1. Most Favored Nation clauses under scrutiny by Competition authorities
Competition authorities are forcing well-known e-commerce companies to drop or modify the Most Favoured Nation clauses inserted in their distribution agreements, identified as restrictive to competition law.
The rise of the digital economy has given consumers the possibility of comparing the offers of different market players at the click of a mouse. In this context, some e-commerce companies try to secure the best market conditions by using Most Favoured Nation (MFN) clauses in their distribution and intermediation contracts.
By means of these clauses, final service providers or goods manufacturers, such as hotel chains that offer their services on online platforms, agree to guarantee these platforms the best conditions in comparison with those they will negotiate with any other online agent or offer on their own websites, regarding economic terms as well as all other aspects of the offer.
These clauses are being analysed by competition authorities for possibly discouraging providers from offering lower prices to rival distribution platforms, as the same conditions would have to be offered to the companies benefiting from MFN clauses. This ultimately causes an alignment of prices among distributors and to the detriment of the final consumer.
To date, European competition authorities – both the European Commission and the National Competition Authorities of several member States – have analysed the compatibility of this kind of clause and Competition Law across two sectors: online travel agents (OTAs) and online e-book distribution.
Regarding OTAs, there were two types of controversial clauses. On the one hand, broad parity clauses, which secure OTAs, such as Booking or Expedia, the best conditions among those offered by hotel chains to rival travel agents; and on the other hand, narrow parity clauses, which disable hotel chains from offering better terms on their own websites than those available through the OTAs.
Since the end of 2012, up to nine national competition authorities within the EU have started inquiries into the effects of these clauses on intra-brand competition, i.e. competition concerning rooms in the same hotel.
In most cases, and in order to be able to close the ongoing inquiries, travel agents chose to eliminate broad parity clauses from their contracts but maintained narrow parity clauses. In doing so, they argued that the latter kind of clause did not restrict competition, as OTAs were still able to compete between themselves.
This solution was accepted by all competition authorities concerned, who closed ongoing cases or did not even initiate formal investigations, except for the German Bundeskartellam, who understood that both types of clauses should be dropped.
Nevertheless, France and Austria decided to draft laws in order to forbid both kinds of clauses. Both regulatory texts are currently under appeal before the European Commission by the main OTAs and sector associations for the possible infringement of the freedom of movement (free provision of services) and the freedom to conduct business. In turn, Italy is on the verge of approving a bill also forbidding both categories of MFN clauses.
On 6 April this year the European Commission and all 10 national competition authorities published a monitoring report on the measures taken in the sector. These competition authorities proved that the suppression of broad parity clauses in most of the States, as well as narrow parity clauses in some of them, resulted in an increase of price differentiation between OTAs.
Concerning online e-book distribution, on 4 May leading e-commerce company Amazon reached an agreement with the European Commission to eliminate MFN clauses from its contracts with publishing houses. This agreement put an end to the sanctioning proceedings initiated by the European authority in June 2015.
In this case, conflictive clauses imposed the obligation on publishing houses to offer Amazon similar or better terms than those offered to its competitors and/or to inform the company of more favourable alternatives offered to such competitors. These clauses covered prices as well as other conditions that might contribute to product differentiation, such as distribution models or promotions.
The European Commission’s concerns in the sector focused on Amazon being able to abuse its dominant position to hinder the market entry of other e-book platforms and thus reduce the ability and incentives of publishing houses to develop new and innovative distribution services.
As a result of the agreement reached by Amazon and the European Commission, different publishing houses will be able to decide autonomously on the commercial strategies they will follow with different e-book distribution platforms, who will be able to compete between themselves by offering different terms and conditions to the final user.
From the above it can be inferred that one of the main concerns of competition authorities is for the growth of the digital economy to refrain from limiting competition among products and services of the same brand. It is therefore intended that digital platforms that have acquired a significant market weight will not be able to condition the commercial strategies implemented by manufacturers and service providers. Hence, their goal is to maintain effective competition between all the distributors and online agencies of the same brand.
