The enactment of Act No. 103/2020 introduced several amendments to the Competition Act.
These include fundamental changes to section 15 of the Competition Act and the procedure for exemptions from the prohibition rules in sections 10 and 12 of the Act. These changes came into force on 1 January 2021.
Instead of a system where an exemption is subject to the prior approval of the Competition Authority, a so-called self-assessment system has now been introduced. This means that companies intending to cooperate will henceforth have to assess for themselves whether such cooperation complies with competition law. Likewise, business associations must assess whether their activities comply with the requirements of competition law. The Competition Authority's power to grant exemptions from the prohibition on illegal collusion and anti-competitive practices to companies and business associations has therefore been abolished.
The Competition Authority has, in parallel with these changes, published guidance on the application of Article 15 of the Competition Act. They address the key considerations that companies should bear in mind when assessing whether their restrictive cooperation meets the conditions of Article 15 of the Act. They are part of an effort to make it easier for companies to comply with the law.
It is undisputed that anti-competitive cooperation between companies can cause significant harm to consumers, business life, and society as a whole. For this reason, Article 10 of the Competition Act No. 44/2005 prohibits any form of cooperation between undertakings that is likely to distort competition. Article 12 of the Competition Act, inter alia, prohibits associations of undertakings from encouraging actions that may distort competition between the undertakings concerned.
On the other hand, competition law recognises that in certain circumstances, cooperation between companies can contribute to, amongst other things, increased rationalisation, efficiency and the promotion of technological progress. For such cooperation to be permitted, its positive effects must outweigh the negative ones. This is the case when it is proven that the conditions set out in Article 15(1) of the Competition Act are met.
Article 15 of the Competition Act sets out the conditions that must all be met for an undertaking's cooperation to be exempt from the prohibition provisions of Articles 10 and 12 of the Competition Act. Provided that agreements, decisions, concerted practices or decisions pursuant to Articles 10 and 12: 1
Until the entry into force of Article 4 of Act No. 103/2020, which amended the Competition Act, companies and associations of companies were only permitted to engage in cooperation that contravened Article 10. and/or Article 12 of the Competition Act, if they applied for and received a formal exemption from the Competition Council. It was then the role of the Competition Council to assess whether the companies had demonstrated that the conditions of Article 15 of the Competition Act were met. Without a formal exemption from the Competition Authority, it was unlawful for the parties to carry out their co-operation, regardless of their belief that the conditions of Article 15 of the Act were met.
The enactment of Act No. 103/2020 introduced fundamental changes to the above. Instead of a system where an exemption is subject to prior approval by the Competition Authority, a so-called self-assessment system has been introduced. This is made clear in the bill that became Law No. 103/2020:
The above amendment came into force on 1 January 2021. In accordance with the second paragraph of Article 15 of the Competition Act, the Competition Authority shall issue general guidance on the exemptions under the first paragraph of Article 15 of the Act.
These guidelines are issued with reference to the above. The guidelines address the key considerations that companies should bear in mind when assessing whether their restrictive cooperation meets the conditions of Article 15 of the Act. The guidelines are intended to facilitate companies' compliance with the law.
Further guidance on the self-assessment of companies in this country is also applicable. guidelines of the EFTA Surveillance Authority („ESA“) on the application of Article 53(3) of the EEA Agreement.2 They have full binding authority in this country and are of great importance for the interpretation and application of Article 15 of the Competition Act. The guidelines discuss in detail the conditions that must be met for a company collaboration, which is likely to distort competition, to be considered permissible, the considerations that are or have been taken into account in their interpretation, and provide examples for further clarification. The ESA has also issued guidance on the application of competition rules to horizontaland you verticallyin cooperation between companies.3
The Competition Authority refers to the above-mentioned EASA guidelines, which are supplementary to these guidelines, see also the bill which became Act no. 103/2020.4
„It provides significant legal certainty for companies to receive a specific decision from the Competition Authority granting an exemption from the prohibition provisions, possibly subject to certain conditions. The Bill, however, proposes that the competition law be amended so that companies themselves assess whether the conditions for an exemption are met. In recent decades, an extensive body of case law on competition rules has developed, which includes numerous well-reasoned decisions by the Competition Authority, as well as rulings by the Competition Appeals Board and the courts on individual cases, providing companies with a wealth of precedent. to rely on. It is also a fundamental principle of Icelandic competition law that the application and interpretation of the provisions of the Competition Act shall take into account the application and development of competition law in the European Economic Area. It must therefore be considered that the grounds are now in place to align the domestic practice with that of Europe, not least in view of the fact that representatives of business organisations have, in recent years, repeatedly called for this change to be made to the competition law in order to increase efficiency. It can therefore be assumed that companies and their advisers are generally well-equipped to take on the responsibility of assessing for themselves whether the statutory conditions for company cooperation are met, but an incorrect assessment in this regard may lead to a company being deemed to have breached Article 10 of the Competition Act, and this may result in the directors of the company being held liable under Section 41a of the Act.“
As previously stated, from 1 January 2021, companies are required to assess for themselves whether any collaboration they intend to enter into is compatible with competition law. Prior to this date, an agreement that contravened Articles 10 and 12 of the Competition Act was only lawful if it fell under a formal exemption from the Competition Authority, based on an application from the parties concerned.
