1. Purchasing alliances in France

The French competition authority has initiated proceedings to formally investigate new purchasing alliances between several leading French food retailers.

The investigation is focused on the alliances established by Auchan/Casino/Metro/Schiever on the one hand and Carrefour/Système U on the other. The companies themselves notified the French authority of the establishment of said alliances pursuant to the Law no. 2015-990 of 6 August 2015, better known as the “Macron Law”. The investigation has expanded its scope to address the previous alliance between Carrefour and Tesco.

The issue of purchasing alliances established by food retail chains is being debated within the distribution sector. Although in certain cases these alliances may result in a significant improvement of distribution costs which can be passed on to the consumer, the concentration of purchasing power between distributors may pose several risks for competition. In particular, it can result in a worsening of conditions for suppliers, especially if retail chains impose abusively low prices. In addition, the very nature of the alliance may encourage a collusive environment, particularly regarding exchanges of sensitive information. This can lead to a reduction in intra-brand competition –e.g. the existing competition between several supermarket chains for a product of the same brand–. Finally, the decrease in income margins for suppliers to the benefit of retail chains does not necessarily result in a lower price for the consumer. The retail chain may retain said income margin by increasing its position of power in the supply chain.

Due to the potential competition risks arising from purchasing alliances, the “Macron Law” requires the competition authority to be notified of any agreement between companies that manage one or more retail stores of general merchandise or acting in the distribution sector as centralised purchasing or listing offices and which aim is to jointly negotiate the purchasing or listing of products or the sale of services to suppliers, when certain turnovers are reached.

Neither the establishment of purchasing alliances nor the monitoring of said alliances by competition authorities are new phenomena.

In 2014, the French Competition Authority issued an opinion on the alliances of Système U/Auchan, ITM/Casino and Carrefour/Cora (Opinion 15-A-06). Generally speaking, the 2015 opinion warned of the potential competition risks that may arise from said agreements. Regarding upstream markets, the main restrictions on competition could arise from excessive pressure on providers which may lead to: (i) a significant reduction in margins as well as in the quality of their products; (ii) an undermining of incentive to innovate; and (iii) an increased risk of being pushed out of the market. With regards to downstream markets, there is a substantial risk regarding possible information exchanges within the alliances as prices, tariffs and discounts may be agreed upon. Furthermore, products and sales conditions could become increasingly uniform, thus decreasing intra-brand competition.

The press release issued by the French competition authority on the current investigation states that the new alliances differ substantially from those of 2014, since they now have an international dimension and as they affect not only national brand goods, but also store-brand foods. The French authority has encouraged any market operator to report observations concerning the creation and possible effects that could derive from such alliances.

In Spain, a competitive analysis of purchasing alliances was performed by the CNMC in the 2016 Dia/Eroski Procurement Case on the alliance between said retailers that no longer exists. The CNMC held that the alliance posed no risks to market competition, as neither Dia nor Eroski had enough market power, and there was not sufficient market power concentration (see the November 2016 Alert).

In any case, we cannot rule out the possibility that the alliances under inspection by the French authority will attract the interest of other competition authorities whose own jurisdictions may be affected.

In the case of Spain, this could be the case of the Carrefour and Tesco alliance, which wish to establish an EU-wide alliance to jointly purchase private-label and manufacturers’ brands, focusing mainly on fruits and vegetables. The entry of Dia into the Auchan/Casino and Metro alliance may also affect the Spanish market.

Therefore, we must pay close attention to how the competition authorities react to these new international alliances and also to the French authority’s ruling on their compatibility with competition law.

2. Restrictive Practices

INVESTIGATIONS

European Union

Styrene Monomer Producers (Press release)

08/06/2018. The EU Commission has carried out inspections on several companies active in the styrene monomer purchasing sector.

Styrene monomer is a chemical product used as a base material for a number of chemical products such as plastics, resins, rubbers and latexes. These products are then used in a very wide range of applications (insulation, packaging, etc.).