05/04/2017. The European Commission has approved the acquisition of Samsung’s printer business by HP through an operation worth more than a billion dollars.
The Commission concluded that despite the firms being direct competitors in most of their activities, the transaction will not significantly restrain competition on the market for the supply of branded regular format printers because many alternative market players will be able to compete with the merged entity.
By buying Samsung’s printer business, HP will gain great presence in the Asian market and acquire the Korean firm’s laser printing technology as well as around 6,500 technological patents.
07/04/2017. The European Commission has approved in the first phase and without commitments the acquisition by Westrock - a multinational producing paper, packaging and corrugated cardboard – of Multi Packaging Solutions International Limited, a manufacturer and supplier of specific packaging solutions mainly for pharmaceutical products, consumer goods and media as well as rigid packaging for perfumes and spirits. Despite the overlap of their activities with the market of cardboard boxes for beverages in the UK and cardboard boxes for pharmaceutical products in the UK and Ireland, the Commission considered that the operation did not hinder the maintenance of effective competition in those markets.
Ardian / Prosol (Case file)
10/04/2017. The acquisition of the Prosol Group, main shareholder of French grocery supply chain Grand Frais, by the investment fund Ardian has been approved by the European Commission.
The Commission pointed out that the operation does not arouse competition concerns since the parties’ activities do not overlap.
Douglas / Bodybell (Case file)
25/05/2017. The Spanish Competition Authority (CNMC) has authorised in the first phase and without commitments the acquisition of the Bodybell group by German cosmetics multinational Parfümerie Douglas.
By means of the operation, the German multinational will acquire more than 200 shops in Spain, two online selling platforms and a logistics warehouse. The resolution has not been published yet, although its analysis and definition of the concerned markets will be, without doubt, of great interest.
Paul Hartmann / Lindor (Case file)
04/05/2017. The CNMC has authorised in the first phase and without commitments the acquisition by leading medical and healthcare supplier Paul Hartmann of Procter and Gamble’s brand for incontinency products in Spain and Portugal (Lindor).
Through this operation the Hartmann group will become one of the leading suppliers of adult incontinency products on the Iberian Peninsula, where it was already present before the transaction.
Grupo HMY / LBO France Gestión (Case file)
12/05/2017. The acquisition of sole control of the HMY Group by French investment fund LBO has been notified to the CNMC.
The HMY Group is active in the design, manufacture, distribution and installation of standard and bespoke retail furniture (especially for large-scale retail), and is the first firm in the French and Spanish markets. It also has subsidiaries in 13 countries and ranks among the market leaders in Portugal, Turkey and Chile.
Domoti SAS / 3Suisses (Case file)
02/05/2017. The authorisation of the acquisition of control over Livell and 3Suisses – both catalogue and online fashion and decor retailers – by catalogue retail firm Domoti by France’s competition authority (Autorité de la Concurrence) on 4 April has been published.
The French authority considered that the operation did not raise competition concerns in the relevant markets because the merged entity will not have a significant market share in any of them.
Freiberger Lebensmittel / HASA (Case file)
12/05/2017. Germany’s competition authority Bundeskartellamt has received notification of the project by which the Freiberger group plans to acquire HASA. Both companies are active in the market for frozen pizza. HASA markets its products under the brands Italissimo and Pizza Amore. Freiberger Lebensmittel’s offer includes other convenience foods such as pasta, baguettes and a range of snacks.
Tesco / Booker Group (Press realease)
08/04/2017. The Competition and Markets Authority of the United Kingdom (CMA) will shorty analyse Tesco’s acquisition of Booker.
If the operation comes to fruition, it will involve a considerable concentration of power in the distribution market, merging the UK’s biggest retailer with the leading national wholesale grocery supplier.
In order to gain CMA’s approval, Tesco is likely to argue that it does not operate as a wholesaler in the market, as it does not execute cash-and-carry operations, and that Booker has very little presence as a retailer because most of its retail shops are franchises.
