Over the last couple of months, legal professionals, the general public and the media have focused on the relationships between large food retail chains and their suppliers. This has predominately been due to discussions about the amendment to the Significant Market Power Act (395/2009), which was approved by Parliament and came into force on March 6 2016.
The amendment sought to remove and clarify ambiguous provisions within the act and generally provide greater protection to suppliers. However, even after the amendment was enacted, several provisions remained vague and were thus open to interpretation. As such, the Office for the Protection of Competition issued an information letter on the amendment at the end of August 2016. The purpose of the information letter was to clarify and explain the changes introduced by the amendment.
In brief, the act regulates the means by which to assess and prevent abuses of significant market power in relation to the purchasing of food for resale in the Czech Republic and related services. The act also introduced a rebuttable presumption pursuant to which a purchaser with an annual turnover exceeding Kr5 billion (approximately €185 million) achieved through the sale of food and related services would be considered to have significant market power.
The act first came into force in 2009 and has caused controversy ever since – in particular, due to unclear provisions which led to a high degree of legal uncertainty in supplier-purchaser relations. The most significant changes introduced by the amendment which were clarified by the information letter are discussed below.
Clarification of concept of significant market power
The information letter explains that the amendment attaches the so-called 'absolute concept of significant market power' to relationships between suppliers and purchasers. This concept involves a two-stage test to determine whether a purchaser has significant market power. In the first step, the competition office, which supervises compliance with the act, determines whether the purchaser has the necessary Kr5 billion turnover achieved through the sale of food and related services. If this condition is fulfilled, the office will then evaluate whether:
- the purchaser has significant market power with regard to the market structure, market entry barriers and its financial strength; and
- its conduct is capable of impeding the proper functioning of the business relationship between the supplier and purchaser.
In essence, the second stage of the test to determine whether a purchaser has significant market power is not an evaluation of one or more specific business relationships between a single supplier and purchaser (which would be the basis of the concept of relative significant market power), but rather an evaluation of whether one purchaser's behaviour could endanger an indefinite number of such relationships. Thus, if a purchaser is deemed to have significant market power, it is because the competition office has determined that it acted in this position towards all of its suppliers. As such, purchasers cannot discriminate against one group of suppliers, and must treat all suppliers equally, in compliance with the act. This approach is similar to that applied when assessing whether an entity is in a dominant position under the Protection of Competition Act (143/2001), as amended. Under this act, an entity considered to be in a dominant position must behave in the same way towards all other market participants (ie, competitors and consumers).
Definition of 'purchasers'
The information letter further clarifies that the amendment seeks to prevent circumvention of the act (eg, through the use of third parties). In practice, there may be situations where an entity determined to be abusing its position is controlled by a controlling entity. By itself, this entity would not have significant market power; however, in conjunction with the controlling entity, it has de facto significant market power. This also holds true for purchasing alliances that participate in the purchase and sale of food and related services, where individual members of the purchasing alliance would by themselves not have significant market power.
According to the information letter, the amendment responds to this business reality and specifies the definition of 'purchaser'. Under the amendment, purchasers are deemed to be undertakings or purchasing alliances if:
- they buy food for the purposes of resale; or
- receive or provide services associated with food purchases.
A purchaser is also an entity or person that secures such purchases or services for another purchaser under a mandate contract. For the sake of completeness, the amendment defines a 'purchasing alliance' as:
- a group of purchasers established under a contract, legal act or legal fact that collaborate with purchasers regarding the purchasing of foods for resale, or receiving or providing associated services; or
- a group of purchasers established for the purposes of such collaboration, regardless of whether this group is a legal entity.
Abuse of significant market power
The original act contained only a non-exhaustive list of behaviours that constituted an abuse of significant market power. The list was general and referred to detailed provisions contained in the voluminous annexes to the act. These annexes also contained provisions on obligatory contractual conditions to be contained in contracts entered into between suppliers and purchasers. The amendment transferred part of the annexes into the body of the act.
Basic rules concerning contractual terms for relationships between suppliers and purchasers with significant market power are enshrined in a separate provision of the act – for example, the requirement to define clearly the mandatory written form and part of the minimum contractual requirements.
The amendment kept a non-exhaustive list of forms of behaviour which constitute abuses of significant market power in the body of the act. However, it removed the annexes and transferred their content directly to the text of the act, while also specifying the different forms of abusive behaviour (eg, negotiating and implementing contractual terms which create a significant imbalance in the rights and obligations of the parties or negotiating or obtaining any payment or other performance for which no service or other consideration was provided, or is disproportionate to the value of the actual consideration or listing fees). Despite the amendment's effort to clarify the act, the list of abusive behaviour is still only exemplary and leaves significant room for interpretation. The information letter therefore aims to provide more details on the forms of abusive behaviour.
The amendment and information letter have certainly provided some clarification – in particular, regarding the concept of significant market power (ie, absolute versus relative), which was the subject of court proceedings before the amendment entered into force. However, the professional public is still sceptical of the act in general, as well as the clarity of its interpretation, which remains subject to intense discussions and leaves both suppliers and purchasers in (albeit less) legal uncertainty.
For further information on this topic please contact Jitka Linhartová or Claudia Bock at Schoenherr by telephone (+420 225 996 500) or email (email@example.com or firstname.lastname@example.org). The Schoenherr website can be accessed at www.schoenherr.eu.
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