The core of the self-assessment of undertakings and their associations is that they themselves bear full responsibility for correctly assessing whether a collaboration fulfils the conditions of Article 15(1) of the Competition Act. The Bill which became Act no. 103/2020 states that companies and their associations may, in this regard, rely on case law in Icelandic and EEA/EU competition law, as well as general guidance from the ESA and the Competition Authority. It then states:
„Icelandic companies will therefore be able to assess the legality of their cooperation for themselves, in the same way as many other European companies. In order for the objectives of simplification and efficiency to be achieved, companies themselves must bear full responsibility for this assessment. Otherwise, the changes will not result in increased efficiency for business if companies make extensive requests for guidance from the Competition Authority. It is important to emphasise that the Competition Authority's guidance should be general in nature and, following the change, the authority will not be able to provide companies with binding opinions in advance on whether specific conduct meets the statutory requirements. Instead, the Competition Authority will monitor this when slSimilar cooperation is put into practice.“ 5
Accordingly, the role of the Competition Authority, with regard to cooperation between undertakings, is to investigate ex-post whether undertakings and their associations have infringed Articles 10 and/or 12 of the Competition Act. In investigating such alleged infringements, the Competition Authority's task is, inter alia, to assess whether the relevant undertakings have provided evidence that their cooperation, which would otherwise contravene Article 10. and/or Article 12 of the Competition Act, fulfils the conditions set out in Article 15(1) of the Competition Act.
The amendments to Article 15 of the Competition Act do not constitute an increased authorisation for companies to cooperate, as the strict prohibition in Articles 10 and 12 of the Competition Act and Article 53 of the EEA Agreement on any form of anti-competitive collusion by companies and their associations remains unchanged. Nor are the requirements that cooperation between undertakings must meet under the provisions of Article 15 of the Competition Act relaxed. The substantive requirements that must be met for an undertaking's cooperation not to contravene the prohibition provisions of the Act are therefore unchanged and identical to those which apply elsewhere in the European Economic Area.
It is important to emphasise that a wrong assessment of the conditions of Article 15 of the Competition Act may lead to companies and associations of companies being deemed to have infringed Articles 10 and 12 of the Competition Act and, as the case may be, Article 53 of the EEA Agreement. The infringement may therefore result in administrative fines for the undertakings or their associations and criminal liability for the employees or directors of the undertakings or associations, pursuant to Article 41a of the Act. Furthermore, it follows from section 33 of the Competition Act that if the conditions of section 15 are not met, the agreement is void. Furthermore, a misjudgement of the conditions of Article 15 of the Competition Act may lead to the parties being ordered to pay damages if their infringement of Articles 10 or 12 has caused harm.
When assessing whether or not a company collaboration, or one within a business association, is permitted, several factors must be considered, as shown in the following diagram:
First, a position must be taken on whether the relevant collaboration falls under the prohibition in Article 10 of the Competition Act on illegal collusion. In assessing this, regard must be had to how the prohibition has been interpreted in this country and in the European Economic Area.
Article 10(1) of the Competition Act states: „All agreements and decisions between undertakings, whether binding or recommended, and concerted practices which have for their object or effect the prevention, restriction or distortion of competition are prohibited.“"
An agreement within the meaning of Article 10 of the Competition Act can be in any form and the term must be interpreted broadly.6 An agreement under Article 10 can therefore be unsigned or signed, oral or written, and does not have to be binding.7
If certain business-to-business interactions do not constitute a contract under competition law, they may be considered to be concerted practices. The concept of concerted practices has been interpreted broadly to cover any direct or indirect contact between undertakings that has the object of distorting competition or which has such an effect in practice. This can include, for example, companies exchanging information on prices and thereby coordinating their market conduct.8 For legal purposes, it is irrelevant to distinguish whether restrictive cooperation is in the form of an agreement or concerted practice.9
The prohibition in Article 10 of the Competition Act does not only cover cooperation between competitors operating at the same level of distribution10 (horizontal cooperation). It also covers cooperation between undertakings operating at different levels of distribution (vertical cooperation). Furthermore, the prohibition may cover cooperation between a company operating in a given market and another company which does not operate in that market but is a potential competitor within the meaning of competition law. Consultancy firms and other companies that assist in the implementation of illegal collusion may also fall under the prohibition of Article 10 of the Competition Act.
Cooperation between competitors
Article 10 of the Competition Act provides, among other things, that all communications between competitors which have the object or effect of distorting competition are prohibited. The same is provided for in Article 53(1) of the EEA Agreement.