Notwithstanding the foregoing, the CMA will probably analyse the effects of the operation on retail by taking into account the power Booker holds through its franchise network.
Hain Frozen Foods / Yorkshire Provender (Case file)
20/04/2017. The CMA has authorised in the first phase and without commitments the acquisition of family-owned soup manufacturer Yorkshire Provender by Hain Frozen Foods.
This acquisition is part of the Hain group expansion plan, whose goal is to incorporate a premium soup line into its portfolio of products, which already includes different frozen foods and vegetarian products under 16 trademarks.
The merger creates overlaps in the retail market for cold soup and the supply of cold soup to clients active in the food service industry, such as catering companies. When authorising the operation, the CMA has taken into account that current market shares were modest and would only be slightly increased as a result of the acquisition. The fact that the parties were not close competitors and the absence of objections to the merger from third parties were also positively considered.
Irish Dairy Board / F J Need (foods) (Case file)
28/04/2017. The CMA has now published its decision authorising in the first phase and without commitments the acquisition of F J Need by the Irish Dairy Board, a subsidiary of dairy cooperative Ornua, which was announced at the end of March.
Ornua is the fifth biggest firm in the UK market, whereas F J Need is a family-owned cheese and dairy production company. As a result of the merger, Ornua will incorporate its production facilities, two trademarks and its distribution fleet.
The operation created overlaps in the markets for cheese supply to clients active in the food services and for cheese packaging services in the UK. The merger also had vertical implications because Ornua sells cheese in bulk to companies who distribute it in packages. After studying the operation, the CMA has concluded that the merged entity will have no incentive to exclude its rival cheese packaging companies from the bulk cheese market.
The acquisition of the entire share capital of Palink, who operates the grocery store chain IKI, by the Lithuanian subsidiary of Rimi Baltic has been notified to the Competition Committee of the Republic of Lithuania.
With a total worth of EUR 200 million, the merger is the biggest operation of the year in Lithuania. As a result, Rimi, currently the fourth biggest firm in the market, will become the second largest national retail chain by incorporating IKI’s 230 plus stores.
The Lithuanian competition authority has opened a 10-day period for interested third parties to present their observations on the operation.
3. Anticompetitive practices
Tobacco (Case file)
18/05/2017. The Competition Chamber of the Board of the CNMC has dismissed Altadis’ lawsuit against the dawn raids carried out by the Competition Director within the framework of reserved report DP/058/15, which investigates several tobacco companies for possible information exchange and/or agreements restricting competition.
The Competition Chamber has ruled that the dawn raid had caused Altadis no defencelessness or irreparable prejudice, as its purpose was sufficiently defined by the Investigation Order issued by the Competition Director. Furthermore, the Chamber dismissed the claimant’s allegations on the methodology used by the inspection team for treating the whole of the affected documents in a general manner and being therefore inadequate for analysing the rights that were presumably breached on an individual basis.
07/04/2017. The Autorité de la concurrence is carrying out a market test in order to assess the commitments offered by the cooperative Tereos within the framework of an inquiry into its practices in the sugar market. Through such practices, Tereos could be restricting sugar beet supply to two of its competitor Saint Louis Sucre’s sugar mills.
A preliminary inspection has revealed the terms of Tereos’ contracts to be potentially restrictive of associated beet growers’ freedom of offering their crops to other sugar manufacturers in the area by imposing opaque and excessively formalistic termination conditions. This practice would de facto lead to a restriction of beet supply for competitors.
In view of the liberalisation of the sugar market in the EU as of October of this year – which has been so far subject to restrictions concerning production volume and minimum prices – a rise in the demand for sugar beet is expected. Given this new market situation, Tereos’ practices raise special concern due to imposing indirect barriers on the expansion of its competitors’ businesses.
