August 2012 – The Supreme Administrative Court issued a judg ment that confirmed that the agreement between two purchasers (retail chains) on the purchase prices for goods and the commercial terms they applied in relation to their suppliers is a cartel agreement that is subject to competition rules. Although such agreements on the purchase side are quite rare, competition law makes no distinction between such horizontal cooperation and the more usual collusion on the seller side.
Subject matter of the case: cartel agreement
The case concerns the coordination of purchasing strategy between two retail chains in the Czech Republic, BILLA, spol. s r.o. (“Billa”) and JULIUS MEINL, a.s. (“Julius Meinl”, a company that currently bears the business name CREDITEX HOLDING, a.s.). In 2001 and 2002 the parties agreed to coordinate and unify their purchase prices for goods and the commercial terms they applied in relation to their suppliers.
Billa and Julius Meinl exchanged information regarding their purchase prices and bonus and discount systems. Subsequently, they compared them and required the suppliers to adjust their terms and conditions applied at that moment in the event that the terms offered to the other party were more advantageous. They also required financial compensation from the suppliers in order to balance any differences in prices paid. They also required the suppliers to pay a so-called “alliance bonus” (in Czech: alianční bonus), a charge to be applied in the event that suppliers supplied the same range of products to both Billa and Julius Meinl. Should the suppliers not agree with these terms, both Billa and Julius Meinl were entitled (under certain supply agreements) to terminate their cooperation with them. The ultimate objective of Billa and Julius Meinl for their cooperation was to achieve higher profits and enhance their competitiveness in the market.
Decision of the Czech Competition Authority
The Czech Competition Authority (the “Authority”) became aware of the behaviour in April 2002 and initiated a cartel investigation. In October 2002, it issued a decision by which it found that Billa and Julius Meinl had entered into a cartel agreement involving the demand side of the market. The Authority noted that an agreement whose purpose was to coordinate the prices and purchase terms was prohibited. In such a situation, cartel participants cease to compete with each other and restrict the contractual freedom of their suppliers to negotiate with them prices and other delivery conditions. As regards the unilateral right to terminate the agreement, the Authority found that this possibility was rather significant for the suppliers, taking into account the existing limited alternatives for the supplies of their goods in the market. Therefore, according to the Authority, the suppliers were de facto forced to accept the requirements of Billa and Julius Meinl.
Consequently, the parties to the cartel agreement were fined a total of CZK 51 million.1 Apart from this (and the prohibition of the agreement), the parties were also ordered to remedy the situation. Both Billa and Julius Meinl were obliged to inform all those of their suppliers who had been affected by the infringement within 30 days of the decision of the Authority and to submit to the Authority the copies of these communications, together with confirmation of their delivery.
The case was later appealed by Billa and Julius Meinl with the Chairman of the Authority, who confirmed the findings of the Authority.2
Court review
Both retail chains filed a petition for a judicial review of the decision of the Chairman with the Regional Court in Brno, which confirmed the findings as regards the existence of the cartel, but cancelled the decision with respect to the fines imposed.3 Eventually, the fines were decreased by the Chairman of the Authority, because the cartel actually lasted shorter than had been originally determined by the Authority.4 This decision of the Chairman of the Authority was also later subject to a judicial review. However, the Regional Court rejected the claims of the parties.5 The Regional Court’s judg ment was then challenged before the Supreme Administrative Court (the “SAC”).
In its judg ment of 29 March 2012,6 the SAC confirmed the findings of the Regional Court in Brno. The SAC noted, inter alia, that the agreement between Billa and Julius Meinl could not be classified as a joint purchasing alliance that was created in compliance with competition rules. The reason was that the parties did not conclude the agreement in order to obtain volume rebates or better purchase conditions. The purpose of the cooperation was to enforce uniform purchase prices and maximise profit. The parties exchanged sensitive information for that reason and requested from the suppliers the alliance bonus, for which there was no justification. In addition, should the suppliers have refused to accept the conditions, they would have risked Billa or Julius Meinl terminating their cooperation with them.
According to the SAC, it was not relevant whether the behaviour of the parties had an actual impact on end customers. This factor did not play any role in the assessment of whether the agreement was made in breach of competition law. However, when setting the level of the fine the Authority correctly considered, inter alia, whether the agreement had an impact on final customers.
As regards the amount of fine, which was challenged by the parties as inappropriate, the SAC confirmed the view of the Regional Court in Brno that the Authority enjoys wide discretion when setting the amount of such fines. In the present case, the amount of fine reflected the market position of the parties (a relatively low market share) and short duration of the infringement. In absolute terms, the fine imposed did not exceed one per cent of the annual turnover of the parties concerned. Therefore, the SAC concluded that the fine was appropriate and in no way excessive.
Conclusion
The case may be viewed as a reminder that undertakings that operate within a business relationship on the purchase side are not exempted from competition rules. It is fair to note, however, that cartels of this kind are rather exceptional.
Nevertheless, the behaviour of retail chains in the Czech Republic when purchasing goods is currently under close scrutiny by the Authority. Some parties, namely farmers and food producers, consider the situation in the retail sector as unsatisfactory and complain about the difficult current market conditions. They often cite large multinational retail chains as the main cause. In 2009, the Czech Republic adopted the Act on Significant Market Power and its Abuse (the “SMP Act”),7 which specifically targets the behaviour of retail chains (i.e. their abuse of purchasing power). The legislation has been largely criticized for being discriminatory and vague, which causes difficulties regarding compliance with the rules that it stipulates and their enforcement. It seems that the only effect of the SMP Act has been to increase tensions between the retail chains and their suppliers.
So far, there has been only one other case in which a fine has been imposed.8 In one further case, commitments given by a retail chain were accepted by the Authority with respect to its market behaviour.9 Proposals have been made to amend or completely abolish the SMP Act. Any specific legislation in this area would be considered as highly controversial and its effects will be hard to predict.
For further information contact Tomáš Čihula, Counsel, at .
Source: Tomáš Čihula, The Czech Supreme court confirms the supermarket cartel decision (Billa, Creditex), 29 March 2012, e-Competitions, N°48222, www.concurrences.com
1 Decision of the Authority of 21 October 2002, S 94/02-2136/02-VOII.
2 Decision of the Chairman of the Authority of 13 October 2003, R 70,71/2002.
3 Judg ment of the Regional Court in Brno of 31 May 2006, 31 Ca 41/2003.
4 Decision of the Chairman of 21 March 2007, R 70,71/2002 – 02678/2007/300.
5 Judg ment of the Regional Court in Brno of 5 August 2010, 62 Ca 41/2009 – 542.
6 Judg ment of the SAC of 29 March 2012, 5 Afs 2/2011 - 701.
7 Act No. 395/2009 Coll., on significant market power in the sale of agricultural and food products and its abuse.
8 In July 2011, the Authority imposed a fine of almost CZK 14 million on Kaufland for agreeing payment terms longer than 30 days and special discounts if the payment was made before the agreed term; the decision has been appealed.
9 In August 2011, the Authority accepted commitments made by Ahold Czech Republic to adjust its business terms and conditions regarding discounts.