The prohibition on consultation in competition law is intended to ensure that competitors behave entirely independently in the market. In competition law, it is a „fundamental principle that normal competition presupposes independent undertakings making their own decisions when determining their commercial policy“, see the decision of the Competition Appeal Tribunal in case no. 3/2004. The requirement for the independence of competitors has been firmly established by the EU Court of Justice.11 In the EFTA States„ Guidelines on horizontal co-operation between undertakings, this requirement for the independence of competitors is described as “the basic concept underlying the competition rules of the EEA Agreement […]".“12 In this context, it has been pointed out that the „risks of uncertainty“ are extremely important for competition. The independence of competitors and this desirable uncertainty for companies regarding, for example, the intentions of competitors, are fundamental to more effective competition. The competition law prohibition on communication and cooperation between competitors, which runs counter to the above, is intended to protect these fundamental pillars.
For the above reason, it can constitute a serious infringement if competitors enter into practical cooperation to avoid the risks inherent in competition.13 The same may apply where a company discloses its decisions or plans to its competitors. This is particularly the case for communications between competitors that can reduce uncertainty about the timing, scope and individual aspects of their intended market actions.14
Collaboration or communication between competitors is particularly problematic in markets characterised by a lack of competition. The Competition Appeal Tribunal has pointed out that such markets are competitively sensitive and that there is a significant risk of coordinated conduct by competitors.15 In the Competition Authority's publication no. 1/2011, Competition in the Banking Market, it states the following: „In oligopolistic markets, the competitive independence of rivals is particularly important. Any form of co-operation between competitors can increase harmful competition and cause damage to customers.“ In a case concerning an illegal cartel in the construction materials market, the Supreme Court's judgment stated that in a competitive market, it is important that the companies involved have uncertainty „regarding the behaviour of their competitors“.16
Cooperation between potential competitors
The provision of Article 10 of the Competition Act does not only cover cooperation with competitors already operating in the relevant market. As the Competition Appeal Tribunal has pointed out, the provision covers both „actual and potential competitors in the defined market.“17 Article 41(a)(3) of the Competition Act makes it a criminal offence for individuals to engage in company consultations whose object is to prevent „companies from commencing competition in business activities.“
Article 1 of the ESA's Guidelines on the scope of Article 53 of the EEA Agreement with regard to horizontal cooperation agreements states that cooperation is „referred to as „horizontal“ if it is based on an agreement between undertakings which are already competitors or may become so later.“
Paragraph 10 states that in the guidelines, „the concept of „competitors“ is intended to cover both undertakings that are competitors at present and those that could become competitors.“ Furthermore, it is stated that a potential competitor is an undertaking which, had the relevant agreement not been concluded, would have had a realistic prospect of entering the relevant market. It has also been stated that, in this context, consideration should be given to whether it was in fact impossible to enter the relevant market and, if not, whether the company in question could have entered that market (or, as the case may be, would have been interested in doing so).18
It follows that a company's cooperation with a potential competitor may fall under the prohibition of Article 10 of the Competition Act. This is particularly the case if the cooperation is aimed at preventing the potential competitor from entering the relevant market, or otherwise reduces the competitive constraint that the potential competitor could have provided.
Collaboration between companies operating at different stages of the sales process
Collaboration between companies operating at different stages of the supply chain, so-called vertical collaboration, can also contravene Article 10 of the Competition Act.
However, it is generally considered that vertical cooperation does not pose a competitive threat unless competition is already weak at one or more stages of the trade, i.e. if the supplier, the buyer, or both, have a strong market position. Furthermore, vertical restraints have generally been considered to cause less harm than horizontal restraints and can involve significant efficiencies.19
For this reason, vertical agreements which do not contain serious restrictions of competition20, i.e. provisions which have such restraints as their object, fall under the European Commission's block exemption for vertical agreements if the market share of all parties concerned is below certain thresholds or 30% for each individual participant.21
However, where vertical cooperation involves serious competition restrictions, the above group exemption does not apply, even if the parties' market share is below the group exemption's 30% threshold. In such cases, there is a strong likelihood that such cooperation would contravene Article 10 of the Competition Act, provided that the de minimis rule of Article 13 of the Competition Act does not apply.
Judicial practice in this country has shown that vertical restraints can be serious and be aimed at restricting competition. This applies, for example, when vertical cooperation, direct or indirect, is aimed at influencing retail prices.22
Vertical cooperation between undertakings, which do not qualify for the block exemption due to their market share, can therefore infringe Article 10 of the Competition Act, even if it does not involve serious restrictions on competition. As previously stated, this is of particular concern where competition is already weak in the relevant market, for example, if one or both parties have a strong market position, or where there is an accumulation of effects from similar agreements.23
The EC's guidelines on vertical restraints contain detailed rules on the assessment of the effects on competition of various types of vertical agreements under Article 53(1) of the EEA Agreement. For further guidance, reference is made to that discussion.
