Belgian Competition Authority joins battle against anti-competitive vertical restraints
Contrary to the European Commission and other national competition authorities, who opened numerous cases in this field, the Belgian Competition Authority (BCA) has up to now been low key in the battle against anti-competitive vertical agreements.
In a decision of 22 March 2017, the BCA fined yeast supplier Algist Bruggeman and its parent companies €5.489m in the framework of a settlement procedure. The BCA established infringements of Article 101 TFEU/Article IV.1 of the Belgian Code of Economic Law and Article 102 TFEU/Article IV.2 of the Belgian Code of Economic Law. The scrutinized practices relate to the market for compressed fresh yeast and stabilized liquid fresh yeast for artisan and semi-artisan bakers.
Article 101 TFEU: vertical restraints
The BCA found Algist Bruggeman guilty of having engaged in resale price maintenance, exclusive customer allocation and long-term non-compete obligations.
Resale price maintenance
Algist Bruggeman provided its distributors with recommended prices for the resale of fresh yeast to (semi-)artisan bakers. However, it used several different ways to discourage its distributors from deviating from the recommended resale prices. Such measures included the requirement of Algist Bruggeman’s prior approval for granting discounts - which was only granted when individual customers considered switching to an another yeast supplier- as well as for the level of the discount. Only pre-approved discounts were reimbursed. Via monthly sales overviews, Algist Bruggeman was informed of the volumes sold and discounts granted. It was found to have repeatedly contacted distributors who did not respect the recommended resale prices and granted discounts without its prior approval. The BCA found that this system amounted to resale price maintenance as it did not only allow Algist Bruggeman to control the circumstances in which a discount was granted, but also to control the level of the discount.
Exclusive customer allocation
Algist Bruggeman pursued absolute exclusivity for its distributors by discouraging them from supplying customers which had been allocated to other distributors. If a distributor supplied another distributor’s customers, it would either grant additional discounts to the original distributor, or lower, or refuse discounts to the breaching distributor. Further, if a distributor included other low price yeast brands in its portfolio, it would relocate that distributor’s customers to another distributor. The BCA considered that Algist Bruggeman’s system of customer allocation infringed Article 101 TFEU.
Long-term non-compete obligations
Algist Bruggeman linked the supply of stabilized liquid fresh yeast to the acquisition of a dosing installation. The value of this installation was unilaterally determined by Algist Bruggeman. The depreciation of the installation was factored into the purchase price of the yeast in a way that resulted in an artificially long depreciation period. Further, Algist Bruggeman required bakers to purchase all needed yeast from it (not just stabilized liquid yeast). This non-compete obligation was automatically renewed when the minimum purchase requirement was not reached. In case of early termination bakers owed removal costs as well as damages.
The BCA concluded that the non-compete obligation could result in anti-competitive foreclosure of (potential) competitors in violation of Article 101 TFEU. This conclusion was based on Algist Bruggeman’s high market share, the duration of the non-compete obligation and the high costs in case of early termination. In addition, the long-term non-compete obligations were found to amount to an abuse of Algist Bruggeman’s dominant position in violation of Article 102 TFEU.
Article 102 TFEU: Abusive exclusionary practices
Algist Bruggeman was found to have abused its dominant position by having engaged in exclusionary practices directed against low price competitors, including loyalty-enhancing rebates, long term non-compete obligations (see above) and denigrating practices.
Loyalty-enhancing rebates
In exchange for excluding low price competitors from their product portfolio, Algist Bruggeman granted its distributors rebates or other indirect forms of compensation, such as free yeast supplies. Further, certain of its large distributors received year-end rebates if they purchased (nearly) 100% of their volumes of fresh yeast from Algist Bruggeman. The rebates applied retroactively to all purchases of the past year. Given the reference period of one year and the volume requirements, the BCA concluded that the rebates increased distributor’s costs for switching supplier, enhancing the distributors’ loyalty. Moreover, Algist Bruggeman granted individual selective rebates or free yeast supplies to bakers in exchange for their loyalty. The rebates only targeted bakers who were considering switching or had already switched to low price brands. As these rebates were aimed at enhancing the loyalty of distributors and bakers to Algist Bruggeman with the view of excluding low price competitors from the market, the BCA found them to infringe Article 102 TFEU.
Denigrating practices
Algist Bruggeman engaged in denigrating practices to the detriment of Enzym yeast, the type of yeast distributed by the new entrant Basic Bakery. These practices included the distribution of internal reports which were incomplete and not supported by findings of official institutions. According to the BCA, the purpose of these reports was to create uncertainty among distributors and bakers regarding the quality of Enzym yeast.
This is the first time the BCA considers denigrating practices by a dominant company to be an abuse under Article 102 TFEU. Earlier, the French Competition Authority found denigrating practices by telecom and pharmaceutical companies to constitute an abuse of dominance if they were capable of negatively affecting the structure of the market.