The Commission has investigated several anticompetitive practices which may infringe on rules that prohibit cartels and restrictive practices (article 101 of the Treaty on the Functioning of the European Union).

Poland

Gyms (Press release)

29/06/2018. The Polish competition authority has opened an investigation on 16 companies that specialise in sport-centre and gym management.

An inspection on the premises of the country’s largest leisure package provider and sports operator may have uncovered evidence that the companies under investigation geographically divided up the Polish market.

The investigation also focuses on six directors of said companies. It is the first time that Polish authorities have carried out an investigation on private individuals.

Portugal

Super Block (Press release)

10/08/2018. The Portuguese Competition Authority has sent Super Bock a statement of objections regarding sanctioning proceedings initiated against the brewery for alleged retail price maintenance and trade-margin fixing of its products in the off-trade channel. The investigated practices would also carry the imposition of commercial conditions on Super Bock’s distributor-client arrangements as well as the imposition of penalties on distributors that failed to comply with the foregoing.

The alleged practices, which the Authority considers very serious infringements of competition, allegedly occurred over a period of at least 12 years (2006-2017).

The investigation was initiated due to two complaints filed in June 2016. Along with the company, the Portuguese Authority has accused six managers and directors of being involved in the investigated practices. All the accused parties can now submit arguments for their defence against the charges.

SANCTIONS

European Union

Google (Press release)

18/07/2018. The EU Commission has imposed a fine on Google of EUR4.34bn for abusing its dominant position through its Android operating system.

This is the largest monetary sanction imposed so far by the Commission, larger than the EUR2.4bn given to the U.S. multinational in June 2017.

While in 2017 the abuse was committed through Google’s search engine, which granted a competitive advantage to its shopping comparison service (Google Shopping) over its competitors (see the June-July Alert), the latest infraction was carried-out through its Android operating system, acquired by Google in 2005.

The Commission stated that Google imposed illegal restrictions on licenced producers of Android devices and on mobile network operators to consolidate its dominant position in Internet search engine services.

Specifically, the abuse was committed through the following practices: (i) Google forced producers to preinstall the Google Search app and the Google Chrome browser in order to be licensed to operate in the app store Play Store; (ii) Google made payments to certain producers and mobile network operators in order for them to exclusively preinstall the Google Search app on their devices; and (iii) Google banned producers who wished to preinstall Google apps from selling any device that had an Android operating system or any other operating systems unapproved of by Google.

Google has a 90-day deadline to cease and desist the foregoing conduct. If it fails to comply, it faces a penalty of up to 5% of the average worldwide daily turnover of its parent company Alphabet. The multinational has announced it will appeal the sanction.

Electronic Products’ Manufacturers (Press release)

24/07/2018. The EU Commission has sanctioned the manufacturers of Asus, Denon & Marantz, Philips and Pioneer products with total fines of up to EUR111m for price fixing in online commerce.

The sanctioned behaviour, uncovered during the European Commission’s e-commerce sector inquiry, consisted of imposing minimum retail prices on their online retailers - making it impossible for them to offer discounts below the price set by the manufacturers. This practice affected consumer goods such as laptop computers, headphones, coffee machines, etc.

All of the implicated companies have cooperated with the Commission by providing evidence of the anticompetitive conduct. On this basis, the fines were reduced by 40% for Asus, Denon & Marantz and Philips and by 50% for Pioneer.

3. Courts

European Union

Bathroom Products and Accessories (Press release)

03/07/2018. The General Court confirms the EUR57.69m fine imposed by the EU Commission on Sanitec Europe.

In 2010, the Commission sanctioned Sanitec Europe and 17 other bathroom products and accessories companies with a total fine of EUR622m for price fixing and exchanging sensitive commercial information. The products affected by the practice include taps, shower screens and accessories as well as ceramic goods.

The fine imposed on Sanitec was reduced by the General Court to EUR50.58m since it annulled the fines imposed on two of its subsidiaries. However, after the appeal of said judgement by the Commission, the European Court of Justice urged the General Court to reconsider the probative value of the evidence provided by the Commission with regard to those two subsidiaries, and thus recalculate the fine fee. Consequently, the General Court has reverted the fine to its original amount.