Consultants and other companies that do not operate in the relevant market
It is established in competition law that, for example, consultancy firms that assist in the planning or execution of consultations on behalf of their clients can contravene the prohibition on illegal collusion. The fact that the consultancy firm is not a competitor (or a potential competitor) in the market in which its clients operate is therefore irrelevant.24 With reference to this rule, the Competition Authority points out the following regarding unlawful information exchange:
„Information exchange can take various forms. Firstly, the exchange of information can take place directly between competitors. Secondly, trade associations or industry bodies can distribute information to their members, and thirdly, information exchange can take place through third parties, such as suppliers, retailers or other independent companies, such as market research firms. Such companies that collect and disseminate information may infringe Article 10 of the Competition Act, even though they do not themselves operate in the market concerned by the information.“25
Cooperation does not have to affect competition
Article 10(1) of the Competition Act prohibits all cooperation which has as its „objective“ or „effects“ the prevention, restriction or distortion of competition. The same applies to Article 53(1) of the EEA Agreement. Different rules of proof apply depending on whether the collusion has the „objective“ of distorting competition or „has the effect“ of doing so.26
When a cartel has the objective of distorting competition, Article 10 of the Competition Act is infringed by the mere fact that the specified conduct takes place. It is not then necessary to consider the effect of the cartel on competition, i.e. whether it has distorted competition.27 Thus, it is not necessary to demonstrate that the consultation has „actual or potential“ anti-competitive effects.28 For example, if competitors get together and decide to raise prices, Article 10 of the Competition Act is breached by that act alone. The breach is therefore not dependent on proving that prices actually increased or had other harmful effects. It has been pointed out for clarification that this rule is analogous to the ban on drink-driving. Driving under the influence is illegal regardless of whether the driver has caused an accident or damage.29
Article 10 of the Competition Act does not provide an exhaustive list of the types of business cooperation that are aimed at distorting competition. Cooperation that undoubtedly falls under the prohibition on objectivity is that specified in paragraphs 2 and 3 of Article 41a of the Competition Act:
If the consultation does not have such an objective, it must be assessed whether it results in a restriction of competition.30 It is then necessary to investigate whether, for example, an agreement „has an anti-competitive effect. Both actual and potential effects must be considered. In other words, it must be likely that the agreement has an anti-competitive effect.“31 In such cases, the likely effects on competition are assessed had the consultation not taken place. However, it is not necessary to prove actual harmful effects.32
For such an assessment, it is generally necessary to define the relevant market, as well as to investigate and assess, among other things, the nature of the product, the parties' position in the market, whether potential competitors exist, and the extent of the barriers to entry. In the aforementioned ESA guidelines on the application of competition rules to horizontaland you verticallyIn the cooperation between companies, detailed criteria can be found for reference when analysing the potential competitive effects of various types of horizontal and vertical agreements.
Article 12 of the Competition Act states that associations of undertakings are prohibited from deciding on restrictions of competition or encouraging barriers which are prohibited under the Act. The legislative history states that the provision „underscores that both associations of undertakings and the undertakings themselves are prohibited from establishing or encouraging restrictions that contravene the prohibition provisions of this Act […]“. It is clear from this that an infringement of Article 12 constitutes a standalone infringement of competition law, even though the substantive content of the provision is to some extent reflected in other provisions of the competition law, such as Article 10.
The purpose of Article 12 of the Competition Act is to ensure that companies do not use their associations as a cover for breaches of competition law. By subjecting business associations to competition law, it is thus prevented that companies circumvent the ban on, for example, price-fixing based on the form or structure in which their collusion is organised. Therefore, not only is direct collusion between companies (agreements/concerted actions) prohibited, but competition law also covers situations where companies cooperate on the market or through such a common intermediary. 33
A decision of an association of undertakings, within the meaning of competition law, refers to any binding or non-binding decision or recommendation which the association issues to its member undertakings in such a way that it is capable of affecting the commercial conduct of the members. No formal requirements apply to these decisions by associations of undertakings.34
The use of the term 'incentive' in Article 12 of the Competition Act indicates that the legislature intended to place particular emphasis on the provision covering any kind of non-binding measure by an association of undertakings which is aimed at distorting competition.35 The concept of inducement in Article 12 of the Competition Act thus covers all actions and measures of an association of undertakings intended to encourage its member undertakings to behave in a particular way. The wording of the provision implies that such an inducement can be in any form whatsoever. A communication to member companies setting out the cost basis for their relevant operations and matters relating to pricing, for example, would fall within this.36 An incentive for member companies to conduct their marketing in a specific way also contravenes Article 12 of the Competition Act.37
The provisions of Article 12 of the Competition Act do not only cover traditional business associations. In its Decision No. 8/2015, Changes to the Structure and Operation of the Payment Card Market, the Competition Authority concluded that Valitor and Borgun constituted an association of undertakings within the meaning of Article 12 of the Competition Act. This conclusion was based on the nature of the agreements in force between the three commercial banks and these companies, formal ownership ties and links of interest.
When considering whether a collaboration between undertakings must be assessed under Article 15 of the Competition Act, it is worth bearing in mind that under Article 13 of the Act, collaboration between undertakings is not prohibited. 10. where the combined market share of all the undertakings concerned operating at the same production or sales level is less than 51%, or 101% where the undertakings concerned operate at different production or sales levels (vertical restraint). This also applies to the prohibition in Article 12 of the Competition Act.