After being warned by the authorities, Tereos has offered to modify its cooperative contract terms, reducing the prior notice necessary for their resolution and clarifying the terms of its tacit renovation. These are the changes being evaluated by the market analysis.
04/04/2017. The Bundeskartellamt has presented no opposition to the cooperation project between retailers Bartels-langness, Bünting, Georg Jos. Klaes, Klaas & Kock, Netto ApS and Real through the recently created platform Retail Trade Group. The joint venture will assist the parties in the fields of sales, e-commerce, logistics and administration.
The German competition authority considered a greater concentration of these companies in Germany’s grocery retail market to have limited effects because another four retailers (EDEKA, REWE, the Schwarz group and Aldi) amass a market share of 85%. Moreover, it deemed the cooperation as having significant positive effects for the parties but pointed out that this collaboration could be subject to a further review in the future if cooperation were increased.
Corrugated cardboard (Press release)
04/04/2017. The Italian competition authority – Autorità Garante della Concorrenza e del Mercato – has opened an inquiry into the market for corrugated cardboard, which concerns cardboard sales for packaging as well as the downstream market for packaging solutions made out of corrugated cardboard.
Regarding the latter, the Italian authority has evidence to prove that price-fixing and client distribution practices could have been carried out by vertically integrated groups SK, Progest, DS Smith, Laveggia, Ondulati Nordest, Ondulati Friuli, International Paper and Sada since, at least, 2015-2016. There is also evidence of exchanges of sensitive information within sectoral association GIFCO.
A decision on the matter should normally be adopted before 31 May 2018.
Italy, France and Germany
04/04/2017. The complaints filed by different labour groups and consumer organisations in Italy, France and Germany before their respective national competition authorities have re-launched the debate on fast-food chain McDonald’s franchising terms in the EU, which was analysed in our August 2016 alert (see here). All three complaints denounce the imposition of abusive terms in franchising contracts, such as restrictions on suppliers, excessive rents on premises and the obligation of charging higher prices for the same products than McDonald’s own stores.
Consumer organisations behind the complaint in Italy – Codacons, Movimento Difesa del cittadino y Cittadinanzattiva – have declared that the lawsuit before Italy’s national competition authority is a result of the withdrawal of the complaint filed before the European Commission because of the slow pace of procedure.
Cooking utensils and wine accessories (Press release) 08/05/2017. Belgium’s competition authority – l’Autorité belge de la Concurrence – has conducted an inspection at the premises of an undertaking active in the market for the distribution and sale of cooking utensils and wine accessories.
This was a preliminary inspection within the investigation of an alleged agreement or concerted practice and/or an abuse of dominant position restrictive to competition under the Belgian national legislation and European competition rules.
20/04/2017. In response to a request submitted by the Austrian competition authority – Bundeswettbewerbsbehörde – Austria’s anti-cartel court has imposed a EUR 1,560,000 fine on the Austrian subsidiary of the Makita International Europe Limited group, active in the trading of electrical tools, such as screwdrivers and drills, as well as accessories for these kinds of products.
The sanction has been imposed after the acknowledgement of different anticompetitive practices carried out by the company between 2002 and 2015, consisting of the imposition of minimum or fixed resale prices on their distributors.
18/04/2017. Olympus Danmark has been sanctioned with a EUR 484,000 fine within a transaction process with Denmark’s competition authority for the violation of Competition regulation by keeping its camera’s resale prices above a certain minimum.
For two years, Olympus, a company specialising in optics and reprography products, concluded anticompetitive agreements with some of its distributors in Denmark by establishing kick back systems. These made the refund of part of the price initially paid by the distributors subject to the maintenance of a certain minimum resale price. If Olympus’ products, mainly cameras, were sold under the fixed minimum, price distributors were unable to get this reimbursement, which significantly reduced their profit.
The competition authority highlighted that Olympus’ cooperation during the sanctioning procedure was taken into account when determining the amount of the fine.
