Notification of foreign joint ventures: A new approach by the Polish regulator to the effects doctrine and notification of extraterritorial concentrations?
On 25 October 2024, Poland’s Office of Competition and Consumer Protection (UOKiK) published updated guidelines on the criteria and procedure for notification of intended concentrations. This is the first change to the guidelines since they were published in 2015. The most important change is a more liberal interpretation of the effects doctrine (extraterritoriality), which is expected to reduce the number of foreign concentrations subject to notification in Poland.
Art. 1(2) of the Competition and Consumer Protection Act establishes the territorial scope (jurisdictional limitations) of application of Polish competition law by UOKiK, stating that the act “regulates the procedure and principles for counteracting anticompetitive concentrations of undertakings, if such concentrations cause or may cause effects in Poland.”
This provision states the extraterritoriality rule, or “effects doctrine,” which has functioned in Polish competition law since 1990 (in the former Antitrust Act of 24 February 1990), in its current wording since 1995. This rule is related to the limits of the state’s jurisdiction. According to the general rule of territorial jurisdiction, a state may exercise its authority over events that take place in its territory, even if the participants in those events are nationals of another state. Conversely, the principle of extraterritoriality allows for application of a state’s regulations to events that occur outside its territory but are felt—have effects—in the territory of that state. Thus, “having effects” is the jurisdictional link between the territory of a state and events (such as concentrations of undertakings) to which the Competition and Consumer Protection Act applies (T. Skoczny (ed.), Competition and Consumer Protection Act: Commentary (2nd ed., Warsaw 2014), p. 47, nn. 102 and 104)).
Therefore, two main groups of transactions (concentrations) between undertakings may be subject to the competition authority’s control (depending on whether the effect criterion is met):
- Domestic and mixed concentrations, i.e. concentrations exclusively between Polish undertakings, or concentrations between Polish and foreign undertakings, if they concern geographic markets covering all or part of Poland
- Foreign or extraterritorial concentrations, i.e. carried out exclusively between foreign undertakings outside Poland.
With respect to extraterritorial concentrations, the effects doctrine means that concentrations occurring outside Poland but actually or even potentially having effects in Poland are also subject to notification to the Polish regulator (once all other notification conditions have been met).
In the case of a concentration of undertakings, effects in Poland are manifest in the relevant market. An essential element of the relevant market is its geographical scope, i.e. a certain area where the undertakings participate in supply and demand, where sufficiently homogeneous conditions of competition prevail to distinguish it from other geographical markets (S. Drozd, in A. Bolecki et al., Competition Law (Warsaw 2011), p. 66). This means that such an effect should actually (or potentially) occur in at least part of Poland (when the relevant market is a local market covering, for example, cities or regions in Poland) or in the entire territory of Poland (when the relevant market is the national market or a market broader than national, e.g. the European market or a global market of which Poland is a part).
But the act does not indicate the criteria by which potential or actual effects in Poland should be assessed. For this, the regulator’s guidelines are helpful.
Past practice of the Polish regulator
According to the practice followed for years by UOKiK, foreign concentrations will produce, or may produce, effects in Poland if at least one of the participants in the concentration (or its capital group) has turnover in Poland (point I.1.4 of the 2015 guidelines).
How this interpretation has been applied in practice is best illustrated by the example of a concentration that is controversial from the point of view of the notification obligation in Poland. Under the previous guidance, for example, formation of a joint venture in Australia by three undertakings from the US, Australia and New Zealand to conduct transport activities was formally notifiable in Poland. It was sufficient that one of the founders of the joint venture belonged to a group in which some other companies (having nothing to do with the planned establishment of the new entity in Australia) had recorded turnover in Poland in the year preceding the concentration. That turnover had to exceed the equivalent of EUR 10 million (due to the de minimis exemption threshold), which is not a significant amount for many large businesses (not to mention multinational corporations and groups).
This practice of UOKiK was widely criticised as too far-reaching, most controversially with respect to foreign concentrations involving creation of a new undertaking (with no actual impact on the Polish market), which had to be notified in Poland. This broad interpretation of the effects doctrine by the Polish competition authority, and its strict approach to the notification obligation, was incomprehensible to foreign undertakings and their counsel. Meanwhile, failure to comply with the statutory notification obligation led to negative consequences in the form of the possibility of imposing fines on the undertakings participating in the concentration for not notifying the Polish regulator—thus generating transactional risk. The foreign undertakings had to choose whether to bear this risk or file a notification in Poland (even though the transaction had no actual connection to the Polish market).
