The Luxembourg Competition Authority dismisses an RPM allegation against a dairy products manufacturer due to the lack of evidence that a vertical agreement exists

The Luxembourg Competition Authority dismisses an RPM allegation against a dairy products manufacturer due to the lack of evidence that a vertical agreement exists

In the Luxlait case (decision of 26 June 2018 no. 2018-FO-03, Luxlait Association Agricole, Luxlait-Expansion S.A., Nouvelle Luxlait Produits Sarl, Luxlait Distribution SA (Luxlait), www.concurrence.lu) the Luxembourg Competition Authority (LCA) opened an antitrust investigation against a manufacturer of a dairy products that was alleged to have determined the minimum prices for retailers to apply to its dairy products. Eventually, the LCA closed the investigation with a non-infringement decision because no vertical restraint could be found to the requisite evidentiary standard.

The facts of the caase

Luxlait Association Agricole together with its subsidiaries (hereinafter referred as Luxlait) were active in the production and distribution of milk and dairy products. In 2010 an undisclosed hard-discount retailer (the complainant) lodged a report with the LCA alleging that Luxlait put in place anti-competitive pricing vertical restraints. The complaining hard-discount retailer reported that Luxlait refused to deal with it because of its denial to adhere to the minimum resale prices recommended by Luxlait to its distributors and retailers. While the complainant pursued an aggressive pricing policy being committed to apply to customers the lowest prices on the market, the intent of Luxlait was to strictly control the resale prices and rebates applied by its distributors. To deal with the Luxlait refusal, in April 2009 the complainant concluded a contract with a distributor, Cogel SA (Cogel), for the supply of a number of Luxlait products. But some months later Cogel terminated the supply contract because, in the view of the complainant, it yielded to pressure from Luxlait.

The decision of the LCA

Following the receipt of the complainant’s report, the LCA decided to open an antitrust investigation against Luxlait on the ground of Article 3 of the Law of 23 October 2011 (Luxembourg Competition Law or LCL), corresponding to Article 101 TFEU, and of Article 101 TFEU itself. The relevant market affected by the practices under scrutiny was determined by the LCA as the retail market for four categories of dairy products marketed by Luxlait in Luxembourg.

The theory of competition harm taken by the LCA was that Luxlait adopted a resale price maintenance practice (RPM). If an agreement between a manufacturer and dealers is established, the contractual provisions fixing RPM constitute a competition restraint by object. For an agreement between manufacturers and suppliers to be inferred, a concurrence of wills between the parties must be found, which it may be difficult where there is no direct documentary evidence of the agreement.

To establish a RPM the LCA applied the methodology followed by the French Competition Authority and French judges, which have crafted a three-limb test (Court of Appeal of Paris, judgment of 28 January 2009, Epsé Joué Club; Court of Appeal of Paris, judgment of 26 January 2012, Beauté Prestige International).  Under this test, where it is not possible to reach a direct proof of the vertical agreement, RPM can be established on the basis of precise, serious and concurring indicia on the following elements:

1)Resale prices have been discussed by suppliers and distributors;

2)A pricing policy or, alternatively, price monitoring mechanisms have been put in place;

3)Distributors have effectively applied the recommended resale prices.

To sum it up, for a restrictive vertical price-fixing agreement to be found, all the above indicated conditions have to be cumulatively fulfilled. That said, the LCA went on apply the test.

First condition – consideration of resale prices

This condition is generally met when the recommended resale prices are communicated by manufacturers to distributors. The evidentiary documents considered collected by the LCA clearly showed that Luxlait communicated to its dealers and retailers the minimum resale prices. This circumstance was confirmed by the statements made by Luxlait and several retailers.

Third condition- effective application of recommended resale prices

The LCA took the position that this condition was met as shown by survey conducted by Nielsen, documents collected at the premises of Luxlait and the responses made by retailers to the LCA information requests. These elements indicated that retailers have effectively applied the prices recommended by Luxlait.

Second condition- existence of pricing policy/price monitoring

Regular pricing monitoring may not suffice to meet this condition which is instead satisfied where manufacturers threaten to retaliate against distributors who failed to adhere to the recommended prices. Several circumstances have been submitted by the complainant in that regard but none of them could be taken as satisfactory evidence of the existence of the Luxlait pricing policy.

