European Competition Law Newsletter – September 2014

September 1, 2014

Compliance Warning; Classic Resale Price Maintenance Case in Germany

On 22 August 2014, the German competition authority, Bundeskartellamt (BKA), fined a mattress manufacturer €8.2 million for imposing resale price maintenance (RPM) on retailers selling its products. The case, which initiated from third-party complaints, is a classic example of “what not to do” in a company’s relationship with its independent distributors and would serve as an excellent example in an internal compliance programme.

According to the BKA, the manufacturer in question (Recticel) had engaged in various illegal activities designed to ensure that retailers would not offer certain strategic “Schlaraffia” products below the resale price set by Recticel. In particular, RPM was enforced in talks about compliance with the minimum sales prices, or in correspondence reminding the retailers of or requesting compliance with the minimum sales prices. Further, whenever a retailer failed to observe the price maintenance and other retailers complained about this, “renewed discussion” was held with the retailer to induce it to raise the price, which in most cases resulted in an agreement on the resale prices.

This applied to offline and online sales, but additional measures were taken concerning the latter. Recticel offered selected online dealers the opportunity to advertise themselves as "authorised Schlaraffia online dealers" using Recticel's logo and data, provided they offered prices which were not lower than the set minimum sales prices for the strategic product lines. Infringements of this condition were redressed by, for example, barring the dealer from Google-Adwords or from Ebay under Ebay's brand protection programme (for the unauthorised usage of manufacturers' data). Some retailers also were threatened with delays in supply or legal steps if they did not adjust the price of their offers to the minimum sales prices set by Recticel.

European Commission Proceeds against Territorial Restrictions on Resale

The European Commission (EC) is keen to stamp down any measures which raise barriers to trade within the single market of the EU. This includes territorial restrictions on resale.

One species of such restrictions includes those imposed by dominant suppliers on their customers, and in the past the EC has proceeded against a number of energy suppliers which have used such terms. The most recent example is its case against Bulgarian Energy Holding (BEH), the incumbent state-owned vertically-integrated energy company in Bulgaria.

The EC announced on 12 August 2015 that it has provisionally found that the majority of electricity supply contracts entered into between BEH and traders stipulate that electricity supplied by BEH may only be resold within Bulgaria or may only be exported. The contracts also contain control and sanctioning mechanisms which allow BEH to monitor and punish customers who fail to comply with these territorial restrictions. This could be an abuse of BEH’s dominant position.

This case is of importance to dominant companies and customers of such companies in the EU, whatever the sector. Customers can protect themselves against dominant companies using such a provision in a number of ways, including initiating court action and making a complaint to the EC or a national competition regulator.

How to Acquire Assets without Obtaining a State Aid Liability

A purchaser of assets from a company which has received illegal aid from an EU member state may be liable to repay that aid with interest. This could clearly be a significant issue for the purchaser due to the impact on the valuation of the assets.

A recent case decided by the EC provides an example of how properly to structure an acquisition of assets so as to avoid such a concern. On 31 July 2014, the EC decided that Belgian crystal manufacturer Val Saint-Lambert (VSL) had received aid from the Walloon Region (part of the Belgian state). This aid included a loan guarantee, the assignment and exclusive use of the VSL brand, a loan, an increase in capital and funding of works to clean up pollution. None of this aid could be exempted under EU competition law, and therefore it was declared illegal, with the result that VSL must repay it.

Some of VSL’s assets are, however, being sold and, in a separate decision of the same day, the EC concluded that the repayment obligation would not be transferred to the buyer of those assets owing to the absence of “economic continuity” with VSL. This issue was analysed using the standard indicators used by the EC in these cases: the extent of the assets sold, the sale price, the identity of the buyer, the timing of the sale and the economic logic of the transaction.

The buyer of the assets, having obtained this “no continuity” decision from the EC, is free of the risk of repayment. However, similar buyers have got this wrong, and it pays to be careful in these situations. This is particularly the case since aid can arise in any form, the basic test being whether an advantage has been obtained which would not have been obtained under normal market conditions.

Additional European competition law news coverage can be found in our news section.

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