For its part, UOKiK received dozens of notifications of extraterritorial concentrations each year which were only pro forma notifications. This meant that the authority’s staff had to process these gratuitous notifications when they certainly could have used their time more efficiently.
Current guidance and a more liberal approach
It seems that the arguments raised for years by the business community and legal commentators have finally led the regulator to modify its approach to notifications in Poland of extraterritorial joint ventures.
Currently, in its guidelines on application of the effects doctrine in Poland, UOKiK states as before that in principle the premise of effect in Poland is met if at least one of the participants in the concentration (or its capital group) generates turnover in Poland.
But the current guidance modifies this rule for concentrations involving creation of a joint venture, stating that even if any of the capital groups of the entities forming a joint venture had turnover of more than EUR 10 million in Poland, this does not necessarily mean that the activities of the joint venture will have even potential effects in Poland.
In light of the specific nature of such concentrations (as rightly noted by UOKiK), when assessing whether the concentration exerts effects in Poland, the subject matter and scope of the entity’s activity should also be taken into account, specifically whether the activity will affect all or part of Polish territory.
In particular, if the markets on which the newly created undertaking will operate, or the markets where there will be vertical links (e.g. supplier–customer) between the new entity and its founders, do not involve all or part of the territory of Poland, UOKiK considers that in such a situation the premise of effect will not be met.
How will this guidance affect the obligation to notify extraterritorial joint ventures in Poland? To some extent, it will certainly reduce the number of filings to UOKiK. But it will not completely eliminate the phenomenon of “unnecessary” notifications (not affecting the state of competition in Poland).
Considering the example of a joint venture established in Australia analysed above, depending on the subject to the newly established company’s business and the relevant market covering such activity, as well as the previous decision-making practice of the Polish competition authority, such a transaction may or may not be notifiable in Poland.
If the subject of the joint venture’s activity is part of a relevant market defined in UOKiK’s practice as a geographic market not covering all or part of Poland, e.g. if the Australian entity will operate on the market for generation and distribution of electricity in Australia, then no notification will be required in Poland, as the relevant geographic market for such activity (under other decisions issued by UOKiK to date) is national (i.e. the joint venture will operate on the relevant market of generation and distribution of electricity in Australia).
But if the Australian joint venture were established for the purpose of manufacturing aircraft engines, or other activities found in earlier decisions by the Polish regulator to have a relevant market of global reach (thus also covering Poland), such an extraterritorial transaction would be notifiable in Poland.
As may be seen, when applying the revised guidelines from UOKiK to assessing the obligation to notify foreign joint ventures, the ultimate determinant of whether there is deemed to be an effect in Poland will be the authority’s previous decisional practice and how the competition authority has defined relevant markets in the past. But this is not a fixed and immutable criterion.
Calls for legal changes
In the practical application of the effects doctrine by UOKiK to joint ventures, this more liberal approach is a positive change, long awaited by businesses. But the new approach does not solve all interpretive issues with regard to extraterritorial transactions.
Therefore, further changes should be considered in the near future, not only in the UOKiK guidelines, but above all in the Competition and Consumer Protection Act. This would eliminate the notification requirement for concentrations that are essentially trivial from the perspective of protecting competition in Poland. It is high time to consider and implement, for example:
- An increase in the notification thresholds for concentrations (currently, worldwide turnover exceeding EUR 1 billion per year, turnover in Poland exceeding EUR 50 million per year, and a de minimis threshold exceeding EUR 10 million per year)
- A limitation of joint ventures subject to scrutiny by the Polish regulator, by requiring examination only for creation of joint ventures that will perform all functions of an independent economic entity on a permanent basis going forward (not, as now, all joint ventures, even when the founders will make all the economic decisions for the joint venture)—similar to the rules in EU competition law, and maybe even
- A limitation of the effects doctrine as stated in Art. 1(2) of the Competition and Consumer Protection Act, to cover only actual effects, and not merely potential effects.
Adopting such changes lies within the discretion of parliament, but the competition authority could propose relevant amendments.
Andrzej Madała, Competition & Consumer Protection practice, Wardyński & Partners