First, in July 2008, a distributor, la Provençale, terminated a supply contract it had entered with the complainant in December 2007 for the supply of Eskimo trademarked ice-creams produced by Luxlait. Being uncertain whether the termination contract was an autonomous decision of la Provençale or provoked by the interference of Luxlait, the LCA stated that there was no causality link between the refusal of supply of la Provençale and the Luxlait pricing policy. Therefore, the conduct of with la Provençale could not be attributed to Luxlait.

Second, the fact that Luxlait had repetitively refused to deal with the complainants was not a valid evidence of the manufacturer’s pricing policy. On the contrary, other facts in the file of the case suggested that the refusal of deal could be explained by reasons other than the complainant refusal to apply the recommended prices.

Third, on 15 May 2009, a representative from Luxlait turned up at the premises of the complainant to buy all the Luxlait products furnished by third parties. Though Luxlait did not explain this act, the LCA believed that, in light of the tense relationship between Luxlait and the complainant, there could a plausible explanation for this event other than the pricing policy of the manufacturer.

Fourth, another hard-discount retailer based in Luxembourg, Lidl, experienced difficulties in dealing with Luxlait. Evidence did not indicate that the reasons why Lidl and Luxlait failed to enter into a supply contract was because they disagreed on resale prices. It should be also stressed that, later, in February 2018, Lidl eventually signed a supply contract with Luxlait.

Fifth, the LCA believed that the several documents collected at the Luxlait premises (internal mails and mails sent to its distributors) concerning the relations between the manufacturer and dealers cast doubts on whether the Luxlait pricing policy complied with competition. Notwithstanding its competition concerns, the available pieces of evidence did not allow to establish to the requisite standard the existence of the Luxlait pricing policy.

Sixth, the LCA looked at the pricing monitoring put in place by Luxlait. In that regard, it considered the charts drafted by Luxlait and several internal mails concerning resale prices. Again, these documents did not prove the existence of Luxlait pricing monitoring. Whether a manufacturer shows interest in the resale prices applied by retailers does not necessary mean that it breaches competition. Furthermore, even if Luxlait was observing the retail prices nothing in the case indicated that it retaliated against the retailers that did not adhere to the recommended prices.

In conclusion, the conducts of Luxlait did not satisfy the second condition of the test and, accordingly no vertical restraint in the shape of RPM could be established. The LCA stressed that Luxlait was merely monitoring the retail prices and it was not possible to infer that its conducts went beyond it. Moreover, the elements adduced by Luxlait suggested a plausible alternative explanation other than the existence of a pricing policy. Finally, the indicia that supported the existence of a pricing policy were neutralized by other facts. On balance, there was no clear proof that the market conduct of Luxlait unequivocally amounted to a restrictive vertical restraint in the shape of RPM. As a consequence, the LCA closed the proceedings with a no-infringement decision, acquitting Luxlait of any allegations of breaching competition.

Conclusion

In Luxlait a hard-discount retailer, disgruntled by the refusal of a supplier to deal with, counterattacked using competition law as a sword to claim that such refusal to deal was part of a wider anticompetitive RPM practice pursued by the supplier. For suppliers giving dealers and retailers price guidelines can be a key aspect of their marketing strategy. It is then important to clearly determine when such practice is a unilateral conduct, which does not attract the attention of competition authorities unless it constitutes an abuse of dominant position, or it is an unlawful vertical restraint.

Consistently with its past decisional practice (Case no. 2016-AS-05, SCAB), the LCA determined this case by applying the three-limb crafted by French authorities. In this way, the LCA confirmed the standard of proof required for the purpose of establishing RPM and also gave guidance on the relevant facts and circumstances to meet the second condition of the test, the existence of a pricing policy. In essence, simply observing the resale prices charged by retailers did not suffice, further factors being required to find a pricing policy. Because the further factors considered in Luxlait could be interpreted in different ways, they were too equivocal to infer that the supplier had effectively put in place a pricing policy.