Exclusive Agreements (IPO request for Farfetch)

On 20 August 2018, Farfetch (a British international fashion website) filed a request to the US Securities and Exchange Commission (SEC) to be listed on the US stock exchange. From this request (see the link to the request above), the complaint made against Farfetch by its competitor Carré Couture (an online luxury product sales boutique) to the European Commission (said complaint constitutes a possible violation of competition law, which must be made public in these types of requests) was made public.

Specifically, Carré Couture made a complaint against Farfetch for having entered into partnership agreements with luxury boutiques (retailers) which contain exclusivity clauses with regard to the platforms in which the products may be sold online. According to what Farfetch indicated in its request to the SEC, the boutiques may only sell products from their inventories on the Farfetch website and not on competing websites.

The Commission is currently assessing the complaint. Specifically, it is looking at the possible exclusionary effect the aforementioned clauses could have on market operators such as Carré Couture. Once the facts have been examined, the Commission will decide whether to reject the complaint or to initiate a formal investigation regarding the matter.

Germany

Selective Distribution Systems (CMS Article)

12/07/2018. The Higher Regional Court of Frankfurt has confirmed the legality of cosmetic luxury manufacturer Coty’s selective distribution system.

The Frankfurt Court applied the case law established by the ECJ in its preliminary ruling on the same case.

The judgment comes after the ECJ stated that a restriction on distributors that impedes them from commercialising Coty’s luxury cosmetics through third-party platforms (such as Amazon or Ebay) is a proportionate measure to preserve the brand’s luxury image.

As we have seen in previous Alerts (February - March 2018, April - May 2018, inter alia), the general prohibitions for selective distribution systems have generated a great number of rulings. To a certain extent, the Higher Regional Court of Frankfurt’s ruling brings the issue full circle, as it ends the procedural journey it itself started by demanding a preliminary ruling from the ECJ. Notwithstanding the foregoing, the debate is still very much alive as the ECJ’s ruling is not concrete and leaves a few open ends. Among others, the question of what should or should not be considered a “luxury brand”.

United Kingdom

Vertical Restraints

22/08/2018. The London High Court has set a date in November for the hearing in the proceedings initiated by the online distributor, Beauty Bay against cosmetics company, L’Oréal.

Last March, Beauty Bay sued L’Oréal, arguing that its selective distribution system was against competition rules as it restricted online sales.

In particular, Beauty Bay complained that L’Oréal requires distributors to set up a physical shop in order to let them sell its cosmetics online, something which, in Beauty Bay’s opinion, is not justified. The EU Competition Law allows luxury goods producers to demand that retailers have a physical location to meet the quality standards for online sales.

Furthermore, pursuant to selective distribution rules, luxury goods producers do not need to set the same qualitative criteria for physical retailers than for online retailers, but they must pursue the same objectives and reach a comparable result.

To settle this dispute, the Court will have to reach a decision about when it is justified for a brand proprietor to require an authorised distributor to have a physical shop in order to sell their products online.

Damages

22/08/2018. Envelope producers Printeos, Hamelin, Mayer-Kuvert, GPV and others are facing a lawsuit for damages caused by the European envelope cartel, sanctioned by the European Commission in 2014.

On the 17 August 2018, several Office Depot distribution units sued the foregoing companies in several EU member States.

Although no details are known regarding the case, the plaintiffs have filed suits against only four of the five previously sanctioned companies, ignoring Bong Ljungdahl therein.

4. Concentrations

European Union

Henkell / Freixenet (Case file)

27/08/2018. The EU Commission has authorised German Corporation Henkell’s proposed acquisition of Catalan cava wine company Freixenet.

Henkell, Dr. Oetker Group’s wine production subsidiary, shall acquire 50.7% of the shares currently owned by the Hevia and Bonet families, Freixenet’s current proprietors.

