In order to provide greater protection for suppliers, a new amendment to the Act on Significant Market Power (the “Act”) has been now passed. The new Act aims to remove any ambiguous provisions in the existing legislation and to ensure proceedings against retailers are easier to initiate and pursue. In particular, the proposed changes will allow the Czech Office for the Protection of Competition (the body responsible for supervising compliance with the legislation) to prosecute those who are alleged to have behaved in violation of the Act. Although there is a strong expectation that the new Act will provide an effective weapon with which to fight unfair market practices, some provisions have proved controversial and there is no general consensus on how effective it will likely be in practice.
Manufacturers of food products in the Czech Republic have been struggling against the unfair commercial practices of some retailers for many years. The imbalance of the bargaining power that’ exists between heavyweight retailers and smaller manufacturers has resulted in some retailers imposing significant fees on manufacturers, ranging from marketing fees, shelf fees and category management fees. These fees, additional to standard rebates, may be used by retailers to capitalise on suppliers’ focus to ensure their products are the most visible and have prime position on the supermarket shelves. Although there has been attempt to eradicate the scope of the use of certain excessive additional fees in previous legislation, these unfair practices have not been stamped out and, in fact, the trend of retailers attempting to force unfavourable trading conditions upon entities with less market power has only increased.
The most significant changes introduced by the proposed amendment to the Act are as follows:
1. Specification of the term ‘significant market power’ Significant market power exists when a buyer is able to use its superior market position to unjustly enforce a trade contracting advantage on the seller or other parties to the transaction. The proposed amendment maintains the current presumption that significant market power will exist where the turnover of the buyer exceeds CZK 5 billion. However, the proposed amendment shall introduce a condition that significant market power will only be deemed to exist where the turnover has arisen from the sale of food and/or services. Moreover, new subjects may acquire significant market power – not only the intermediaries of the sale and purchase, but also the so-called “purchasing alliance” which is understood as any form of a cooperative of buyers.
2. Changes regarding ‘abuse of significant market power’ The Act currently contains an illustrative list setting out the various ways in which abuse of significant market power may occur. This list is very general and refers to an extensive list of annexes. If adopted, the amendment shall transpose the existing annexes into the text of the Act, specifying the conduct which is prohibited and outlining a range of duties for the parties to the transaction to adhere to. Examples of actions amounting to abuse which are to be outlined by the amendment include (i) the negotiation or application of contractual conditions that create a significant imbalance in the rights and obligations of the other parties involved; or (ii) the requirement for any payments or other favours to be made to improve the display of certain food items on sale (for example, some retailers require a payment of so called “shelf fees” for better placement of goods).
3. Improvement of the supervising compliance with the Act The Act removes the requirement for the abuse of the significant market power to have taken place on a repeated and consistent basis. The Czech Office would, therefore, no longer have to prove that the retail chain violated the rules systematically and repeatedly. On the other hand, the Office now has the option to stop the initiated proceedings where the abuse is not deemed to be of a serious nature. This measure should avoid the Act being used as a mechanism to settle private disputes or in situations where only minor violations have taken place.
In conclusion, falling to comply with the obligations under the Act could result in the abuser incurring a penalty of up to CZK 10,000,000 (approximately EUR 370,000) for legal entities. Due to the threat of sanctions and the implantation of the new proposed obligations on the parties, it is important to pay careful attention to any changes in the market power regulations.