Recent developments of the Dutch Act on Government and Free Markets in a nutshell – part 1

Bas Braeken & Lara Elzas
24 Feb 2022

In this first of two blogs on recent developments of the Dutch Act on Government and Free Markets (“M&O Act“) (in Dutch: Wet Markt en Overheid), we discuss in a nutshell the legislative proposal to amend the M&O Act (the “Legislative Proposal”). The Legislative Proposal was submitted to the House of Representatives on December 7, 2021 and was debated in the House of Representatives on 14 January 2022. The main amendment of the Act concerns the justification of the so-called “public interest decision”. The submission of the Legislative Proposal did not happen overnight; the proposal was submitted four years after the consultation of the Legislative Proposal Legislative Proposal. In the meantime, the Dutch Trade and Industry Appeals Tribunal (“CBb“) (in Dutch: College van Beroep voor het bedrijfsleven) has clarified the legal framework clarifying the adoption of a public interest decision. This legal framework largely corresponds to the new obligations in the Legislative Proposal. In this blog we discuss the intended legislative amendment and the current assessment framework.

Market and Governance Act and the Legislative Proposal

The M&O Act which is incorporated into the Dutch Competition Act (“Mw”) (in Dutch: Mededingingswet) contains rules of conduct for administrative bodies that perform “economic activities” and compete with companies in that capacity. Autoriteit Consument en Markt (“ACM“) supervises the Act. The M&O Act applies only to activities that are not considered public service. The purpose of the M&O Act is described in the explanatory memorandum of the Legislative Proposal as creating a level playing field between administrative bodies and entrepreneurs in situation where administrative bodies perform economic activities. In order to realize this goal, four rules of conduct have been established that administrative bodies must adhere to when performing economic activities, namely:

  1. Integral cost calculation. Administrative bodies must pass on the integral costs of these activities to customers when performing economic activities (Article 25i Mw).
  2. Prohibition of favouritism. Administrative bodies may not favour their public undertaking over undertakings with which that undertaking competes and may not grant their public undertaking advantages going beyond normal commercial practice (Section 25j of the Act).
  3. Making data available. Administrative bodies may only use data obtained in the performance of public tasks for economic activities if the data can also be made available to third parties (Section 25k Competition Act).
  4. Prohibition on mixing functions. If administrative bodies carry out economic activities and also exercise a power under public law with respect to these economic activities, the same persons may not be involved in both activities (Section 25l of the Competition Act).

In practice, the first and second rules of conduct are the most relevant and are most frequently invoked by third parties.

A frequently heard criticism of the current law is that administrative bodies easily circumvent the M&O Act by making a public interest decision. This is because the M&O Act does not apply to economic activities carried out in the public interest on the basis of Article 25h paragraphs 5 and 6 of the Mw. Over 90 percent of the municipalities have frequently taken public interest decisions recently for this reason. In recent years, for example, public interest decisions have been taken for economic activities such as the lease of municipal real estate, the operation of parking garages, the operation of sports facilities, the collection of industrial waste and the operation of camper sites or berths in marinas. Often the reasons for the public interest decisions are limited. The Legislative Proposal should change this.

Legislative amendment – stricter justification of public interest decision

The Legislative Proposal clarifies and tightens the requirements for justification and the process of decision-making for a public interest decision. Administrative bodies that take a public interest decision must from now on:

  1. describe the activity for which the public interest exception is invoked;
  2. describe the public interest served by the decision;
  3. explain the need to invoke the public interest exception;
  4. describe the impact of the use of the public interest exception on entrepreneurs;
  5. weighing the need to deviate from the rules of conduct under the public interest exception against the impact on entrepreneurs.

These requirements should ensure that public interest decisions are better substantiated and thus raise the bar for making a public interest decision.

Furthermore, the new law obliges administrative bodies to consult entrepreneurs if they wish to take a public interest decision. This will ensure that the interests of entrepreneurs are better weighed and it will become clear at an early stage whether a certain interest can also be realized by a company.

The change in the law obliges administrative bodies to evaluate decisions of public interest every five years, whereby entrepreneurs must also be consulted during the evaluation. In this way administrative bodies are forced to take changing market conditions into account. This also means that the public interest decisions taken by various municipalities in recent years must be re-examined.

The Bill is therefore good news for entrepreneurs. Tightening the law will reduce the risk of unfair competition between administrative bodies and entrepreneurs.

Other legal changes

Another change in the Legislative Proposal is that the release of the source code of open source software will be exempt from the rule of conduct for integral costing. The purpose of this exemption is to make it easier for administrative bodies to publish the source code of open software, thereby stimulating innovation, among other things. In addition, the “sunset clause” of the M&O Act will be scrapped, which will remove the temporary nature of the law.

Entering into force

It is not yet known when the new law will enter into force. A logical moment for this would be 1 July 1 2023 because the M&O Act expires on this date due to the sunset clause. Until more is known about the planning and final content of the legislative amendment, it is wise to use the assessment framework from case law as a guideline.

Assessment framework jurisprudence public interest decisions

Although the Legislative Proposal has not been given priority by the legislature for a long time, the CBb has not been idle and, on December 18, 2018, in the cases parking garage municipality of Hengelo and Marina municipality Zeewolde, provided more clarity on the legal framework applicable to public interest decisions. In both cases the question was whether the public interest decisions on the basis of which the municipality offered its services below the integral cost price had been established with sufficient care.

The CBb elaborates on the framework for substantiating public interest decisions. In summary, the assessment framework implies that administrative bodies:

  1. has gathered the necessary knowledge of the relevant facts and the interests to be weighed prior to making the public interest decision;
  2. must demonstrate that there is a public interest decision that is served by the economic activity in question. In any case, this public interest does not exist if the offering of the economic activity below cost price is not necessary to serve the public interest pursued; and
  3. in view of the interests involved, could reasonably decide to make use of its authority to take a decision as referred to in Article 25h(6) of the Competition Act in the manner in which it did. In this respect it is of importance, among other things, whether the administrative body has included in the decision a price-setting mechanism which, on the one hand, actually achieves the intended effect and, on the other hand, the disadvantage for the undertaking(s) concerned as much as possible, on the other hand, whether it has attached a deadline to the decision and whether it has offered compensation for the disadvantage that should not reasonably be borne by the undertaking(s) concerned.

The review framework creates a barrier for administrative bodies to easily sideline the M&O Act by taking a public interest decision. It obliges administrative bodies to actually investigate the consequences of the decision for all parties and to make a proper balancing of interests. If they fail to do so, the decision can be annulled. This happened, for example, recently in the decision of CBb of 6 April 2021 in the case of parking garages ‘s-Hertogenbosch. The CBb ruled that the municipality had insufficiently examined why it was necessary to operate below integral cost price and wrongly failed to take into account the interests of the commercial provider. In the decision of the Rotterdam District Court of 14 October 2021 in the ‘s-Hertogenbosch case and the decision of the Rotterdam District Court of 2 February 2021, the District Court concluded that the reports showing the necessity of not passing on the costs in full were too general and, moreover, did not sufficiently weigh up the interests (for the latter point, see also the decision of the Rotterdam District Court of 28 June 2018 in the Hilversum case of parking garages). Thus, it is not unusual for public interest decisions to be annulled due to inadequate reasoning by municipalities. The case law is in line with the planned legislative amendment and therefore remains relevant for entrepreneurs who want to challenge a public interest decision.

In the second part of recent developments of the Dutch Act on Government and Free Markets bird’s eye view, we discuss the most relevant developments of the M&O Act over the past year.

Bas Braeken en Lara Elzas