In certain cases, it can therefore be useful to consider whether so-called group exemptions can apply to the relevant cooperation, as competition authorities are authorised to grant such exemptions. In Iceland, several block exemptions which are in force in the European Economic Area have been transposed into domestic law. Thus, group exemptions are in force covering certain categories of vertical agreements and concerted practices, specific cooperation between liner shipping conferences, the insurance sector, motor vehicles, research and development, and more.38 Information and rules on validity Group exemptions are available on the Competition Authority's website.
Once an analysis has been carried out to determine whether an agreement contravenes Articles 10 or 12 of the Competition Act, and the conclusion is that it does, the undertakings concerned may assess whether the agreement has positive economic effects and can satisfy all the conditions of Article 15. of the Competition Act for an exemption from the prohibition on concerted practice.
The aim of competition law is to promote effective competition in trade and thereby contribute to the efficient use of the nation's productive resources, for the benefit of consumers. As has been stated previously, actions that breach Article 10 or 12 of the Competition Act can also have a pro-competitive effect. Economies of scale by the co-operating undertakings can, for example, lead to a reduction in production or distribution costs and increased product quality or innovation. If the pro-competitive effects of the collaboration outweigh its anti-competitive effects, the collaboration agreement as a whole is considered pro-competitive and thus consistent with the objectives of the Competition Act.
In the bill which became Law No. 103/2020, the following was stated regarding cooperation and competition:
„It is important that the law does not hinder increased efficiency in business life and that its implementation is simplified as much as possible. In this regard, however, it is important to bear in mind that although well-defined cooperation in certain areas can be socially beneficial, caution must be exercised against competitors in a market generally entering into overly close and extensive cooperation that undermines their independence in the market. This may lead to a coordination of competitors“ market behaviour, which in turn reduces effective competition, to the detriment of consumers and the wider economy."
In this regard, it is of significant importance that the conditions in Article 15 of the Competition Act are in fact intended to support the competitive process and the benefits of competition. If a collaboration genuinely creates efficiencies, it can lead to a new or improved product being brought to the market, prompting competitive responses from rivals outside the collaboration which ultimately benefits consumers.39 If a collaboration does not have such a positive overall effect, it does not fulfil the conditions of Article 15 of the Competition Act.
Each case must always be assessed on its own particular facts and the specific circumstances applicable to it must be taken into account.40 The potential positive effects of the collaboration in each case must outweigh its negative effects.
General provisions concerning Article 15.
Subsections a and b of Article 15 of the Competition Act state that, on the one hand, the cooperation in question must consist of an advantage consisting of improved production or distribution of a product or service, or the promotion of technical and economic progress. However, the cooperation must provide consumers with a fair share of these benefits.
In addition, the cooperation in question must fulfil the conditions of paragraphs c and d of the provision, which state that the cooperation must not impose unnecessary constraints on the undertakings concerned, nor may the cooperation enable the undertakings concerned to prevent competition with regard to a substantial part of the products or services in question.
The burden of proof that the conditions of Article 15 of the Competition Act are met rests with the relevant undertakings and associations of undertakings. The Competition Authority will not consider that the partners have demonstrated that the conditions of paragraphs a-d of Article 15 are met unless they provide reasoning and evidence that satisfy the requirements specified in paragraphs 92-94 below.
All types of cooperation may potentially fall under the exemption in Article 15 of the Competition Act. However, it is unlikely that serious restrictions on competition could satisfy the conditions […].41 The evidential requirements for a collaboration aimed at distorting competition, within the meaning of Article 10 of the Competition Act, to satisfy the conditions of Article 15 of the Act are therefore inevitably very stringent.
In applying the provision, as previously stated, general regard should be had to the application and development of competition law in the European Economic Area. As previously stated, the European Commission and the EFTA Surveillance Authority have issued similar guidelines, which are also intended to help companies assess whether collaborations or agreements to which they are party meet the conditions for an exemption and comply with the applicable rules.
When assessing whether a collaboration meets the conditions of Article 15 of the Competition Act, due regard may be had, to a certain extent, to previous decisions of the Competition Authority and, where applicable, rulings of the Competition Appeals Board and the courts. However, it should be borne in mind that these earlier decisions were taken in a different legal environment to that which has applied since 1 January 2021. This may affect their guidance value.42 This leads, inter alia, to the situation where older decisions by competition authorities in a leniency scheme have limited guidance value in a self-assessment scheme, with regard to the evidential requirements, see para. 94.
