Super Bock ruling provides additional clarity on the object test as the appropriate factual assessment and may have potential implications to ACM’s decisions in relation to resale price maintenance .
On 29 June 2023, the Court of Justice of the European Union ("CJEU") ruled on a number of preliminary questions submitted by the Tribunal da Relação de Lisboa. The CJEU ruled that it can only be determined whether the imposition of a minimum resale price constitutes a 'restriction by object' once it has been established whether the agreement, having regard to its provisions and objectives, as well as to all the elements playing a role in the relevant economic and legal context, is actually sufficiently harmful to competition. In doing so, the CJEU seems to favour a different approach to vertical price fixing, which may have implications for two recent decisions on resale price maintenance of the Dutch competition authority, the Authority for Consumers and Markets ("ACM").
Background
Super Bock is a company established in Portugal and engaged, among other things, in the production and marketing of various types of drinks, such as beer, water, sangria, wine, cider and soft drinks. Other parties involved are: AN who is a member of Super Bock’s board of directors and BQ who is head of Super Bock’s commercial department with responsibility for sales in the ‘HoReCa’ sector, also called the on-trade sector. For example, BQ is responsible for the sale of Super Bock products to restaurants and pubs.
On 25 July 2019, the Portuguese competition authority fined Super Bock, AN and BQ for an infringement of competition law. The Portuguese competition authority considers that Super Bock regularly fixed and imposed, universally and without change, on all distributors, the terms of business which they were required to comply with when reselling products that it had sold to them. In particular, Super Bock fixed the minimum resale prices with the aim of ensuring a stable and consistent minimum price level throughout the national market. Specifically, every month (as a rules) the sales department of Super Bock circulated a list of minimum resale prices among its distributors. These lists contained minimum resale prices at which the drinks "could" be sold. Nonetheless, Super Bock’s terms of business provided for retaliatory measures. Super Bock implemented specific strategies to enforce compliance with these minimum resale prices.
Furthermore, it was determined that:
- The conduct of Super Bock took place from 15 May 2006 until 23 January 2017;
- Super Bock's distributors supplied almost the entire Portuguese territory, apart from places where Super Bock itself supplied directly;
Minimum resale prices where shared via e-mail;
- There was a requirement for distributors to disclose to Super Bock the selling price used to hospitality outlets, such as bars and restaurants;
- Super Bock had a monitoring and tracking system in place, within which distributors were required to report relevant resale data to Super Bock;
- If a distributor did not comply with the minimum resale price, Super Bock reserved the right to invoke “retaliatory measures”, such as the removal of financial incentives (discounts and the refusal to supply and replenish stocks.
The Portuguese competition authority considered that the practice of fixing, by direct and indirect means, prices and other terms applicable to the resale of products by a network of independent distributors in the HoReCa distribution sector for almost the entire Portugese territory constituted an infringement of the competition rules. It therefore imposed fines on Super Bock, AN and BQ. The Portugese competition authority has imposed a fine of 24 million euros on Super Bock. AN and BQ were fined 12,000 and 8,000 euros respectively. Super Bock, AN and BQ appealed the Portuguese competition authority's decision to the Competition, Regulation and Supervision Court in Portugal, the Tribunal da Concorrência, Regulação e Supervisão. After the court upheld the decision of the Portuguese competition authority, the parties appealed to the Tribunal da Relação de Lisboa. This court referred preliminary questions to the CJEU.
Preliminary questions
The referring Portuguese court referred six preliminary questions to the CJEU, of which the first and fourth preliminary questions are answered jointly by the CJEU. Those questions read, respectively, as follows:
"Does the vertical fixing of minimum prices constitute in and of itself an infringement by object which does not require a prior analysis of whether that agreement is sufficiently harmful?" and "In the light of Article 101(1)(a) TFEU, Article 4(a) of Regulation No 330/2010 (“VBER”), the European Commission’s Guidelines on Vertical Restraints and the case-law of the European Union, can an agreement between a supplier and its distributors which (vertically) fixes minimum prices and other terms of business applicable to resale be presumed to be sufficiently harmful to competition, without prejudice to an analysis of any positive economic effects arising from such a practice, within the meaning of Article 101(3) TFEU?"
To make sense of the first and fourth preliminary questions, it is important to clarify the difference between a ‘by object’ and a ‘by effect’ restriction and what constitutes a hardcore restriction within the meaning of the VBER.
A restriction by object is an agreement or practice that is considered by its nature to be harmful to competition. This may include price fixing, market and customer sharing and production restrictions which, on the basis of experience, may be considered to appreciably restrict and harm competition. In determining whether there is an effect restriction, a more substantive test is applied. Depending on the circumstances of the case, it may then still be concluded that the agreement harms competition.
