Main Developments in Competition Law and Policy 2024 – Latvia

The evolvement of Latvian competition law landscape in 2024 was particularly notable in both enforcement and policy. The year brought legislative changes that equipped the Competition Council of the Republic of Latvia (CC) with new responsibilities to enhance the effectiveness of private enforcement, as well as functions to support the application of Foreign Subsidies Regulation and Digital Markets Act, while enforcement practice was highlighted by landmark cartel cases in courts, as well as in the CC’s decision-making practice that will contribute to the evolvement of Latvian competition law culture.

This blog post explores a non-exhaustive selection of hand-picked key developments in competition law policy and enforcement in Latvian competition law scene in 2024 highlighting the developments expected to play a crucial role in shaping of Latvian competition law culture.

Legislative Amendments

Methodological Support to Public Procuring Entities in Damages Calculation

According to the CC, the public opinion survey data and the enforcement practice of CC reveals that the most significant issue in Latvian competition scene is anti-competitive agreements in public procurement. Therefore, in 2024 one of the core priorities for CC was to dedicate substantial resources to strengthening competition in public procurement by tackling cartels.

The CC’s enforcement practice, as well as educational events organised for educating public procurers on early signs of possible infringements and competition neutrality issues are clear indicators that this ambition seemed to be fulfilled. Yet to further align with this effort, in December 2024 amendments to Latvian Competition Law came into force, equipping the CC with a new function – provision of methodological support to public procuring entities that have been victims of competition law infringements. While providing this methodological support, the CC will in essence act as an advisor to the public procurer in identifying, assessing, and calculating damages for the purpose of substantiating the claim. Considering that the complexity of quantification of damages is usually the biggest drawback for claimants to even attempt to recover the damages suffered, it is expected that this new superpower of the CC will act as a mechanism of deterrence in a long term.

The amendments materialize one of the much-debated issues that public procuring entities – state institutions and public capital companies – are rather passive in attempting to recover damages incurred due to public procurement cartels despite the welcoming regulatory framework. Thus, despite Latvia being among the few EU countries providing a rebuttable presumption that cartels cause a price increase of 10%, public procurers have remained largely passive in exercising their right to full compensation for damages caused by a competition law infringement. This hesitation is grounded in potential financial risks associated with possibly lengthy litigation, insufficient specialised expertise, and resources to calculate and prove damages to the required standard of proof.

Since now at least some of these obstacles have been eradicated by law, public procurers have no more excuses as they may approach CC, who based on publicly available information and evidence provided by the procurer, shall provide not only a purely theoretical consultation on how to approach the calculation of damages, but also in essence substantiate the claim to the court by calculating the damages incurred for substantiating a claim to the court. The law provides that the CC’s opinion will be non-binding and purely advisory, but is quite expected that considering the CC’s expertise, the advice and calculation received will be treated as reliable ground for action.

While this advisory function of the CC is exercised by a separate structural unit distinct from the authority’s investigate powers, restricting any access to investigate findings on infringement to eliminate any risks to independence, neutrality, possible conflicts of interest, as well as to foster cooperation with market players, and despite the noble objective behind this mechanism, these amendments have been largely criticised by practitioners some of the argument points being unreasonable favouritism to one group of victims (public procurers), while excluding private parties to such privileged access to CC’s expertise, potential bias in enforcement outcomes and distortion of CC’s neutrality.

Anti-competitive Agreements

Construction materials hub-and-spoke cartel: seven-year long saga concludes

Latvia may be small, but it sure is mighty – although hub-and-spoke agreements are the hot-topic in expert discussions and are explored in literature as rather unusual and difficult to establish type of conduct, the CC was one of the forerunners in establishing this type of cartel back in 2017, imposing a fine in total of EUR 5.8 million. Now, this establishment of the first-ever hub-and-spoke cartel in Latvia has been duly confirmed by the Supreme Court of the Republic of Latvia (the Senate) ruling upon the lawfulness of the judgment of Administrative Regional Court, which completely dismissed the application for annulment of CC’s decision submitted by the largest DIY retailer in Latvia, DEPO. This judgment concludes the seven-year long saga, as DEPO, who also was the highest fined participant of the alleged cartel subject to a EUR 3.7 million fine, was the last applicant awaiting the Senate’s ruling on the legality of CC’s decision.

The case dates back to 2015, where CC, while investigating another case on possible violation of abuse of dominant position, came across evidence suggesting existence of an almost ten-year long cartel between suppliers of construction materials Knauf and Norgips and the largest construction material retailers in Latvia – DEPO, Kesko Senukai, Kurši and Krūza. The CC found that the parties agreed on price-fixing and complied with artificially fixed retail price level for a selection of construction products distributed by Knauf/Norgips. The core aim was to ensure that the shelf price of cartelised goods to consumers is not lower than the price at which the retailers bought the producers from Knauf/Norgips. Krūza and Knauf/Norgips reached a settlement with the CC, while other companies unsuccessfully appealed the CC’s decision.