It must also be taken into account that the grounds for exemptions granted under the previous legislation may change, for example, market conditions, the position of companies in the market, barriers to entry, etc. Furthermore, older decisions concerning exemptions were mostly of a limited duration, partly for this reason. This nature of the matter can, by its very nature, affect the guidance value of older exemption decisions and highlights the importance of companies making their own assessment of the relevant collaboration at all times. It is also important to note that case law has established that exemption decisions should be interpreted narrowly.43
When assessing the guidance and precedent value of older exemption decisions, it is also important to consider whether the Competition Authority imposed specific conditions on the granting of the exemption under the then-applicable Article 2. subsection 15 of the Competition Act. Such conditions were imposed following an investigation by the Competition Authority and were intended to modify the relevant cooperation or its framework in order to ensure that it fell within the scope of subsection 15 of the Competition Act. Crucially, with regard to the significance and effect of these conditions in older exemption decisions, a breach of them could lead to the Competition Authority withdrawing the exemption and imposing an administrative fine on the offending undertakings, pursuant to Article 3. subsection 15 and paragraph d of subsection 1 of section 37 of the Competition Act. The framework or conditions that cooperating undertakings set for themselves in a self-assessment system do not have the same legal effect as binding administrative decisions. It follows that in a self-assessment system, cooperating undertakings cannot assume that conditions similar to those imposed by the Competition Authority in the previous system can guarantee that a cooperation complies with the conditions of Article 15 of the Competition Act after 1 January 2021. Collaborating companies in a self-assessment system must therefore assess, based on the circumstances at any given time, whether changes to the framework of the collaboration mean that it can qualify for an exemption from the prohibition in Articles 10 and 12 of the Competition Act.
The conditions of Article 15 of the Competition Act will now be examined in more detail.
The first condition of Article 15 of the Competition Act stipulates that restrictive cooperation must either contribute to the improvement of the production or distribution of a product or service, or promote technical and economic progress. When assessing the conditions of this paragraph 15 of the Act, not only operational efficiency shall be taken into account, but particularly the macroeconomic efficiency, in accordance with the objectives of the Competition Act as set out in Article 1 thereof.
This includes, amongst other things, that partners must be able to objectively demonstrate how the collaboration contributes to improved production or distribution, or how it promotes technical and economic progress. This requires a direct causal link, meaning that the benefits cannot be too remote or uncertain. Furthermore, the benefits must not be assessed from the partners' own perspective. For example, companies can reduce costs by restricting competition through price-fixing or market-sharing. Such a cost reduction, which has no pro-competitive effect on the market but merely enables the companies concerned to increase their profits, would not be considered to fulfil the conditions of Article 15 of the Competition Act.44
All claims of such optimisation or economic benefits must be supported by verifiable data and reasoning in order to verify the nature of the alleged optimisation, what the link is between the collaboration and the benefit, how likely it is that the alleged benefit will be achieved in each case and how great it would then be, and how and when the alleged benefit would be achieved in each case. Unsubstantiated claims are not sufficient. Thus, the collaborating companies must demonstrate the benefit with precise calculations and explanations of the methods that have been, or will be, used to achieve it. 45
As a rule, a direct causal link must be demonstrated between the collaboration and the alleged advantage. It is unlikely that an advantage based on indirect effects will be taken into account. An example of such indirect effects is the assertion that a restrictive collaboration would increase the partners' profits, enabling them to increase investment that would benefit consumers at a later date.46
The types of advantage listed in Article 15(a) of the Competition Act are broad categories intended to cover any kind of objective economic advantage, and the categories can overlap to a considerable extent, as cooperation can result in various types of efficiencies. Examples of the broad categories of efficiencies that can fall under this due to cooperation between undertakings are as follows:
Increased cost-efficiency: Can, for example, involve savings in the development of new production technology or methods, due to the integration of production equipment or increased specialisation. Furthermore, by collaborating, companies can achieve savings based on economies of scale and economies of scope.47
Increased efficiency due to enhanced quality: May consist of collaboration on research or development of a new or improved product or service, or the combination of different assets to create synergies, e.g. licensing agreements or joint production of a new or improved product or service.48
The requirements in this regard are described in more detail in section 3.2 of the ESA guidelines, and reference is made to them.
According to the second condition of Article 15 of the Competition Act, the companies in question must demonstrate that a fair share of the benefits arising from the agreement or collaboration is passed on to consumers.
The term 'consumer' is to be interpreted broadly in this context. It refers not only to the end user but also encompasses all direct and indirect users of the product or service covered by the collaboration.49 Consumers in this context can include, for example, procuring purchasers, wholesalers, retailers and end-users. Consumer benefits can include, for example, improved distribution, better service or even higher quality, at least to the extent that this occurs without a price increase.
An assessment of whether a collaboration will provide consumers with a fair share of the resulting benefits is inevitably linked to the question of whether there is sufficient effective competition, or threatened competition, in the relevant market.50 If there is effective competition in the relevant market, or a sufficiently strong threat of potential competition, the companies concerned should not be allowed to avoid passing on to consumers the benefits that result from, for example, an improved distribution system or lower costs.