Freixenet cava will thus be added to the wide range of sparkling wines offered by Henkell. The EU Commission ruled that both companies are geographically complimentary and therefore, that the operation does not affect the market structure.

In countries where both companies’ hold a higher market share, the Commission has concluded that, as there are many competitors, the operation shall not lead to negative effects for competition.

Comcast / Sky (Press release)

15/06/2018. The EU Commission has unconditionally authorised Comcast’s acquisition proposal for Sky.

Comcast is a multinational company active in the media, technology and entertainment sectors. Moreover, it is the proprietor of Universal Studios, one of the six largest Hollywood studios. It also owns several television channels such as CNBS and Syfy.

Sky is the leading pay television operator in Austria, Germany, Ireland, Italy and the United Kingdom. It also offers broadband Internet and television services as well as mobile and landline telephone services to both businesses and consumers.

Both companies compete solely in the purchase of television content, and in the wholesale market of pay-television services. Notwithstanding said overlap, after conducting a market study, the Commission considered that the merger will only have minor competition effects.

This decision forms part of the ongoing struggle between Comcast and Fox for the acquisition of Sky. On April 2017, Fox’s acquisition proposal for Sky was also approved by the EU Commission.

Whitbread / Coca-Cola (See here)

31/08/2018. British leisure group Whitbread shall sell its international coffee chain, Costa Coffee to The Coca-Cola Company. The latter has requested authorisation from both the EU Commission and the Chinese competition authority. The sale and purchase agreement is valued at GBP3.9bn.

This is the first sign of Coca-Cola’s intent to enter the hot drinks market, where they wish to compete with Starbucks in China.

Spain

Europe Snacks / Ibersnacks (Case file)

09/07/2018. The CNMC has unconditionally authorised the first phase of the acquisition of the Spanish company Ibersnacks by the French group Europe Snacks.

Both companies operate in the potato crisp and snack production markets. Ibersnacks is the supplier of the Hacendado brand for the retailer Mercadona. Europe Snacks is a supplier of other large retailers such as Carrefour or Auchan.

The publication of the CNMC’s decision is still pending.

Belgium

Sofindev IV / Group Claes (Press release)

07/06/2018. The Belgian competition authority has approved the acquisition of Group Claes by the investment fund Sofindev IV.

Group Claes is a holding corporation that controls two subsidiaries: Claes Machines, active in the high-quality machinery distribution market for the food industry and Claes Distribution, a wholesaler in the food processing sector.

Cyprus

Nestlé / Starbucks (Press release)

20/04/2018. Nestlé has notified the Cyprus Competition authority of its intention to acquire certain assets and liabilities of the U.S. Starbucks Corporation.

With this operation, Nestlé intends to acquire the rights to, under certain conditions, sell some products of the Starbucks brand in general retailers – i.e. supermarkets, shops, etc. Ready-to-drink beverages are excluded, so the agreement is essentially focused on the sale of coffee grains, and ground and encapsulated coffee.

United Kingdom

Rentokil´s / Cannon Hygiene (Case file)

28/06/2018 (Press release).

The British competition authority will thoroughly investigate Rentokil’s acquisition of Cannon Hygene.

This operation would entail the merging of the second and third biggest operators in the British feminine hygiene, nappy and soap dispenser market.

The British authority fears a rise in prices and a decrease in the quality of services and products provided.

The parties have not offered sufficient commitments to avoid the second phase of the investigation.

Israel

PepsiCo / SodaStream (Press release)

20/04/2018. PepsiCo has acquired SodaStream, an Israeli carbonation machine company. The transaction is valued at EUR2.8bn.

According to media sources, the transaction is expected to be completed by January 2019.

If successfully executed, SodaStream would be added to the wide range of PepsiCo soft drinks.

5. Other

Sales at a Loss of Agricultural Goods

Statement from the Spanish Minister for Agriculture (Press article)

15/07/2018. The Spanish Minister for Agriculture has demanded improved regulation on sales at a loss to end the damages this incurs on farmers and livestock breeders.

