The Lithuanian Competition Authority reduces fine for price fixing due to the effects of COVID-19 pandemic (Theatrical Film Distribution / NCG Distribution / Forum Cinemas)

It was a classic case of a price fixing cartel brought to the competition authority’s attention by a potential victim.  [1]

The Lithuanian competition authority, Konkurencijos taryba, or Competition Council of the Republic of Lithuania (‘Competition Council’), [2] announced on 25 November 2020 that its investigation into an alleged cartel in the film distribution sector determined that the distributor Theatrical Film Distribution and two other firms, NCG Distribution and Forum Cinemas (which are affiliated), had agreed on the price for the distribution of films and thereby infringed the Law on Competition. At the same time, the Competition Council also recognised that the market for distributed films faces unprecedented challenges and activity restrictions due to the effects of the COVID-19 pandemic so its fine of more than € 3.83 million for price fixing was reduced by 80 percent to € 768,000. [3]

The investigation

The Competition Council initiated its investigation after obtaining information from representatives of Multikino Lietuva, a movie theatre in Vilnius, that they had received an offer from Theatrical Film Distribution to sign a distribution agreement identical to the one which Multikino Lietuva had already concluded with NCG Distribution. Both contracts were similar in nature, and contained identical terms with respect to prices and rules on the calculation of film distribution rental costs. During the course of its investigation, the Competition Council found that Theatrical Film Distribution had received the contract from employees of Forum Cinemas and NCG Distribution. By sharing the contract, the rental price calculation procedure and rental cost applied by NCG Distribution were disclosed to its competitor Theatrical Film Distribution. This action has the potential to infringe the Law on Competition with respect to restricting competition. Furthermore, an exchange of e-mails confirmed that the companies agreed to apply the same price for the distribution of films in order to limit the application of lower prices in cinemas through, for example, special offers and discounts. This communication infringed the Law on Competition against price fixing.

Taking into account the gravity of the infringement, its duration and other circumstances relating to the investigation, the Competition Council calculated the following fines: € 167,690 for Theatrical Film Distribution, € 132,810 for NCG Distribution and € 3,537,590 for Forum Cinemas. [4] But in light of the exceptional circumstances caused by the COVID-19 pandemic on the film industry, the sanctions were reduced by 80 percent as follows: Theatrical Film Distribution – € 33,500, NCG Distribution – € 26,600 and Forum Cinemas – € 707,500.

The Competition Council could have imposed significantly higher financial penalties in this case as noted above. Instead, it recognised the devastating impact of COVID-19 on the competitive marketplace for film distribution and balanced this reality with a modest infringement fine. Nevertheless, the reduced penalty still sent a message to Lithuanian businesses that violations of competition laws will not be tolerated even during a global pandemic. It remains to be seen if the Competition Council will be as magnanimous in the future. The decision of the Competition Council can be appealed to the Vilnius Regional Administrative Court.  [5]].

Footnotes

[1Lithuania’s Law on Competition, consistent with EU rules on competition law, prohibits agreements that restrict or prevent competition. Chapter II, Section 1, Article 5.1.1 of the Law on Competition says: ‘All agreements which have the purpose of restricting competition or which restrict or may restrict competition shall be prohibited and shall be void from the moment of conclusion thereof, including: 1) agreements to directly or indirectly set (fix) prices of certain goods or other conditions of purchase or sale.’ Republic of Lithuania, Law on Competition, 23 Mar 1999, No VIII-1099 (version valid from 1 Jan 2015), available at: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/49e68d00103711e5b0d3e1beb7dd5516?jfwid=q8i88mf0v [accessed 28 Dec 2020].

[2According to the Law on Competition Chapter IV, Article 17.1, the Competition Council is a state institution of the Republic of Lithuania which implements the state competition policy and supervises compliance with the Law on Competition. When performing its statutory functions it is free and independent in its decision making. The Competition Council was founded in 1992 and is accountable to the Seimas (the Parliament). For further details see https://kt.gov.lt/en/ [accessed 28 Dec 2020].

[3Competition Council, ‘AS A RESULT OF COVID-19 PANDEMIC, LITHUANIAN COMPETITION COUNCIL REDUCES FINES IMPOSED ON CINEMA COMPANIES THAT FORMED CARTEL’, 25 Nov 2020, available at: https://kt.gov.lt/en/news/as-a-result-of-covid-19-pandemic-lithuanian-competition-council-reduces-fines-imposed-on-cinema-companies-that-formed-cartel [accessed 28 Dec 2020].

[4See in this regard Chapter VI, Articles 36 and 37 of the Law on Competition and ‘On the approval of the rules concerning the setting of the amount of a fine imposed for the infringement of the Law on Competition of the Republic of Lithuania,’ Official Gazette, 2004, No 177-6567 (effective 10 Dec 2004), available at: http://kt.gov.lt/en/on-the-approval-of-the-rules-concerning-the-setting-of-the-amount-of-a-fine-imposed-for-the-infringement-of-the-law-on-competition-of-the-republic-of-lithuania [accessed 28 Dec 2020].

[5The Vilnius Regional Administrative Court is one of two Regional Administrative Courts in Lithuania that hear cases where at least one of the parties to the proceeding is the state, a municipality or a state or municipal institution, an agency, a service or a public servant. Administrative courts were established in Lithuania in 1999. In 2019 courts upheld 93 percent of the Competition Council’s decisions. For further details see https://vaat.teismas.lt/en/court-system/about-court/146 [accessed 28 Dec 2020

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  • Commonwealth Secretariat (London)

Quotation

Gavin Murphy, The Lithuanian Competition Authority reduces fine for price fixing due to the effects of COVID-19 pandemic (Theatrical Film Distribution / NCG Distribution / Forum Cinemas), 25 November 2020, e-Competitions Exchange of information in associations of undertakings, Art. N° 98627

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