The overall impact of the collaboration on consumers of the product in the relevant market must be assessed, not on individuals within that consumer group. It is not necessary for consumers to receive a share of every single category of benefit. It is sufficient that a sufficiently large benefit passes to consumers so that the positive effects of the collaboration offset its negative effects on consumers and compensate for them. When this is the case, consumers receive a fair share of the overall benefit and do not suffer any harm from the collaboration. Furthermore, it benefits society as a whole if the optimisation leads either to a reduction in the use of production factors required to produce the consumer good, or to the production of higher-value goods, thereby making the use of production factors more efficient. It may then be some time before the benefits are passed on to consumers. This does not mean that the condition is not met, but the longer the delay, the greater the efficiency gain must be to compensate consumers for the loss of time.51
Assessing the effects of a collaboration can be considerably complex in practice, particularly when the collaboration has both significant anti-competitive and significant pro-competitive effects.52
The nature of the economies of scale also has an effect here. Where increased cost-efficiencies result from the collaboration, competition authorities' practice has, for example, generally distinguished between a reduction in fixed costs (e.g. administrative costs) and marginal or variable costs in this regard. When assessing whether a cost reduction is passed on to consumers, the focus is primarily on changes in marginal or variable costs, as these costs directly affect companies' incentives to lower or raise prices.53 Finally, it is necessary to weigh up, on the one hand, the increased market power arising from the companies' anti-competitive cooperation and, on the other hand, the cost savings that are taken into account.54
The requirements in this regard are described in more detail in section 3.4 of the ESA guidelines, and reference is made to them.
According to paragraph c of Article 15 of the Competition Act, restrictive cooperation must not involve any restrictions on competition other than those which are indispensable to achieving the efficiencies aimed at by the cooperation in question.
This condition is therefore twofold. Firstly, there must be a reasonable justification that the cooperation which restricts competition is necessary in order for the optimisation to be achieved. Secondly, there must also be a reasonable justification for the individual restraints of competition resulting from the cooperation being necessary to achieve the efficiencies.55
It is therefore only necessary competition restrictions that can rely on an exception on the basis of the provision. It must be demonstrated that the contracting parties cannot achieve the stated objective by other, less restrictive means, i.e. realistic alternatives involving less competition-restricting measures. It is therefore not sufficient to demonstrate merely that the restrictive cooperation brings about benefits under paragraph (a) of the provision; it must also be demonstrated that the restrictions on competition are necessary for the cooperation to be able to produce those benefits.56
It is also relevant whether and when the partners could have achieved the same level of efficiency through other, less restrictive cooperation, taking into account the market conditions and business environment in each individual case. It may also be necessary to investigate whether the parties could have achieved the efficiencies individually, for example through internal growth of the companies or price competition.
If the cooperation in question is considered necessary by the parties to achieve the set objective, they must substantiate their claims both regarding the nature of the individual restraints on competition and their extent. The more serious the individual restraints on competition arising from the collaboration, the less likely they are to be considered indispensable.57
The requirements in this regard are described in more detail in section 3.3 of the ESA guidelines, and reference is made to them.
The final condition of Article 15 of the Competition Act, which must be met in order to rely on the exemption provided for by this provision, is that a certain minimum level of competition must remain in the relevant market. The cooperation in question must therefore not enable the undertakings to prevent competition with regard to a substantial part of the relevant products or services.58
Ultimately, the protection of competition and the competitive process thus takes precedence over the potential efficiencies that can arise from anti-competitive agreements. This condition thus entails a recognition that competition between undertakings is of fundamental importance for economic efficiency, including the efficiencies inherent in innovation. It follows that the ultimate objective of Article 10 of the Competition Act is to protect the competitive process. When competition is prevented, the competitive process is halted and any short-term benefit from efficiency gains is outweighed by the long-term loss.
When assessing whether a restrictive collaboration prevents competition, this depends on the level of competition before the relevant agreement is made and the impact of the restrictive collaboration on competition, i.e. how much the agreement reduces competition. Both the extent to which the collaboration precludes competition between the parties themselves and the competition that can be expected from other actors in the relevant market must be taken into account. If the collaboration substantially prevents competition between the partners, the condition is only deemed to be met if vigorous competition can be expected from other companies in the market. In this context, both actual and potential competition must be considered, but as has been stated, each case must be assessed based on its own specific facts and account for the particular circumstances involved. It is therefore necessary to assess, amongst other things, the nature of the product/service, the market position of partners and their competitors, potential competitors, and the extent of the barriers to entry.59
In this context, it is important to bear in mind that the greater the concentration in the relevant market, the more difficult it will be for an incumbent company to satisfy the requirement in paragraph d. The weaker the competition in the relevant market, the less it needs to be reduced beyond that in order to be prevented from becoming anti-competitive within the meaning of Article 15(d). In Iceland, there is a risk of oligopoly and high concentration in important markets. Potential partners in such markets must pay particular attention to this condition.
The more the collaboration affects a larger part of the relevant goods or services, the less likely it is that the collaboration can fulfil the conditions of paragraph (d) of the provision. However, if the collaboration is only considered to restrict competition to a negligible extent between the collaborating companies, their high market share alone may carry less weight in assessing whether the condition is met.
The requirements in this regard are described in more detail in section 3.5 of the ESA guidelines, and reference is made to them.
Proof that the conditions of Article 15 are met
When it has been demonstrated that an agreement is in breach of Article 10 or 12 of the Competition Act, the companies concerned can mount a defence by invoking Article 15 of the Competition Act. Thus, an undertaking's cooperation may be exempt from the prohibition on illegal collusion if it can be proven that all the conditions of Article 15 are met. Matters relating to the burden of proof and the standard of proof are of great importance here.
