In recent years the Spanish National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia or "CNMC") has faced a number of challenges, including the aftermath of a key Court decision in 2015 overturning its fine guidelines and rumours since early 2016 of plans to significantly reform the authority. The CNMC has also been tested in the Courts, and in particular in just a few weeks in the summer of 2017 total fines of nearly €200 million were annulled.
But the CNMC has continued to innovate and, rather than waiting for reform from outside, has itself announced a series of changes aimed at improving procedures, decisions and transparency.
The end of the CNC fines notice in 2015
In a landmark judgment in January 2015 the Supreme Court declared the 2009 Fines Notice approved by the CNMC's predecessor, the CNC, to be invalid.
Since then a large number of CNC and CNMC decisions in which the Notice had been applied have been partially annulled by the courts and, in many cases, sent back to the CNMC for a new fine to be calculated.
The impact has been significant in several respects. First in terms of workload: the number of appeals against CNMC decisions has increased in the expectation of fines being reduced and the CNMC has been forced to dedicate significant resources to the calculation of new fines for the cases sent back to it. Moreover, since the guidance in the January 2015 judgment was limited, the CNMC were also left with the task of developing a new methodology.
In addition, the annulment of the Notice lead to a decrease in the transparency and predictability of the amount of the fines, which may have had an impact on the incentives of companies that might otherwise have chosen to collaborate under the leniency notice.
Rumours of reform
For the last two years the CNMC has also been obliged to operate under the shadow of a potential reform of the authority.
The possibility of reform to the CNMC was first discussed as part of the negotiations aimed at forming a coalition government in early 2016, and was apparently confirmed by an announcement and request for comments in March 20171. Nevertheless, nearly two years on the proposed terms and timetable of the reform are not yet known, despite being widely believed to involve a significant reshaping of the authority.
The CNMC has also been faced with intensifying scrutiny in the courts. In 2015 a number of cases were overturned due to doubts as to the validity of the inspections carried out, in 2016 a series of appeals were upheld (although the decisions were later restored) based on alleged infringements of the investigation deadlines and, most recently, in just a few weeks in the summer of 2017 the Audiencia Nacional annulled decisions imposing nearly €200 million in fines for a variety of reasons, including insufficient grounds, and factual, legal and procedural errors.
On September 1, 2017 the Audiencia annulled a CNC decision of 2012 fining Spain's three major mobile telephone network operators, Telefónica, Vodafone and France Telecom a total of €120 million, at the time the highest fines ever imposed in a competition case in Spain, for an alleged abuse of dominance on the wholesale markets for short messaging (SMS and MMS) over their respective networks. The Audiencia found that the CNC had failed to provide consistent or sufficient grounds for the finding of dominance and reproached the CNC for leaving out objective data that revealed increasing market competition.
In another judgment literally one judicial day earlier (on July 31, 2017), the Audiencia also annulled an October 2014 CNMC Decision imposing on Telefónica a fine of €25.78 million for offering small and medium sized business customers discounts in return for term commitments of up to two years2. The Audiencia found that the CNMC had erred when it analyzed the agreements as "vertical" and that the discounts offered in exchange for limited term commitments were in fact, on balance, pro-competitive.
Also in July 2017, the Audiencia upheld the appeals of companies involved in two cases in which the Council of the CNMC had applied controversial interpretations of the single continuous infringements. In both cases - Case S/0404/12 Servicios Comerciales AENA and Case S/0428/12 Palés, the appeals were upheld on the basis that infringements that had been considered separate throughout the investigation in fact formed a single continuous infringement, but without first giving the parties under investigation the right to respond to that change of assessment.
Finally, on July 28, 2017, the Audiencia annulled a €22.59 million fine imposed by the CNMC on Repsol, S.A., the parent company of the Repsol group, on the basis that the CNMC had mistakenly fined Repsol, S.A., which was not active on the relevant market, when it should have fined the relevant subsidiary3.
Measures proposed by the CNMC
Despite these challenges the CNMC has continued to innovate, announcing significant changes in 2016 in the form of fines on individuals and a willingness to embrace bans on public contracting, and in 2017 has proposed a series of measures aimed at strengthening procedures, decisions and transparency4.
First, the CNMC aims to strengthen the legal and economic basis of its decisions and the analysis of expert reports submitted during investigations. The authority is planning to provide guidelines on how to submit economic reports. More importantly, the CNMC has announced reinforcements to its personnel in the form of an influx of economists, lawyers and engineers, and has plans to recruit more economists and even mathematicians, IT forensic experts and statisticians in the near future5.
Second, the CNMC has announced that the draft decisions proposed by the Directorate of Competition will in future include an indication of the amount of the proposed fine, allowing parties the opportunity to make their observations on that proposed fine before the final decision. This procedural change not only reinforces the rights of defense but will probably lead to more refined decisions on this key issue, both because the case handlers may be better placed to set the fines for individual companies than the Council, and because the Council will have the benefit of the parties' observations when taking its final decision. (It will also unlock resources, in the form of the CNMC's Chief Economist's team, that can better be dedicated to the review of more complex economic issues.)
Third, and on a related note, the authority also aims to increase transparency as to the way that fines are calculated. Specifically, the authority plans to publish provisional guidance concerning the new calculation method, which should allow companies to predict with greater certainty the risks attached to different kinds of conduct.
Fourth, the CNMC has announced a series of procedural improvements, including a return to the practice of celebrating oral hearings before the Council as part of its investigations. It is hoped that these hearings, which have not been held since 2009, will enable a greater exchange of views and scrutiny of the arguments and evidence put forward by the Council prior to the decision being taken.
Finally, and in addition to a specific intention to appeal the most recent judgments of the Audiencia, the CNMC intends to participate more actively in the appeals process in general, cooperating with the State Attorneys so as to strengthen the quality of legal and economic arguments put forward in defense of their decisions.
What to expect in 2018
Despite the positive plans announced by the CNMC there are still significant challenges in prospect in the coming years. There may still be changes to the structure of the authority itself, there is a clear tendency for the Courts to hold the CNMC to ever higher standards and there are a number of key issues, including the CNMC's new methodology for calculating the fines, that are yet to be reviewed by those courts.
Nevertheless, the hope is that the greater clarity brought by new fining guidance and the other improvements announced will allow the CNMC to intensify and focus its enforcement activity and at the same time improve transparency and certainty for business.
- Specifically, the Spanish Government organized a public consultation whose text is available (in Spanish) at: http://www.mineco.gob.es/stfls/mineco/economia/ficheros/pdf/170301_consulta_publica_AAI.pdf.
- Case S/0422/12 Contratos De Permanencia.
- Case S/484/13 Redes Abanderadas.
- Specifically, on October 24, 2017, during the CNMC Annual Competition Day. Press release available (in Spanish) at https://www.cnmc.es/node/365313.
- As reported by Beatriz De Guindos Talavera, senior advisor to the president of the CNMC, to PaRR (published on November 10, 2017).