While the evidence revealed that the information exchanged mostly was vertical on retailer–supplier level to set retail prices and price levels for each of the retailers, CC concluded that the underlying objective of this communication was to exert influence through the supplier as intermediary at a horizontal level to maintain the common understanding of the set pricing level. CC identified that the implementation of the cartel was supported by persistent actions of suppliers, including monitoring of prices of retailers, as well as retailers themselves, who policed the prices of competitors and reported any price deviations to suppliers, requesting the latter to impose appropriate measures for price adjustments.

The right of defence and the art of asking the right questions

Unfortunately for DEPO, CC’s infringement decision in construction materials cartel case was not its only concern. Typically, appeals of CC’s infringement decisions proceed quietly for quite some years until the court upholds or annuls the CC’s decision, this time, just two years into the court proceedings, DEPO was hit with another fine from the CC – this time for providing incomplete information at CC’s request during the investigation of the construction materials cartel case. However, fortunately for DEPO, the Senate upheld the annulment of this fine in its judgment of 18 October 2024 and emphasized the importance of CC to ask the right (precise) questions.

The conduct that resulted in a procedural fine may be briefly reconstructed as follows. During the investigative phase of the hub-and-spoke cartel case, the CC had interviewed an employee of DEPO, who the CC refers to as “person A.” (Witness). Witness, in the presence of an attorney had been presented with more than 10 years old e-mail communications and asked to comment upon them in response to vague questions posed by CC’s official. Witness had refused to provide any explanations to not make any false assumptions as the presented e-mail correspondence was too old, taken out of context and thus did not allow Witness to grasp the full image. That response concluded CC’s further questioning.

Two years later, now during the court proceedings, Witness had been summoned by the court to provide witness testimony. After examining the relevant e-mail correspondence in context of other evidence gathered in the case-file, Witness now explained the relevant e-mail correspondence with great detail and contradicting allegations set forth in CC’s hub-and-spoke infringement decision. The ability to now provide explanations on e-mail correspondence that Witness previously had difficulties to recall infuriated CC and resulted in fine of EUR 701 811.

DEPO appealed this decision, arguing that although the e-mail communication presented was over a decade old and the Witness had objective difficulties providing detailed commentary, it is the essence of right to defence not to comment upon self-incriminating evidence (as it was clear that the e-mails were likely to be used to prove participation of DEPO in the hub-and-spoke cartel). DEPO also argued that during questioning, the Witness was asked vague questions that sought subjective opinions rather than clarification on facts or circumstances. Yet during the court proceedings, the Witness was asked precise questions on the respective e-mail correspondence and prior to that had the opportunity to review the e-mail correspondence in full context, which largely contrasts with what happened during the questioning process in CC, as the Witness was asked to comment on historic e-mail excerpts that were shown out of context and ranged in a non-sequential manner.

The Senate upheld DEPO’s arguments that were already confirmed by the Administrative Regional Court, noting that DEPO had not deliberately withheld information from the CC, but rather CC’s questions lacked the necessary clarity to obtain the specific information it was looking for. This ruling was largely welcomed by practitioners as it underscored the standards that shall be upheld by CC, the significance of information-gathering techniques they employ and particularly their questioning expertise, as failure to ask clear questions may compromise the accuracy of information received.

Resale price maintenance and project protection in lighting market

Last summer, the CC imposed a fine of EUR 34 490.26 to Mirastyle, a wholesaler and retailer of lighting products, who also is the exclusive distributor for various lighting manufacturers in Latvia. Mirastyle had fixed resale prices to certain retailers that purchased lighting products from it. Furthermore, Mirastyle had engaged in market (project) sharing, which was enforced via exchange of commercially sensitive information with retailers on projects requiring the specific type of lighting equipment.

The CC concluded that Mirastyle set retail prices for lighting goods for at least two of its retailers. Mirastyle also instructed retailers via e-mail to adjust their pricing with recommended price lists, warning that non-compliance would result in a prohibition to distribute the products in Latvia.

Considering that Mirastyle operates in dual distribution scenario, the CC found that it had exchanged commercially sensitive information with other retailers, thus its competitors downstream, regarding identifying information about projects where respective lighting products would be used. If the information exchange revealed that a retailer sought to purchase products for a project for which it had not created a lighting design project based on customer’s specifications but instead relied on a lighting design created by Mirastyle or another company, then the supply of lighting goods was denied by reason of “project protection”. Furthermore, as Mirastyle is the exclusive distributor for several lighting brands in Latvia and customers may source lighting products abroad, Mirastyle took further steps and approached manufacturers to block purchases for respective lighting products in desired quantities.

The CC further noted that customers had been misled into believing that the lighting design service was free of charge thus giving false impression that there is a genuine choice in selecting where to purchase the lighting products. However, as revealed by the CC, the customers were in practice forced to buy exclusively from the company that had created the lighting design.

Interestingly enough, although the CC found that retailers had been a part of this conspiracy, it fined only Mirastyle as the sole initiator, considering that other parties had a passive role, merely accepting the conditions imposed by Mirastyle – either to avoid being prevented from purchasing lighting products (in case of RPM) or supply of respective lighting products (in case of project protection).

