15 March 2018

Walking the tightrope between tough negotiations and unfair trading

Companies that drive a hard bargain may have to tone it down a little in light of upcoming stronger enforcement of unfair trading practices (UTPs). UTPs cannot usually be tackled under competition rules, and are dealt with through other means. In Germany, the prohibition on abuse of bargaining power prevents powerful buyers from demanding unjustified benefits from their suppliers. The Bundeskartellamt may be inclined to use this prohibition more frequently, given the Federal Court of Justice’s recent upholding of its decision against retailer EDEKA for “cherry-picking” between supplier conditions. At EU level, there is talk of a UTP minimum framework for the food-supply chain across member states. Additionally, the Dutch government coalition agreement mentions the setting up of a special task force at the Dutch ACM to deal with food supply chain UTPs. Large retailers and suppliers are therefore well-advised to keep tabs on these developments when entering into commercial negotiations.

German competition law includes, in addition to a similar prohibition of abuse of dominance under EU competition rules, a prohibition on companies abusing their relative market power by demanding unjustified benefits from their trading partners. This prohibition is rarely used, but that may soon change. In January 2018, the Bundeskartellamt applied this prohibition to prevent a furniture chain from asking its suppliers to retroactively adjust their purchase conditions after a cleared merger. Only weeks later, the German Federal Court of Justice confirmed the Bundeskartellamt’s decision regarding retailer EDEKA’s unfair trade practices. After having acquired a number of stores from its competitor Plus, EDEKA unilaterally demanded from its suppliers an “alignment with previous “Plus” prices”, an “adjustment of payment terms”, the payment of a permanent “synergy bonus” for potential cost savings on the part of the suppliers, a “partnership reimbursement” for the refurbishment of outlets, and the payment of a “bonus for product range enlargement” for possible additional listings in the new outlets. The Federal Court of Justice agreed with the Bundeskartellamt that the combination of demands made with retroactive effect, the “cherry picking” of individual preferential conditions granted to Plus, and the demands for substantial bonuses without substantiation constituted a benefit which was not objectively justified and therefore fell within the prohibition of abuse of bargaining power.

Since 2009, the European Commission has also looked into ways to encourage member states to introduce means to combat UTPs, particularly in the food supply chain. So far, the Commission has shied away from any regulatory action at EU level. However, this may change in the near future, as the cry for common rules becomes louder. The various regulatory frameworks and voluntary initiatives applicable across member states to promote best practices and reduce UTPs have led to dissimilar conditions for business, which makes the need for common rules more urgent. The outcome of responses to the recent public consultation (following the analysis in the inception impact assessment) is expected in the coming months, thus providing clarity on whether UTPs will be addressed in the form of an EU legislative or non-legislative proposal. Meanwhile, the Dutch government has announced that it intends to tackle UTPs in the food supply chain by setting up a special task force within the Dutch ACM.

Either way, both at EU and national levels, combatting UTPs seems to have become a top priority. Companies active in the food supply chain sector are therefore well-advised to take these developments to heart.