Prior to the entry into force of Article 4 of Act No. 103/2020, those seeking an exemption under Article 15 of the Competition Act had to demonstrate to the Competition Authority that the conditions of the provision were met before cooperation could commence.60 In the self-assessment system under Act No. 103/2020, the burden of proof that the conditions of Article 15 are met remains with the relevant undertakings or associations of undertakings. As has been stated, the change in the formal procedure did not involve a substantive change to the conditions that must be met for certain company transactions not to fall within the prohibition provisions. The Bill which became the aforementioned Act states, inter alia: „The burden of proof that the conditions set out in Article 1 are met lies with the undertakings or association of undertakings intending to co-operate, see by way of comparison the provisions of Article 2.“ subsection are met rests with the undertakings or association of undertakings intending to co-operate, see by way of comparison the provisions of Article 2 of Chapter 2 of Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice."
A change in working methods and increased responsibility for companies and business associations is of great significance with regard to proof. In the self-assessment system, partners assess whether the conditions of Article 15 are met and commence their cooperation if their assessment is that they are. Furthermore, the partners must ensure that the collaboration fulfils the conditions throughout the entire collaboration period. This collaboration may later be subject to an investigation by the Competition Authority. Should the Competition Authority conclude that it contravenes Article 10 or 12 of the Competition Act, the parties concerned must be able to demonstrate that the collaboration, from its inception and throughout its existence, has fulfilled all the conditions of Article 15 of the Competition Act.61 Partners must do so on the basis of written evidence, and the role of the Competition Authority is then solely to assess whether the partners have succeeded in proving the aforementioned.62
If co-operating parties cannot prove that all the conditions of Article 15 of the Competition Act are met, they (and, where applicable, their employees) may expect the sanctions provisions of the Competition Act to be applied. Prior to the aforementioned amendments to section 15 of the Competition Act, however, cooperation could not commence until the parties concerned had demonstrated to the Competition Authority that the conditions of section 15 were met. As cooperation had not commenced, it was for the parties to demonstrate its likely effects, e.g. prospective or projected efficiencies. In this respect, the burden of proof for the parties is different under the new regime.
For the above reasons, it is extremely important that parties considering cooperation thoroughly familiarise themselves with the requirements for evidence intended to prove that the conditions of Article 15 are met. Reference is made to the discussion above regarding the requirements for proving the elements of Article 15. In the ESA's guidelines on the application of Article 3( paragraph of Article 53 of the EEA Agreement, which also provides in greater detail for the evidential requirements concerning what is set out in points (a) to (d) of Article 15 of the Competition Act, and reference is made thereto.63
As the above-mentioned comments in the legislative documents show, this is in this respect based on EEA/EU competition law. The EU Court of Justice has, in its case-law, shed light on the evidential requirements in the self-assessment system for parties who rely on their cooperation creating efficiency gains and fulfilling the conditions for an exemption from the prohibition on concerted practice under competition law. Firstly, it has been established that a company claiming an exemption must demonstrate this with convincing arguments and by means of evidence.64 It has therefore been confirmed that such proof can only be achieved on the basis of concrete evidence.65 Claims of cost-benefit advantages must be based on a precise, exhaustive and highly convincing analysis. The assumptions and conclusions based on such an analysis must be grounded in real data and facts.66 It should be noted that the EU courts have not accepted that this imposes unduly strict requirements of proof in this regard.67
In cases that have been before the EU courts since the introduction of the self-assessment system, it has been established that the same standard of proof and burden of proof that applied when the Commission granted derogations under the old system cannot be applied. In the old system, it was considered sufficient that there was a sufficient likelihood that the cooperation would lead to efficiency gains and fulfil other conditions. This evidential burden is different when the Commission no longer grants an exemption and companies must prove that a collaboration in which they participated fulfilled the conditions for an exemption.68 It follows that older decisions by competition authorities in a leniency scheme have limited guidance value in a self-assessment scheme, inter alia with regard to the evidential requirements, see also paragraphs 59-61 above.
The Competition Authority's guidelines take into account comparable guidelines issued by the EFTA Surveillance Authority („ESA“) on the self-assessment of undertakings and on the application of competition rules to horizontal and vertical cooperation between undertakings. The Competition Authority's guidelines supplement these ESA guidelines.
In preparing the guidelines, account was taken of rulings from Icelandic and European case law. To a certain extent, companies can take into account the previous decisions of the Competition Authority and, where applicable, rulings from the Competition Appeals Board and the courts when assessing whether a collaboration fulfils the conditions of Article 15 of the Competition Act. However, it should be borne in mind that the guidance value of older decisions may be affected by the fact that they were taken under a different legal framework to that which came into force on 1 January 2021. Thus, older decisions may have limited guidance value in a self-assessment system with regard to the evidential requirements. This is discussed in the Competition Authority's guidelines, see paragraphs 59-61 and 94.
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