13 June 2018

No TLC for TSC: beware of cross-border sales restrictions

The gloves are off at various competition authorities when it comes to territorial supply constraints (TSCs). Retailers not only face territorial restrictions in online markets, but they are also confronted with sourcing limitations by suppliers in offline markets. These TSCs could lead to market partitioning and higher prices. The Belgian competition authority is currently investigating potentially higher supermarket prices for branded products. The European Commission’s investigation of AB InBev’s possible parallel trade restrictions on the Belgian beer market is also still going strong. The Commission has confirmed in a recent Communication on the retail sector that it is aware of TSCs, but that further fact-finding into their effects on the Single Market is needed. The Benelux Union’s survey on TSCs shows that they are widespread in the Benelux retail trade. Companies should thus take to heart that further investigations or measures to tackle TSCs may be imminent.

Cross-border sales restrictions can only be tackled by EU competition law if they either relate to a contractual restriction – and are thus linked to an agreement between a supplier and a distributor – or are based on a unilateral decision by a dominant company. Non-dominant companies with wholly-owned EU-wide distribution networks may therefore escape scot-free. Even with the Geo-Blocking Regulation entering into application by the end of this year, there still seem to be some loose ends when looking at TSCs.

Under the EU competition rules, the European Commission has launched several investigations into the potential geo-blocking practices of certain video games sold online, pay TV, clothing brands, licensed merchandise and hotel accommodation agreements allegedly discriminating between customers based on nationality or country of residence. The Commission is also investigating AB InBev’s conduct in the Belgian beer market; its preliminary view is that AB InBev abused its dominant position in the Belgian beer market by hindering cheaper imports of two of its most popular brands of Belgian beer, Jupiler and Leffe, from the Netherlands and France into Belgium. If AB InBev’s practices are found to be unlawful on the basis of the prohibition of an abuse of a dominant position, this would significantly limit the possibility for dominant manufacturers in Europe to control cross-border sales. Sourcing products from the cheapest EU member state, which is a tactic mostly large multinational retailers will be able to adopt, will become much easier as a result.

In its recent Communication titled ”A European retail sector fit for the 21st century”, the Commission notes that TSCs have a detrimental effect on the Single Market that cannot always be fixed solely through competition rules or the Geo-Blocking Regulation. According to the Commission, further action may need to be taken “if the situation does not evolve as a result of suppliers’ voluntary change in approach”. It appears from a survey carried out by the Benelux union that 89% of participating companies indicate that they have been affected by TSCs, while 77% of responding retailers viewed TSCs as responsible for raising consumer prices. The Belgian competition authority is already investigating the high consumer prices for branded products in Belgian supermarkets. It may therefore be only a matter of time before all loose ends are tied up when it comes to TSCs.