27/04/2017. The Court of Justice of the European Union (CJUE) has dismissed the appeal of FSL Holdings and its subsidiary Pactific Fruit, both firms active in the merchandising and sale of bananas in Europe under the “Bonita” brand.
In 2011, a decision of the European Commission considered that the claimants had infringed article 101 of the Treaty on the Functioning of the European Union by participating in a banana import and sale cartel in Greece, Italy and Portugal together with their competitor Chiquita Brands. The European competition authority imposed a fine on the firms amounting to EUR 8,919,000, which was reduced to EUR 6,689,000 in the first instance by the General Court of the European Union.
In its ruling, the CJEU has confirmed the conviction of the claimants for sale price concertation in violation of European competition rules and has maintained the amount of the fine imposed by the General Court.
Additionally, the CJEU asserted that cooperation with national authorities other than competition authorities as part of an EU-scale cartel investigation is possible as long as it does not contradict national legislation. In this case, it confirmed the admissibility of evidence transmitted to the European Commission by Italy’s finance police (Guarda di Finanza).
Discounts on hygiene and cleaning products
05/05/2017. Within the framework of the inquiry conducted by the European Commission against several French supermarkets for illicit information exchange concerning their discount policy on hygiene and cleaning products, chains Casino (see here), Intermarché (see here) and Les Mousquetaires (see here) have filed an appeal before the General Court of the European Union in relation to the inspections.
Most notably, in their complaint all three companies question the lawfulness of the alleged copy of sensitive information (including customers’ personal data) during the inspections carried out in February 2017 as part of these investigations.
Printeos v. European Commission (Case file)
05/04/2017. After the CJEU annulled the sanction imposed on Printeos S.A. for its participation in the European envelope price-fixing cartel, the Spanish firm has filed a complaint before the General Court against the European Commission claiming the legal interest on the EUR 4,700,000 sanction that was imposed upon it and paid between 2014 and 2015.
After being reimbursed the amount of the fine, Printeos is now asking for the payment of the legal interest accumulated during the more than two-year period that elapsed between the payment of the sanction and its reimbursement.
Plastic bags (Official Journal of the EU)
22/05/5017. The European Union, represented by the CJEU, has appealed the rulings rendered by the General Court on 1 and 17 February in the plastic bag cartel affair. These judgments awarded compensation to Spanish firm Aspla, the biggest company in its national market, and Dutch company Kendrion for the damages caused by an excessive delay in their appeal procedures before the European Commission.
The European Union alleged an error of law in the interpretation of the terms “causal link” and “material damage” in both cases, asking for the damages claims to be dismissed. In its appeal against Kendrion KV, an error in the determination of the duration of the damages is also alleged, as well as a request for the reduction of the amount of damages if the claim is upheld. Envelope exports
20/04/2017. The Spanish Supreme Court has published two judgments concerning the decision passed by extinct National Competition Commission (CNC) on 15 October 2012 regarding the exportation of paper envelopes by several companies active in this market through their joint venture Hispapel, which was founded with this aim (see here the judgment regarding Printeos S.A. and here the judgment regarding the Adveo group)
Against the Spanish High Court’s (Audiencia Nacional - AN) considerations at the time, the Supreme Court confirms the inherently anticompetitive nature of Hispapel’s activity which lead to the concertation of the economic activity of the participating companies by fixing export prices, exchanging sensitive information and market-sharing. Nonetheless, the Supreme Court upholds the participating companies’ appeals in relation to the calculation of the fine imposed by the decision of the CNC. Moreover, concerning Adveo, the Court deems that due to its cooperation with the competition authorities within the clemency programme, the company deserves a 40% reduction on the amount of the fine.
Asics (Press release)
05/04/2017. The Higher Regional Court of Dusseldorf has confirmed Bundeskartellamt’s decision against sport footwear manufacturer Asics. The German authority established that the ban on the use of price-comparison tools imposed upon its distributors regarding their online sales represents a hard-core restriction of competition.
