Resale price maintenance
Exclusive customer allocation
Long-term non-compete obligations
In recent years, there has been an increased interest in vertical restraints at both the European Commission and national competition authority level. In particular, this attention has focused on so-called 'hardcore vertical restraints', such as resale price maintenance, geo-blocking and online sales restrictions, as they are considered to have an anti-competitive object.
Until recently, the Competition Authority had kept a low profile in the battle against anti-competitive vertical agreements, in sharp contrast with other national competition authorities, such as the German and French authorities. This is now changing. In its recently published 2017 priority note, the Competition Authority listed anti-competitive vertical restraints in supplier-distributor relationships, such as resale price maintenance and online sales restrictions, as one of its strategic priorities. The Competition Authority did not stop there. In recent months, it has conducted a number of on-site inspections in distribution cases. The cases concern the distribution of a range of products, such as pharmaceutical and para-pharmaceutical products, water softeners, cooking utensils and wine accessories.
The recent Algist Bruggeman decision is another example of the Competition Authority's fight against vertical restraints (even if it concerned vertical restraints and an abuse of dominance). In a March 22 2017 decision, the Competition Authority fined yeast supplier Algist Bruggeman and its parent companies €5.5 million for resale price maintenance, exclusive customer allocation, long-term non-compete obligations and abusive exclusionary practices in the market for compressed fresh yeast and stabilised liquid fresh yeast sold to artisan and semi-artisan bakers.
Algist Bruggeman provided its distributors with recommended prices which were, in practice, fixed resale prices. Such measures included obtaining Algist Bruggeman's prior approval for granting discounts – which were granted only when individual customers considered switching to another yeast supplier – and the size of the discount. Only pre-approved discounts were reimbursed. Algist Bruggeman was informed of the volumes sold and discounts granted via monthly sales overviews. Further, Algist Bruggeman was found to have repeatedly contacted distributors that did not respect the recommended resale prices and that granted discounts without its prior approval. The Competition Authority found that this system amounted to resale price maintenance, as it allowed Algist Bruggeman to control the circumstances in which a discount would be granted, as well as the size of the discount.
Algist Bruggeman pursued absolute customer exclusivity for its distributors by discouraging them from supplying customers that had been allocated to other distributors. If a distributor supplied another distributor's customers, Algist Bruggeman would:
- grant additional discounts to the original distributor; or
- lower or even refuse discounts to the breaching distributor.
Further, if a distributor included other low-priced yeast brands in its portfolio, it would relocate that distributor's customers to another distributor. The Competition Authority considered Algist Bruggeman's system of customer allocation to be anti-competitive.
Long-term non-compete obligations
Algist Bruggeman linked the supply of stabilised liquid fresh yeast to the acquisition of a dosing installation. The value of this installation was unilaterally determined by Algist Bruggeman and its depreciation was factored into the purchase price of the yeast in a way that resulted in an artificially long depreciation period. Further, Algist Bruggeman required bakers to purchase all of their yeast from it, not just stabilised liquid yeast. This non-compete obligation was automatically renewed when the minimum purchase requirement was not reached. In case of early termination, bakers owed removal costs as well as damages. The Competition Authority objected to these non-compete obligations on the basis of Articles 101 and 102 of the Treaty on the Functioning of the European Union.
The Competition Authority also established abusive behaviour in the form of loyalty enhancing rebates and denigrating practices. With regard to the latter infringement, this decision constitutes new terrain for the Competition Authority. The French Competition Authority has previously considered certain denigrating practices by telecom and pharmaceutical companies to be abusive.
For further information on this topic please contact Koen Platteau or Geneviève Borremans at Simmons & Simmons LLP by telephone (+32 2 542 0960) or email ([email protected] or [email protected]). The Simmons & Simmons LLP website can be accessed at www.simmons-simmons.com.