EU Commission Starts Competition Investigation Against Leading Chocolate Producer, Mondelēz, For Restricting Parallel Trade In The EU

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[co-author:  James Woodcock]
 
Introduction
 

The European Commission has announced that it has opened a formal antitrust investigation to assess whether Mondelēz, one of the largest producers of chocolate, biscuits, and coffee in the EU, has restricted competition by hindering the cross-border trade between EU Member States of those products in breach of Articles 101 and/or 102 of the Treaty of the Functioning of European Union (“TFEU”). The disparity of the prices of goods in the retail sector has long been a concern within the EU and this case is another example of a number of cases in recent years which have and continue to grapple with this problem.

EU Single Market

The EU has created a Single European Market where goods, services and capital can flow freely within the EU without any trade barriers or other artificial restrictions imposed by companies in their agreements or business policies.

The EU competition rules in Articles 101 and 102 TFEU help police that policy. Any agreement between undertakings or unilateral anti-competitive policy by a company in a dominant position which partitions or compartmentalises the Single Market through artificial restrictions such as export bans is a serious infringement of EU competition law.

The presence of a Single Market encourages parallel trading practices by allowing traders and retailers to procure products in those areas of the Single Market where prices are lower and sell them in markets where prices are higher. This generally leads to price decreases in countries where prices are higher to the general benefit of consumers. Restrictions to such parallel trade can lead to the isolation of a national market whereby the manufacturer or supplier can charge higher prices to the detriment of consumers and can also lead to less product choice.

The European Parliament has raised concerns about the obstacles to trade between Member States which result in a divergence of prices between different areas within the Single Market.

The EU Commission also published in November 2020, a study on territorial supply constraints in the EU retail sector, which suggested that certain suppliers implement a number of practices that restrict the parallel trade of groceries, to the disadvantage of European consumers.

Formal Investigation

As part of its own-initiative investigation of suspected anti-competitive practices covering the EU, the Commission carried out an unannounced inspection of Mondelēz in November 2019.

The timing of the investigation is no surprise as it responds to both the type of practices highlighted by the European Parliament and those confirmed in the Commission’s November 2020 report. However, the scope of the investigation is interesting as it is a very wide-ranging inquiry into a whole range of possible parallel trading restrictions.

The investigation will consider the following alleged conduct:

  • limitations of the sales territories within the EU through agreements that determine in which Member State a trader can or cannot sell the products, or that restrict passive sales;
  • curtailing of parallel trade through agreements that raise prices or limit volumes specifically for customers that trade the products across Member States;
  • agreements with customers not to engage in parallel trade or not to procure products from parallel trade, inter alia, in exchange for payments or other forms of compensation;
  • restrictions on the languages used on packaging either unilaterally or through agreements with traders, thereby creating friction on sales to certain other EU Member States; and
  • refusing to supply certain traders with a view to restricting imports into certain markets.

Conclusion

The Commission‘s investigation is at an early stage. However, if ultimately Mondelēz is found in breach of either Article 101 and/or Article 102 TFEU the company could face substantial fines of up to 10% of its worldwide turnover and the possibility of private actions in damages by aggrieved parties which have suffered loss and damage as a result of their anti-competitive conduct.

Although the agreements and practices under investigation are likely to all pre-date Brexit it will be interesting to see how both the EU and the UK competition authorities respond to restrictions on the free movement of goods between the UK and the EU in light of the fact that the UK is no longer part of the Single Market.

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