Vertical agreements are contracts between producers situated at different levels of the production chain. It is generally believed that these agreements are less detrimental to competition compared to horizontal agreements. When vertical agreements meet the criteria outlined in the VBER they are exempt from the cartel prohibition. Nevertheless, there are constraints specified in the VBER that do not qualify for the exemption, making them subject to the full force of the cartel prohibition. Agreements categorized as "hardcore restrictions" are among these and are considered severe infringements of competition laws.
The first preliminary question essentially deals with the question whether the establishment of minimum resale prices can be categorized as a restriction ‘by object’. The fourth preliminary question endeavors to address whether it can be presumed that a hardcore restriction as defined in the VBER automatically falls into the category of a restraint that intrinsically and inherently damages competition, rendering it unnecessary to conduct an effect-based evaluation.
CJEU
The CJEU emphasizes that the finding that a vertical agreement fixing minimum resale prices entails a ‘restriction of competition by object’ may only be made after having determined that that agreement presents a sufficient degree of harm to competition, taking into account the nature of its terms, the objectives that it seeks to attain and all of the factors that characterize the economic and legal context of which it forms part.
In addition, the CJEU explains that the agreement between Super Bock and its distributors, which, according to the Portuguese competition authority, was entered into under the responsibility of AN and BQ, qualifies as a vertical agreement. Moreover, the CJEU notes that the imposition of minimum resale prices constitutes a hardcore restriction within the meaning of the VBER. The VBER is therefore not applicable in relation to the agreement between Super Bock and its distributors. However, the CJEU emphasizes that the terms "restriction by object" and "hardcore restriction" are distinct and not interchangeable. Consequently, in the case of an agreement that is not exempted from the cartel prohibition under the VBER, it is essential to examine whether it represents an object or an effect restriction.
With the Super Bock judgment, the CJEU explicitly distances itself from its earlier, more formalistic approach. This formalistic approach has been referred to in the Binon judgment. The following has been stipulated about fixed resale prices:
"In the Commission's opinion any price-fixing agreement constitutes, of itself, a restriction on competition and is, as such, prohibited by Article 85 (1). The Commission does not deny that newspapers and periodicals and the way they are distributed have special characteristics but considers that these cannot lead to an exclusion of such products and their distribution from the scope of Article 85 (1). On the contrary, those characteristics should be put forward by the undertakings relying upon them in the context of an application for exemption under Article 85 (3)."
Previously, it was assumed that any clause imposing fixed prices qualified as a restriction by object. This has been already somewhat nuanced in the Visma judgment, in which it was stated that whether a vertical agreement restricts competition by object depends on the provisions and objectives, as well as the economic and legal context of the agreement.
The relationship with the Dutch Samsung and LG cases
In September 2021, the ACM imposed a fine of over 39 million euros on Samsung Electronics Benelux B.V. ("Samsung"). In July 2023, the ACM imposed a fine of almost 8 million euros on LH Electronics Benelux Sales (“LG”). Samsung and LG allegedly coordinated the retail prices of television sets together with various retailers. From January 2013 through December 2018, Samsung exercised undue influence on the online retail prices of television sets of seven retailers. From 2015 through 2018, LG concluded illegal price-fixing agreements with seven large retailers on the online retail prices of television sets.
The imposition of the fines might be relevant in the context of the Super Bock judgment because the fines are partly based on the ACM's assumption that a hardcore restriction within the meaning of the VBER constitutes an ’by object restriction’. This position is supported by ACM's reference to the Binon judgment :
"It is settled case-law that, in particular, agreements which have the direct or indirect object of restricting a buyer's ability to set its sale prices constitute a restriction of competition by object. This includes agreements that impose a minimum or fixed sales price on retailers and restrict the ability of retailers to set their sales prices independently."
Based on the Super Bock judgment, it is therefore questionable whether the ACM's substantiation in the LG decision and the Samsung decision on objection therefore withstands legal scrutiny. The ACM has assumed that the imposition of minimum resale prices is a hardcore restriction and therefore a restriction by object. However, on the basis of the Super Bock decision, it is required to take into account the nature of its terms, the objectives that it seeks to attain and all of the factors that characterize the economic and legal context of the agreement. However, we note that, in our view, the ACM does outline the legal and economic context in its decision and at least makes an attempt to apply the object test. Whether this will be sufficient will have to be seen from future case law (Samsung’s appeal and LG’s potential appeal).
Conclusion
The Super Bock judgment elaborates on the object test and reaffirms that the specific circumstances surrounding the formation of an agreement always remain relevant, even in situations where there is a presumption that the agreement inherently aims to restrict competition. The CJEU emphasizes this by stating in the Super Bock judgment that, even in the presence of a hardcore restriction, it is still necessary to assess whether the restriction genuinely restricts competition to the extent that it qualifies as a restriction by object.
