With Decision no. 11/2015, The conviction of Byko Ltd. for an infringement of Article 10 of the Competition Act brought to a close a major investigation by the Competition Authority into the building materials market. In particular, the investigation looked into whether Byko and Húsasmiðjan had engaged in illegal collusion.
In July last year, the investigation into the case against Húsamiðjunni concluded with the previous operators of Húsamiðjunni admitting to the offence and paying a fine, in addition to the current operators of the company committing to take measures to prevent further breaches.
This information page provides access to information about the aforementioned research and its findings. The page is intended to help companies in the construction products market, their customers and other interested parties familiarise themselves with the matter. It is important that the resolution of the case can serve as guidance for companies and their customers on business practices in competitive markets.
Competition in business is highly desirable as it increases consumer welfare and promotes efficiency in the economy. It leads to lower prices, better service, innovation and progress in business. Just as it is clear that competition has positive effects, it is also evident that barriers to competition can cause great harm to the public and the business community, especially those resulting from collusion between competitors.
Institutions and academics agree that collusion between competitors, e.g. on prices, is very harmful and can create significant financial benefits for the companies involved at the expense of consumers. Until recently, it was conservatively estimated that the benefit of price-fixing was, on average, 10% of the sale price, while the societal damage from the collusion could amount to 20% of the volume of business covered by the agreement. More recent research, however, suggests that this underestimates the harm to consumers and business from collusion. For example, an OECD report from 2005 states that research indicates that illegal collusion can lead to prices being up to 60-70% higher than they would otherwise be. There is strong reason to believe that the damage caused by collusion could be even greater in Iceland than in larger countries.
In light of this harm caused by collusion, the Althingi decided in 2007 to increase the maximum penalty for employees' participation in corporate collusion from four to six years' imprisonment.
The investigations by the police on the one hand and the Competition Authority on the other into alleged collusion in the building materials market constitute, under competition law, two related but entirely independent matters. In the criminal case, the police investigate the actions of company employees, whereas in the administrative case, the Competition Authority investigates the actions of the companies. Administrative and criminal proceedings are governed by different laws. Companies are not parties to the criminal case, and individual employees are not parties to the administrative case.
The District Court of Reykjanes delivered a verdict in a criminal case against certain employees of Byko, Húsasmiðjan and Úlfurinn on 9 April. All but one were acquitted of the prosecution's claim that they should be sentenced for breaches of competition law. That decision of the district court has now been appealed by the prosecution to the Supreme Court. The outcome of that case before the Supreme Court will not affect the administrative case against the companies.
The Competition Authority's investigation into the old Húsasmiðjan company concluded in July 2014. At that time, Húsasmiðjan reached a settlement with the Competition Authority. It admitted to the offences and paid fines. Byko, however, did not request a settlement, and a decision is being made today regarding its offences. If Byko does not agree with the Competition Authority's decision, the company can appeal it to the Competition Appeals Board and, if necessary, subsequently to the courts. In court, such a case would be pursued as a civil case, not a criminal one.
The criminal case and the administrative case are governed by different principles and do not cover the exact same circumstances and period. In one case, the conduct of companies is at issue, while in the other, the conduct of individuals is at issue. Different procedural rules apply to the two cases.
The focus of the investigation and the standard of proof in these two types of cases is usually different. In the administrative law case, the investigation concerns whether the company as a whole has committed an offence. The company is liable for all actions taken by its employees in the course of their employment. Therefore, for example, it can be of considerable importance that a company's wrongdoing may be established even if its employee was not authorised to act, the act was committed without the knowledge of the company's management, or the act was in direct opposition to the company board's instructions. The Competition Authority's decision does not determine the guilt or innocence of individuals, but by its nature, it discusses the actions of employees and management in order to shed light on whether the company has committed an infringement.
In the criminal case, however, the conduct of the company as a whole is not considered; rather, the conduct of each individual employee is investigated. Although the administrative and criminal proceedings are rooted in the same events, the foregoing can lead to their subject matter being different in terms of time and scope. The same applies to the facts in question.
From the above, it follows that the outcome in the administrative law case has no binding legal effect in the criminal case, and vice versa.
The term „price survey“ is not defined anywhere in competition law, nor do the laws state that such price surveys are illegal. Traditional price surveys are common, and both consumers and businesses can benefit from transparency regarding prices and other commercial matters. However, it can constitute illegal collusion if the cooperation or communication between competitors (which they sometimes choose to call price-checking) results in a level of transparency that is not part of the „natural“ state of the relevant market.
The independence of competitors in the market and their desirable uncertainty about each other's actions is an important prerequisite for competition, especially in oligopolistic markets. It can thus be very harmful to price competition if competitors reduce uncertainty through their interactions (price enquiries) by creating „artificial transparency“. Such interactions can involve concerted conduct by competitors, which is one manifestation of illegal collusion. Direct information exchange between competitors about prices can rarely, if ever, be legitimate and is likely to distort competition.
The so-called „price surveys“ in the case under consideration involved regular and organised communications over a long period, as described in the decision of the Competition Authority. Their purpose was to raise prices or to counteract price reductions. The „price surveys“ were thus a tool for the conspirators to communicate about prices for the purpose of restraining competition. This conduct has nothing in common with traditional price surveys.
The product codes sold by Byko and Húsasmiðjan number in the tens of thousands. The companies' co-operation involved weekly telephone calls during which information was provided about prices, discount terms (and, where applicable, stock levels) on the same 105 products in the category of general merchandise, which have in common that they are among the most important and best-selling general merchandise items for Byko and Húsasmiðjan. The companies' managers instructed their subordinates to engage in these communications. It is clear that the companies did not want these communications to take place via email between them.
The market environment for Byko and Húsasmiðjan is complex. Although the various product categories are homogeneous between the companies, the bulk goods have certain dimensions, i.e. measurement-related properties, which can make it difficult to compare their prices. Thus, factors such as size, weight, length and width need to be the same when comparing prices. Otherwise, the comparison is not meaningful. The evidence shows that it could be a difficult task for the companies' specialists to compare prices on individual types of bulk goods. For these reasons, among others, Húsasmiðjan and Byko engaged in these regular price discussions. This procedure was followed to ensure price-fixing in a complex environment.
This means that the communications between Byko and Húsasmiðjan did not include public information that was accessible to everyone. Therefore, the competitors considered it necessary to engage in these direct, regular communications.
Húsasmiðjan, both its former and current owners, and the Competition Authority reached a settlement on 9 July 2014, and the case against Húsasmiðjan was then concluded. In the settlement with the operators of Húsasmiðjan during the period of infringement, it is acknowledged that Húsasmiðjan was a participant in the illegal collusion described in the decision. The current operators of Húsasmiðjan, in a separate settlement, undertook conditions to prevent a recurrence. In addition, during the period of the infringement, the owner of Húsasmiðjan paid a fine of 325 million krónur for the company's breaches of competition law.
All the breaches referred to in the Competition Authority's Decision No. 11/2015 took place before the current owner of Húsasmiðjan took over its operation.
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