27 Feb Competition Law: Key Concepts on Collusive Practices

At Navarro Llima Abogados, we understand that collaboration between companies (even among competitors) is not only common but often necessary and beneficial for innovation, efficiency, and economic progress. However, the law draws a fine line between what is considered lawful cooperation and what constitutes collusive conduct.

Crossing that line, whether intentionally or through lack of awareness, can have devastating consequences for a company: multi-million-euro fines, prohibition from contracting with the public sector, and even sanctions against company executives.

General Rule: Prohibition of Agreements That Restrict Competition

The core principle of Spanish and European regulations is the general prohibition of anticompetitive agreements. Article 1 of Law 15/2007 on the Defense of Competition prohibits any agreement between companies that has as its object or effect the prevention, restriction, or distortion of competition.

Difference Between Object and Effect:

• Restrictions by Object: These are practices that, by their very nature, are considered harmful to competition. Case law has made it clear that in such cases, it is not necessary to demonstrate negative effects on the market for them to be sanctioned. This category includes the most serious agreements, such as price-fixing, market allocation, and production limitations.

• Restrictions by Effect: These are agreements that, even if they do not have an evident anticompetitive objective, produce or may produce a negative impact on competition. In these cases, authorities must conduct a detailed analysis of the economic context, market structure, and the position of the companies involved.

When Is Cooperation Lawful?

Not all forms of collaboration are prohibited. The legal framework therefore provides for so-called “safe harbours” through the Block Exemption Regulations.

These regulations authorize, under strict conditions (such as market share thresholds), certain types of agreements whose pro-competitive benefits are deemed to outweigh their potential negative effects. Some examples include:

• Horizontal cooperation agreements (between competitors): such as research and development (R&D) agreements or specialization agreements, which may promote innovation and efficiency.
• Vertical agreements (between companies operating at different levels of the supply chain): such as exclusive or selective distribution agreements, which may enhance the marketing and distribution of products.

It is therefore crucial to assess whether a given agreement falls within one of these exemptions and fully complies with all applicable requirements, in order to avoid the risk of sanctions.

Potential Consequences of Collusive Practices

It is important to understand that the responsibility for assessing the legality of an agreement rests directly with the companies themselves. This is known as the “self-assessment” system.

An error in this assessment may lead to several consequences, including:

• Fines: Very serious infringements may result in fines of up to 10% of the company’s total turnover.
• Sanctions against directors and officers: Legal representatives involved in the infringement may face fines of up to €60,000.
• Exclusion from public procurement: The company may be barred from participating in public tenders.
• Damages claims: Customers or competitors harmed by the anticompetitive conduct may bring civil actions seeking compensation for the losses caused by the unlawful practice.

The Best Defense: Prevention and Advice

Without prejudice to leniency programs, which are measures applied after an unlawful practice has occurred, allowing a company to significantly mitigate the consequences of its actions by reporting the cartel to the authorities and cooperating with them, the proper way to protect against potential sanctions is to establish a competition compliance program.

This compliance program must be implemented fully and across all relevant departments of the company whose activities may give rise to collusive practices. Key measures to implement include:

• Training employees in the risks and warning signs.
• Establishing a risk identification system.
• Setting clear protocols for responding to identified situations.
• Properly documenting agreements that, while potentially lawful, may be subject to review by the authorities.

At Navarro Llima Abogados, we have extensive experience in competition law, both in preventive matters and in defending companies in sanction proceedings. For over 20 years, we have effectively helped establish a secure legal framework within our clients’ businesses. We invite you to contact us at info@navarrollimaabogados.com.