The minister has declared that he perceives sales at a loss as one of the mechanisms that weakens the sector against large milk and other agricultural product distribution companies. Sales at a loss is not only one of many pressures forcing farmers to lower prices, it also compromises the product quality.

Following the EU judgement prohibiting the general banning of sales at a loss (which was included in the Spanish Law 7/1996 on retail commerce), the minister considers it necessary to draft new legislation in line with the proposed directive on the food supply chain that the EU Commission is working on.

Geographical Indications

Spanish Wine Sold as French Fraud (Press release)

28/06/2018. The French General Directorate for Competition, Consumers and Fraud has uncovered a fraud where millions of hectolitres of Spanish red wine have been sold in France as French wine and with higher prices.

The investigation, which was carried out in 2016-17, has revealed that more than 70,000 hectolitres of Spanish wine have been fraudulently marketed as French. The fraud was committed both explicitly, by scamming consumers through the use of branding expressions such as “Wine from France” or “Protected Geographical Indication”; as well as implicitly, by obscuring the indication of origin and highlighting usual French symbols such as the Fleur de Lis or typical French chateaus to mislead consumers. Ambiguous phrasing was also used, such as “Bottled in France” or “Made in France”.

Said practices extended to bars, restaurants and hotels where the Spanish origin of the wine was obfuscated and expressions such as “Owner’s Harvest” were included. This led consumers to believe that the wine was harvested by the French owners of the establishment. The fraud has already been referred to the ordinary French justice system, and the infringing parties face penalties of up to two years in prison. Furthermore, the companies involved may be sanctioned with fines of up to EUR300k, which may be increased depending on the business volume and type of fraud committed.

Nevertheless, the impact from the fraud extends beyond the perpetrators, as exports to France of up to 10m litres of Spanish bulk wine have been suspended.

Scotch Whisky Protected Geographical Origin (Press release)

07/06/2018. The CJEU holds that the national court has to determine whether an average European consumer would directly associate a product bearing the denomination Glen with the protected geographical indication Scotch Whisky.

The CJEU has come to a decision on the concept of forbidden evocation by Regulation 110/2008 on the definition, description, presentation, labelling and protection of geographical indications of spirit drinks pursuant to a referral by the District Court of Hamburg.

The original case arose as a result of the cease and desist action filed by the Scotch Whisky Association against Mr Klotz, a German whisky distiller whose products were labelled as originating from “Glen Buchenbach”. The Scotch Whisky Association, whose purpose is to defend the interests of the Scottish whisky industry, considers that the use of the term Glen in German whisky breaches the registered geographic indication Scotch Whisky, as consumers are susceptible to be misled by relating the protected geographical indication to the German place of origin.

On one hand, the CJEU requires that for there to be a breach of the Regulation by an indirect commercial use of a registered geographical indication (Scotch Whisky), the controversial element (Glen) must be used in an identical way to the indication, or at least be similar to it visually or phonetically. Thus, it is not enough for the element to provoke in the consumer some sort of association with the element or the geographical area to which it refers.

On the other hand, the CJEU considers that to be able to invoke the protection of the place of origin in question, the average well informed consumer would have to think directly about the referenced image, in this case, Scotch Whisky.

According to the CJEU, this analysis must be determined by national courts.

Control of Concentration Thresholds

Guiding Principles for the application of the new thresholds (Guiding principles)

07/08/2018. The German Federal Office for Cartels and the Austrian Federal Competence Authority have published new guiding principles that clarify the application of the new transaction value thresholds established for the control of concentrations.

These new transaction value thresholds complement the already existing ones, adding a new one that is an alternative to the “plausibility of the consideration value”. Under these new thresholds, operation shall be assessed when they reach a value of EUR200m in Austria and EUR400m in Germany, notwithstanding the fact that the acquired company has a minimal or non-existent turnover in the respective jurisdictions. This amendment has been thought of in order to allow competition authorities to analyse the true potential effect of the transactions.