, which is very positive,” says Joaquim Caimoto Duarte of Uría Menéndez in Lisbon.

Miguel Mendes Pereira, himself a former European Legal Service lawyer, and now antitrust partner at Abreu Advogados agrees that outside factors can have an influence.

“Regulators are now more concerned with the public perception of their performance and have accordingly streamlined some of their procedures. I don’t think any further legislative changes are required, provided they properly do the job taxpayers pay them for.”

In Spain the CNC, notes Javier Menor, head of Competition at Deloitte, has recently published reports on industries where it believes competition may be restricted: football broadcasting rights, road transport, intercity bus transport, and the professional services sector.

“In addition, it has also produced a recommendation to public authorities for a more efficient and pro-competitive market regulation, and announced that in 2009 it will analyse industries of particular interest to consumers, such as the distribution of fuels, and other markets related to the de-regulated energy industry or telecommunications.”

Some point also to the pressure being placed on authorities’ own processes, notably managing the specific publicity, timing and negotiation issues arising in mergers and acquisitions involving groups in financial difficulties. “I think there is too much red tape in the field of merger control. Procedures should be streamlined and compulsory notification should be restricted – less cases should be notified,” says Jesús Alfaro Águila- Real, head of competition at CMS Albiñana & Suárez De Lezo.

Others sense a demand for the overturning of competition rules completely. “As we see it, there is now pressure from economic agents, the media and other corporate interests to diminish competition law enforcement, on the grounds that economic recovery is incompatible with the strict allegiance to competition law principles,”

says Miguel Gorjão-Henriques of Sérvulo & Associados in Lisbon.

Return to normal

Looking ahead, competition lawyers see no shortage of demand for their services. Indeed, some suggest that the confluence of new legislation, the political momentum behind regulators, an increased emphasis on cartel issues, and the fall-out from some of the recent government interventions and “rescue” mergers will provide significant work for months to come.

“It is the current economic environment that is itself the challenge. Indeed, this is no time to abandon antitrust or competition awareness.

Distressed market conditions will neither be a defence nor a justification for the authorities to relax the application of laws to anti-competitive conduct,” says Ainhoa Veiga, competition partner at Araoz & Rueda in Madrid.

Moreover, recent years have seen the decentralisation of competition enforcement procedures, along with the promotion of private actions by the EC Commission (for example, leniency and damages claims), which have added further emphasis towards national competition regulation.

Public law: a new economic driver

The stated intention of some governments to further stimulate their domestic economies through public works and infrastructure schemes will inevitably prompt an increase in demand for administrative law expertise, say Iberian lawyers.

The Portuguese government has prepared and is now implementing an extensive public investments plan over the coming years which may finally see construction begin on a new Lisbon airport, a high-speed rail link to the Spanish border, several motorways, ports, dams and new initiatives in the energy field.

“All of those projects will require legal assistance from law firms combining first class skills in administrative law – public tenders and contract negotiation, domestic and EU legislation and public law litigation – as well as in project finance,” says Bernardo Diniz de Ayala of Uría Menéndez in Lisbon.

The government’s decision to break up a number of the major proposed projects into distinct and different sections offers contractors, financiers and their advisers a greater possibility of securing mandates.

“On the one hand, the State has assumed a stronger emphasis on public investment due to the present crisis, namely regarding public–private partnerships (PPPs).

On the other hand, the Public Contracts Code, recently entered into force, encompasses a new paradigm of public procurement,” says Lino Torgal, public law partner at Sérvulo & Associados The revision of the public contracts code has resulted in a much broader regulatory framework but also a more complex one, and one that has already seen potential amendments, notes Pedro Melo of PLMJ. “Since the new code of public contracts is in force, clients have been requesting more and more advice on the preparation of public tenders.”

The issue is one highlighted also by Joao Rosado Correia of Garrigues in Lisbon. “The public investments plan, as a measure to face the current economic situation, will most likely lead to the growth of PPPs, which can be seen as a way to associate private know how and capital to the public measures to face up to the general lack of investments.

But we also expect some difficulties for both public and private entities in adapting to the new Public Contacts Code.”

But such an upturn also has the potential for more disputes, cautions Paulo Alexandre Matinha at Raposo Bernardo.

Lawyers in Spain also predict an upturn in administrative proceedings, both in public works and with regard to the recent trend towards state interventions, but not always to the advantage of the authorities.

“On the one hand, the mechanisms of reactivation of the economy used by public authorities – ie the purchase of financial assets – are governed, in the vast majority of cases, by administrative law. On the other hand, small local administrations suffer from a lack of liquidity and this is causing an increase in legal proceedings against them,” says José Ramón de Hoces of Pérez-Llorca.

Last April saw Spain also enact a new Procurement Code (Ley de Contratos del Sector Público), which is taking some getting used to and has also prompted an upturn in advice being sought by both public and private clients, notes José Miguel Fatás of Uría Menéndez in Madrid.

Juan Martinez Calvo at Deloitte agrees. “The new Procurement Law and its implementation will be, combined with the announced incentives for the public contracting, the main engine in this field.”

But beyond the issues raised by public authorities and public works programmes, administrative law issues continue to be raised by legislative changes – notably those proposed to Spain’s national airport infrastructure prior to privatisation – and by the continuing consolidation in the energy sector, notes Juan José Lavilla, public law partner at Clifford Chance.

“There remain a lot of unsettled issues – for example, tariff deficits or the treatment of C02 rights – and regulatory changes are also likely with the implementation of Spain’s new legislation on electricity market liberalisation (Law 17/2007) in the very near future, while further corporate movements, with regulatory implications, are also expected,” he says.

Equally however, distressed economic conditions may bring about new business opportunities or strategies that, from a competition standpoint, say lawyers, would appear more justifiable now than might have previously been the case.

Inevitably lawyers state that competition work levels reflect the malaise in the corporate and M&A arena – except perhaps in relation to distressed asset or “fire sales” and “rescue mergers – but that there will likely be increased emphasis on contentious and leniency issues.

“Merger control work has shrunk at both EU and Spanish levels. Conversely, anti-cartel activity and State aid work is likely to remain stable or even grow,” says Jaime Folguera, head of competition at Uría Menéndez.

Some though question the ability of the national and EC competition regulators, and competition rules, to return to normal after the current financial crisis has passed. Massive government interventions in key business sectors have distorted competition policies with the tacit approval of the competition authorities – the issue is when will the crisis be over, and who will decide what rules apply? “A slight, even if crucial, change is the increased awareness that companies are facing exceptional problems that may have a negative impact on the economy and that it appears to be more important to assure that market works rather than that it works in strict compliance with competition regulations,” says Paula Teixeira da Cruz of F Castelo Banco & Associados

It is curious, some note, that while private companies face the prospect of increased regulation, the reverse is true for the state and public authority intervention.

“In the current crisis scenario, there is a very thin balance between insisting on heavier regulation packages – that may only increase costs and raise yet more difficulties to already fragile economic players, without any real capacity of preventing strong harm – or, on the contrary, trying to make rules simpler, more flexible and, hopefully, more efficient,” says Serra Lopes Cortes Martins & Associados partner Miguel Pena Machete.