First instance court rules in the infamous “builders’ cartel” case

The CC started 2024 with a success in its attempts to strengthening competition in public procurement as the Administrative Regional Court delivered its judgment in the infamous so-called “builders’ cartel” case, where in 2021 the CC fined 10 construction companies in total of more than EUR 16.6 million for the participation in a cartel dividing private and public procurement of  construction works across Latvia among themselves, as well as agreeing on terms of participation for allegedly several years. 8 of 10 companies appealed the CC’s decision but all were duly rejected by the court of first instance.

The case is significant as the CC’s findings of infringement were largely based on transcripts of secretly intercepted recordings of conversations of the representatives or persons associated with respective companies that had been handed over to the CC by the Latvian Corruption Prevention and Combating Bureau (KNAB). KNAB conducted the wiretapping as part of surveillance activities in criminal proceedings against several natural persons. The first instance court confirmed that CC is legally entitled to use conversations wiretapped by authority in criminal proceedings to substantiate the finding of a competition law infringement.

In its judgment, the court also ruled upon the issue of actions taken by ultimate beneficial owner and shareholder on behalf of the respective undertaking. The court for the first time confirmed that it is necessary to establish legal and factual links between the natural person and undertaking in questions to determine, whether the person who participated in the prohibited meetings had indeed represented the interests of the undertaking in question.

This judgment has been appealed by all applicants and now is pending before the Senate.

Aligning the interpretation of “by effect” restrictions under EU competition rules

In 2014, the CC issued a decision against KIA Auto, the exclusive authorised importer of KIA cars in Latvia, finding that in order to maintain the validity of warranty, KIA’s warranty conditions that were in place during 2004-2009 required car owners to: (i) perform all routine maintenance of KIA cars only in KIA-authorised services, and (ii) use only original KIA spare parts in those repairs carried out during the warranty period. The CC had found that this vertical agreement restricted competition by effect, restricting market access to independent repairers in Latvia and independent manufacturers of spare parts.

After more than 10 year-long rounds of judicial ping-pong between Administrative Regional Court and the Senate, the Administrative Regional Court finally had enough as once again it was faced with the dispute between TKM Grupp AS, its subsidiary KIA Auto and the CC, yet the standard of proof for a restriction by effect was still rather ambiguous.

The CC had qualified this conduct as infringement “by effect” using rather ambiguous wording that rather corresponds to the finding of infringement “by object”, noting that negative effects on competition arise from the very nature of the restrictive clauses in warranty conditions, and it is not necessary to demonstrate the effects which actually occurred.

The court sought guidance of the Court of Justice of the European Union (CJEU) in order to establish, whether to prove that agreement is restrictive of competition by effect, it is necessary to demonstrate actual and real restrictive effects, or rather the establishment of potential restrictive effects suffice. In December 2024, CJEU yet again contributed to the interpretation of notion “by effect” under Article 101 TFEU. CJEU explained that the CC is not required to prove actual restrictive effects as long as those potential restrictive effects are “sufficiently appreciable” and have been considered in context of a realistic and credible counterfactual to determine whether there would be significantly more competition in the absence of the respective warranty conditions. Interestingly, CJEU used the occasion to obiter dictum note that the notion of “potential effects” under Article 101 TFEU corresponds to that of Article 102 TFEU, essentially aligning the legal standards under both provisions.

Merger Control

In 2024, the CC received 24 merger notifications and issued 21 decisions, with two cases pending in beginning of 2025, and one merger notification being withdrawn by the notifying party. Compared to 2023, merger activity slightly increased, however largely remained steady. In two cases, the CC entered clearance phase II, which resulted in approvals without any objections.

The year may be described by routine merger assessments with no notable developments, enforcement, policy shifts, or precedent-setting decisions, largely keeping the trends in line with previous year. This steady activity level certainly reflects the broader economic and geopolitical uncertainties in the Baltics M&A market due to the geopolitical tensions, rising interest rates, inflation, and market instabilities, all expected to persist through 2025.

Market Inquiries

In 2024 the CC was active in conducting market studies, providing an in-depth competitive environment assessment in total of 5 markets: educational institutions providing dormitory services to third parties, retail trade of daily consumer goods, retail trade of eggs, fish, dairy, meat, grain, and bakery products, district heating procurement on the right bank of Daugava river heating zone of Riga, and management of ship-generated waste in Freeport of Riga.

The CC often conducts market studies in response to incoming complaints on potential competition constraints and indications of infringements in respective markets, allowing it to explore competitive situation in the market and determine whether the concerns are well-founded and thus require implementation of formal investigation procedures, corrective measures or rather regulatory changes.

2024 was highlighted by a wide-spread public debate on situation in retail grocery sector and rapidly rising retail prices, the CC was sharply focused on identifying competitive shortcomings in the sector. The market inquiry resulted in findings that around 30% of retailers apply a higher markup to certain locally-produced egg, fish, milk, meta, grain and bread products compared to imported products. Based on these findings, the CC proposed amendments to the Prohibition of Unfair Trading Practices Law to ban discriminatory pricing practices by purchasers and prevent unequal treatment of local products vis-à-vis imported goods.