President of UOKiK at war with price-gougers | In Principle

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President of UOKiK at war with price-gougers

The president of the Office of Competition and Consumer Protection (UOKiK) has declared war on sellers unfairly raising prices of products during the COVID-19 pandemic. One of the instruments proposed by the regulator in combating this pathology is establishment by the Ministry of Development of maximum prices and margins on products essential from the perspective of consumers’ interests (a change included in the recent amendment to the Anti-Crisis Act). On this occasion it is worth reviewing the authority vested in the president of UOKiK to regulate product prices under current law.

Infringement of collective interests of consumers

Acting in the interest of consumers, the president of UOKiK may among other things exercise the authority provided by regulations governing infringement of the collective interests of consumers. This instrument is rarely used to regulate prices. It is most often used in the case of misleading consumer practices, inadequate information for consumers, or aggressive practices for marketing to consumers. But the regulations on practices infringing the collective interests of consumers are constructed so broadly that they could also be used to impose sanctions on inflated prices unfairly imposed on consumers.

Under Art. 24(2) of the Competition and Consumer Protection Act, practices infringing the collective interests of consumers are defined as actions by an undertaking detrimental to consumers, contrary to law or fair practice, including in particular such actions as unfair market practices and acts of unfair competition (Art. 24(2)(3)). Use of the term “in particular” means that the catalogue of potentially prohibited practices is open-ended and may include any actions infringing the interests of unidentified consumers as a whole, as long as they are contrary to law or fair practice. Exploitation of the extraordinary situation connected with the epidemic by unscrupulous sellers to inflate prices, particularly for the most needed food or hygiene products, would undoubtedly meet the criterion of conflicting with “fair practice” for purposes of this provision. However, the regulations do not concern prices applied in dealings with businesses.

The regulator may also rely on the Unfair Competition Act, directly referred to in Art. 24(2) of the Competition and Consumer Protection Act. The general provision of Art. 3 of the Unfair Competition Act deems any action contrary to law or fair practice threatening or infringing the interests of a business or a customer (including a consumer) to be an act of unfair competition.

Art. 3 thus supplements the catalogue of acts of unfair competition set forth in Art. 5–17g of the Unfair Competition Act—a catalogue that does not expressly include charging inflated prices. According to the Supreme Court of Poland judgment of 7 November 2019 (case no. I CSK 433/2018), Art. 3(1) of the Unfair Competition Act supplements the catalogue of prohibited actions from the detailed section of the act so that if in pursuing economic activity an action is committed that is not covered by the specific regulations but nonetheless disrupts fair market relations, Art. 3(1) of the act may serve as a standalone basis for evaluation of the action.

UOKiK may apply this legal instrument to businesses which unjustifiably and excessively raise prices charged to consumers for goods or services during the epidemic, for speculative purposes.

In the past the president of UOKiK has imposed administrative fines on entities charging consumers excessive fees, relying on Art. 24(2)(2) of the Competition and Consumer Protection Act in conjunction with Art. 3(1) of the Unfair Competition Act. In those proceedings, the regulator alleged against the undertakings that their excessive fees violated the principle of equivalence of consideration, as the fees were not supported by the work input or costs connected with providing the service. From this, the regulator concluded that the fees were contrary to fair practice. A similar argument could be applied in the case of high prices for products offered during the period of COVID-19 threat, if the high price is not related to objective market factors, such as high costs of imports or high wholesale prices. This legal instrument is designed to protect the interests of consumers, and thus it should be demonstrated that such practices directly harm the interests of consumers.

Abuse of a dominant position

Other possibilities for combating excessive prices of products are offered by the provisions of the Competition and Consumer Protection Act on abuse of a dominant position. These provisions cover inflated prices charged not only to consumers, but also to businesses.

One of the practices prohibited for a dominant player is the use of unfair prices, including excessively high prices as well as abnormally low prices (Art. 9(2)(1)). Generally, this practice may be anticompetitive, targeting the interests of competitors (e.g. abnormally low “predatory” pricing to eliminate competitors from the market), or exploitative, aimed at the interests of either contracting parties or consumers. An obvious example is imposition of high prices by a monopolist, with no competition on the market.

Alleging abuse of a dominant position carries great practical difficulties. First, it must be proved that the entity employing this practice holds a dominant position on the market. The Polish regulations include a rebuttable presumption that an entity with a market share exceeding 40% holds a dominant position. Proving that a player holds a dominant position and is abusing it in the particular case usually requires a complicated and time-consuming legal and economic analysis. It thus appears unlikely that this instrument will be applied often (if at all) against price-gouging during an epidemic.

Exploitation of a contractual advantage

An interesting basis for the president of UOKiK to take action would be the provisions on exploitation of a contractual advantage in the agri-food sector. Exploitation of a contractual advantage is traditionally identified with a strong buyer (such as a retail chain) taking advantage of its contractual position in dealings with a small supplier. But this mechanism works in both directions. A strong supplier (of agri-food products) which unjustifiably withholds deliveries or imposes unnaturally high prices to extract a greater profit could also be accused of exploiting a contractual advantage.

In this respect, the Act Combating Unfair Exploitation of a Contractual Advantage in Trading in Agricultural and Food Products employs an open catalogue of prohibited practices. Proving the existence of a contractual advantage requires a showing of a significant disproportion in economic power between the supplier and the buyer. As in the case of abuse of a dominant position, in practice it may be difficult to prove this condition.

Sabina Famirska, attorney-at-law, Competition and Consumer Protection practice, Wardyński & Partners