The European Commission sends a strong signal against restrictions on parallel imports

On 23 May 2024, the European Commission (Commission) imposed a fine of EUR 337.5 million on one of the world’s leading producers of chocolate, biscuits and coffee products for restricting cross-border trade on the markets for these products in the EU internal market.

The Commission found that the manufacturer of fast-moving consumer goods (FMCG) had breached EU competition rules both under Art. 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits anti-competitive agreements and concerted practices, as well as Art. 102 TFEU, which prohibits the abuse of a dominant position.

In particular, the Commission found that the FMCG manufacturer:

implemented at least 22 anti-competitive agreements or concerted practices in violation of Art. 101 TFEU by: (i) limiting the territories or customers to which seven wholesale customers could resell their chocolate, biscuits and coffee between 2012 and 2019; and (iii) preventing ten exclusive distributors in certain EU Member States (MS) from responding to unsolicited sales requests from customers (also known as “passive sales”) from other Member States without the prior consent of the FMCG manufacturer in the period 2006–2006 2020.

also abused its dominant position under Art. 102 TFEU by: (i) refusing to supply its chocolate tablets to end customers and to the intermediary in order to prevent their sale to certain territories, i.e. Austria, Belgium, Bulgaria and Romania, where these chocolate tablets were sold at a higher price between 2015 and 2019 .

The Commission found that the cumulative effect of these infringements was a fragmentation of the internal market, which enabled the FMCG manufacturer to maintain higher prices and profits in some Member States at the expense of consumers who ended up paying higher prices in the affected EU countries.

The FMCG manufacturer reportedly relied on the cooperation procedure, which involved acknowledging its responsibility for the infringement and actively cooperating with the Commission during the investigation, which led to a 15% reduction in the original fine, which would otherwise have been even higher than €337.5 million.

The case was an ex officio investigation launched on the Commission’s own initiative in 2019 through unannounced dawn inspections/raids.

Comment

The most important conclusions from this case are summarized below:

Firstly, protecting the EU’s single market is and remains one of the Commission’s top law enforcement priorities. The Commission aggressively enforced unjustified restrictions on parallel trade, both under Art. 101 and 102 TFEU. This is not the first enforcement action of this type in the FMCG industry. In May 2019, the Commission imposed a fine of EUR 200 million on a global beer producer for restricting parallel imports of its beer from the Netherlands to Belgium, which the Commission considered to be an abuse of a dominant position. The beer producer in question implemented measures to prevent supermarkets and beverage wholesalers from importing beer into Belgium through labeling, reducing the quantities sold to Dutch wholesalers and even refusing to cooperate with Dutch retailers who did not agree to refrain from selling to Belgium.

The Commission has also taken initiatives at regulatory level to preserve the EU single market. In 2018, the Commission adopted the Geo-blocking Regulation (Regulation (EU) 2018/302), which aims to prohibit online sellers from imposing restrictions to restrict cross-border sales online. Moreover, on 24 May 2024, just one day after adopting a decision against the FMCG manufacturer, the Commission launched a consultation to develop new policy instruments to address the issue of territorial supply constraints (TSCs).

Secondly, the fact that this is an ex officio case shows that, despite the decline in leniency applications, the Commission has developed strong investigative capabilities to enhance enforcement of EU competition rules through other intelligence resources. The 2019 beer case was triggered by the beer merger, during which the EC reviewed hundreds of thousands of internal documents. This particular case is reportedly being investigated ex officio, but it cannot be ruled out that the European Commission relied on intelligence gathered in previous merger cases or on public resources to conduct its investigation.

Third, the significant amount of fines imposed by the Commission over the last few years shows that multi-million-dollar fines will not be uncommon for large global companies. The Commission is sending a clear signal that it will not hesitate to increase the amount of the fine exponentially in order to provide a deterrent effect not only to the FMCG company concerned, but also to other entities that might attempt to restrict parallel imports.

Fourth, the use of the cooperation procedure raises interesting strategic questions about whether and when the defendant company should use the cooperation procedure. The Commission found that the FMCG manufacturer benefited from a 15% reduction in its fine, but that the fine, even after the reduction, was still EUR 337.5 million, one of the highest ever imposed for restrictions on cross-border sales. The reduction of the fine of only 15% contrasts with the level of reductions granted by the Commission in other cases where the defendant companies, in cases also involving restrictions on cross-border sales in the EU, relied on the cooperation procedure and benefited from much more significant reductions of fines between 40-50% (two fashion cases and cases for consumer electronics). The Commission will decide on a reduction of the fine on a case-by-case basis, but a key factor influencing the amount of the reduction is the stage at which the defendant undertakings decide to cooperate, as this has a direct impact on the value of the information provided to the Commission. The head of the Commission’s department responsible for the investigation into the FMCG manufacturer indicated that the defendants’ cooperation with the Commission took place at a late stage of the investigation. This is the most likely reason for the relatively limited reduction in fines of only 15%. This raises strategic considerations for companies when deciding to engage with the Commission under the cooperation procedure, as this would require carefully balancing the advantages of the cooperation procedure, i.e. a reduction in the fine, with the increased risk of exposure to private damages claims, which would be increased as a result of a clear the defendant company admitting to committing the infringement.

Companies looking to optimize their prices in the EU should take particular care when designing and implementing their sales strategy across the EU in line with EU competition rules. Our antitrust, competition and trade team has extensive expertise in designing and implementing EU-compliant distribution systems and sales strategies for global companies.