Unprecedented fine

The Competition Authority imposed a fine of more than Ft1 billion (more than €3.3 million) on retailer Auchan in March 2015 for abusing its significant market power under the Trade Act. This marks the highest fine ever imposed in the sector by the Competition Authority.

The Competition Authority found that Auchan had unilaterally imposed a fee on its non-food suppliers without providing a service in return, simply to ensure that their products were included or remained in Auchan's stock.

The charge came in the form of a so-called 'after-sale price discount' – previously labelled an 'end-of-year bonus' or 'fix bonus' – which was included in Auchan's annual contracts with about three-quarters of its non-food suppliers. According to the relevant clauses, the suppliers had to grant a 'discount' or 'rebate' to Auchan based on a percentage which remained constant regardless of the actual turnover that Auchan realised from their products. The Competition Authority concluded that the discount, regardless of its name, amounted to a unilaterally imposed listing fee.

Unilaterally imposed listing fee

Under the Trade Act, it is considered an abuse for large retail chains to unilaterally impose fees on suppliers. This includes fees for admission to the trader's list of suppliers or products, or for other services not requested by suppliers. Moreover, retailers are prohibited from requesting most-favoured treatment status or obliging suppliers to provide an exclusive discount during a given timeframe. Selling below the purchase price is also prohibited in certain conditions.

The rules apply to all traders (including retailers) with significant market power. This captures companies with a consolidated net turnover of more than Ft100 billion (approximately €330 million) and in some circumstances even companies with a lower turnover.

The Trade Act applies only to non-food products, whereas separate but similar rules apply to relationships with suppliers of food products. These rules are enforced by the National Food Chain Safety Office.

Why such a high fine?

The size of the fine was partly due to the duration of the established infringement, which took place over more than eight years (from 2006 to 2014). Moreover, in proceedings assessing abuse of significant market power, the Competition Authority applies the procedural rules of the Competition Act, which means that the maximum fine that may be imposed is the same as that in, for example, a cartel proceeding (ie, 10% of the undertaking's group turnover in the previous financial year). In fact, the Competition Authority used the fining guidelines issued for cartel and abuse of dominance cases to calculate the fine in this case.

The Competition Authority considered it an aggravating factor that Auchan had continued its practices even after Spar was fined in 2012 for similar conduct towards suppliers. In that case – which was also based on the Trade Act – the Competition Authority imposed a Ft50 million (approximately €166,000) fine on Spar.

The Competition Authority's decision can be contested within 30 days and Auchan has already issued a statement that it would do so. Spar's attempts to contest the 2012 decision was unsuccessful (its request for review failed at first and second instance).

Trend setting?

Before the 2012 Spar decision, most proceedings based on abuse of significant market power were terminated without establishing infringement. In only a few cases were fines imposed, although the amounts of these fines were significantly lower. The Auchan decision, including the amount of the imposed fine, is a signal that the Competition Authority is likely to take a harsh line with retail chains for similar practices in future. Therefore, retail chains (including non-food retail chains) should revisit their contractual clauses with suppliers to ensure that these comply with both competition law and trade law.

Further restrictions on large retail chains

The requirement that retailers close on Sundays took effect just one day before the Competition Authority's decision in Auchan (for further details please see "Labour Code changes related to Sunday work"). However, large retail chains will soon face further tough rules in Hungary. From 2016, retail chains will be deemed to be dominant on the retail market for daily consumer goods if their turnover – including that of affiliates – is more than Ft100 billion (approximately €330 million). This means that such companies will not only be subject to the existing strict trade rules governing their conduct with suppliers, but also be deemed dominant undertakings within the meaning of the Competition Act. The Competition Authority will thus hold them responsible for conduct that constitutes an abuse of dominant position (eg, discrimination, tying, exclusivity and predatory pricing).

A further amendment to the Trade Act prohibits retail chains from loss-making operations. A retail chain with an annual turnover of more than Ft15 billion (approximately €50 million) for two consecutive years and which generates more than half of its turnover from the retail sale of daily consumer goods will be banned from selling such goods if it reports a loss or zero profit in both financial years.

These steps are part of an emerging trend in several European countries aimed at restricting the activities of large retail chains which are perceived as unfair and exploitative. The rules also purport to protect domestic small and medium-sized enterprises, as well as consumers. Hungary is at the forefront of this trend and has elicited criticism from multinational retail chains for overly harsh restrictions of their businesses.

It remains to be seen whether Hungary can maintain its strict stance on large retail chains. By the same token, retailers would be well advised for the time being not to take competition or trade rules lightly, as the Competition Authority seems determined to enforce them rigidly.

For further information on this topic please contact Anna Turi at Schoenherr Rechtsanwälte by telephone (+36 1 345 87 78) or email (a.turi@schoenherr.eu). The Schoenherr Rechtsanwälte website can be accessed at www.schoenherr.eu.

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