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Hotel Group Meliá Fined for Active and Passive Cross-Border Sales Restrictions in the EU
On 21 February 2020, the European Commission announced a fine of €6.7 million on hotel group Meliá for including restrictive clauses in its agreements with tour operators. The case shows once again that restrictions on cross-border sales in the EU/EEA are seen as serious infringements of competition law. This includes restrictions on active sales (although these can be used in certain limited circumstances). Similar principles would apply in the UK.
Meliá's standard terms and conditions for 2014 and 2015 contracts with tour operators contained a clause conveying that those contracts were valid only for reservations of consumers who were resident in specified countries. The agreements therefore partitioned the EU/EEA by restricting the tour operators’ ability to sell freely the hotel accommodation in all EU/EEA countries and to respond to direct requests from residents outside the defined countries. As a result, consumers were not able to see the full hotel availability or book hotel rooms at the best prices with tour operators in other member states.
The Commission expressly noted that the clauses restricted both active and passive sales of hotel accommodation. Passive sales bans are known to be usually problematic under EU competition law. Active sales bans, on the other hand, are often assumed benign and always permissible, but this is not in fact the case.
That type of ban — restricting a distributor from actively seeking to make cross-border sales — is also a serious infringement of EU/EEA competition law unless it can be justified. The principal situation in which that may be the case is where it is included in an exclusive distribution system and is designed to protect the exclusive distributor in one territory from the distributor in a neighbouring territory actively seeking to make sales in that first territory.
Adidas Amends Its Distribution Agreements in Spain to Avoid Competition Law Proceedings
Adidas Spain agreed on 18 February 2020 to amend its agreements with Spanish franchisees and other distributors in order to end a competition law investigation by the Spanish competition authority (National Commission on Markets and Competition or CNMC). Concerns similar to those identified by the CNMC would apply throughout the EU/EEA and in the UK.
Following a complaint, the CNMC identified in Adidas Spain’s agreements various anti-competitive provisions that restricted online sales and advertising as well as cross-selling between distributors. In addition, post-contractual non-compete obligations were imposed on some franchisees.
Adidas Spain agreed to establish and proactively to communicate to its franchisees a new contractual framework with the following changes:
- Deleting the post-contractual non-compete clause included in some franchise agreements (which stopped the franchisees from purchasing sportswear from the company’s rivals for one year after termination)
- Providing that distributors can provide notice of internet addresses (URL) using the Adidas name after they use it instead of before (so as to remove possible indirect restrictions on online sales and advertising)
- Eliminating the ban on cross-sales between distributors in general and between franchisees in particular
By agreeing to these changes, the company avoided a fine for its use of the anti-competitive provisions.
Haldex Makes EU Competition Law Complaint About Minority Shareholding by a Competitor
Swedish commercial vehicle components manufacturer Haldex has made a complaint to the European Commission and the Brazilian competition authority (Administrative Council for Economic Defense or CADE) concerning Knorr-Bremse’s position as the largest shareholder in the company. Haldex alleges that the shareholding has detrimental effects on competition in several concentrated brake systems markets where Knorr-Bremse is in a dominant position and is a direct competitor of Haldex.
Haldex claims that customers have expressed concerns about its ownership structure as this distorts market conditions, and that potential investors are sceptical about engaging with Haldex due to Knorr-Bremse’s shareholding. Haldex’s chairman commented:
“Haldex is frequently discussing … collaborations with other industrial players and customers but finds itself in a disadvantageous position having one of its competitors as its largest shareholder. Furthermore, the current situation also pushes our share price down, resulting in a lower valuation. Consequently, it makes it more expensive for Haldex to attract investments and launch new innovative products.”
Knorr-Bremse rejected the accusations and indicated that its investment in Haldex is purely financial, that it has not attended any Haldex general meetings since 2017 and that Haldex alone is responsible for the management of the company.
Knorr-Bremse also commented that Haldex did not discuss the issues with it before Haldex went public, but that may have been deliberate and intended to avoid contact and information exchange with a competitor, which can itself give rise to competition law concerns.
This is an unusual case but there have been previous EU competition law cases concerning shareholdings held by companies in competitors, and the boundary defining the types of behaviour that can be deemed an illegal abuse of a dominant position is not fixed. Similar principles would apply in the UK.
Brother Fined for Online Resale Price Maintenance in Poland
Following many similar cases at EU and national levels, on 11 February 2020, the Polish competition authority (Office of Competition and Consumer Protection or UOKiK) imposed a fine for fixing minimum online sales prices (resale price maintenance or RPM).
UOKiK found that, over the period 2010-2017, office equipment manufacturer Brother limited the freedom of retailers to set the online resale prices of printers, instead requiring that they not be lower than a set level. At the same time, Brother monitored prices and intervened if a seller offered printers at lower prices. Sellers were then threatened with sanctions — worse commercial terms and conditions or limited supplies. The shops themselves also carried out the monitoring — they tracked each other's prices and informed Brother if any of them did not comply with the arrangements.
These activities are all clearly illegal under competition law as amounting to RPM, and Brother accepted a fine of PLN 1.4 million (reduced to take into account its cooperation and agreement to the fine).
UOKiK commented that keeping retail prices at a fixed level was beneficial to Brother, because it allowed online shops to achieve higher margins, which made them more willing to offer the company's printers. The president of UOKiK also stated:
“Brother's actions limited the effectiveness of price competition between shops and caused printer prices to be at a very similar level at various sellers. In this way, consumers were deprived of choice and had to buy products at pre-set rates … I am going to actively counteract this type of practice, especially in the e-commerce sector.”
The European Commission and all countries in the EU/EEA and the UK share this same view.
Additional European competition law news coverage can be found in our news section.
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