Sugar (Press release)
08/05/2017. e Cartel Damage Claims group (CDC) announced that it has filed a new damages claim in the German sugar cartel affair, this time before the Regional Court of Hanover.
In 2014, the Bundeskartellamt imposed fines amounting to approximately EUR 280 million on sugar manufacturers Pfeifer & Langer, Südzucker and Nordzucker for having participated in anticompetitive agreements on sales, quotas and prices in Germany.
The claim before the Hanover Court joins the ones filed before the Mannheim Court on behalf of companies such as Nestlé, Lindt, Müller Milch or sweat manufacturer Katjes, which we commented on in the November 2016 alert (see here).
23/05/2017. The Court of Appeal of Paris has reduced the total amount of the fines imposed on a group of milk and other dairy producing companies from EUR 192,700,000 to EUR 128,400,000 for having participated in a cartel between 2006 and 2012. The new calculation of the fines takes into account the companies’ claims on the disproportion between the amount of the sanction and the appellants’ financial state, who alleged that its payment would lead to the suspension of their business activities hence causing a restriction to competition in the milk market.
Among the sanctioned firms are several companies of the Lactalis group (EUR 43 million among the different entities), Novandie (EUR 35 million) and Senagral (EUR 20 million).
Endives (Case file)
06/04/2017. Within the framework of a lawsuit between l’Autorité de la concurrence and several organisations of endive producers, the French Supreme Court (Cour de Cassation) has referred a preliminary ruling to the CJEU in order to determine whether the concertation of prices and sale volumes by these associations and producer organisations violates European competition rules. The Advocate General in charge of the case presented his conclusions on 6 April.
It is important to keep in mind that, under the TFEU, common agricultural policy prevails over competition aims, thus the activities of the producer organisations that are strictly necessary for the accomplishment of their aim of adjusting production to demand can escape the application of European competition laws.
However, the Advocate General proposes to declare the litigious practices as anticompetitive, consisting of collective minimum price fixation and the exchange of strategical information on minimal prices, considering that these exceed the function attributed by law to producer organisations.
After the presentation of the conclusions by the Advocate General, which are of a non-binding nature, the publication of the judgment by the CJEU on the matter is expected.
Commentary of the Competition and Markets Authority on retail mergers (Complete file)
10/04/2017. The UK competition authority (CMA) has published a commentary on some of the most frequently asked questions concerning retail mergers.
The report is presented as an opportunity for retailers to anticipate the CMA’s analysis when surveying this kind of merger.
Complaints before Spain’s Organisation of Consumers and Users (OCU) on food labelling (Press release)
28/07/2017. The OCU has filed a complaint before Spain’s regional consumer authorities regarding the use of terms “home-made”, “natural”, “artisan” and “traditional” on products that neither by their components nor by their production procedure have these characteristics. The organisation pointed out that this practice constitutes misleading advertising, which can lead the consumer to false assumptions about the qualities of the product.
The Spanish Agency for Consumer Affairs, Food Safety and Nutrition (AECOSAN) confirmed that this practice violates the field’s advertising rules.
On its website, the OCU details the products subject to the complaint, all of which are regular consumption foods such as broths, sauces and bakeries.
Investigations under the Consumer Inspection Plan in Spain (Press release)
05/05/2017. The General Direction for Consumer Affairs of the Autonomous Region of Andalusia is carrying out an inspection campaign on the labelling of natural juices and pâtés, within the framework of a national-scale operation in coordination with other Autonomous Regions.
The aim of these investigations, conducted as part of the Consumer Inspection Plan 2017, is to guarantee fair competition in the market and to protect consumers.
Feminine hygiene products (Press release)
16/05/2017. Correct labelling was also one of the main priorities of the French consumer authorities, which lead inquiries into the feminine hygiene products sector. Despite concluding that the situation was satisfactory, the General Direction for Competition, Consumer Affairs and Fraud Repression pointed out that the content of contaminating substances in these kinds of products must be regulated by law.