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28 January 2021
Earlier fines for similar abuse of Trade Act
Outcome of proceeding: how could Spar avoid fine despite establishment of infringement?
Benefits and further details of future programme
In recent years, the Hungarian Competition Authority (HCA) has been less active in abuse of significant market power cases. However, the HCA's decision in the competition supervision proceedings recently conducted against Spar Magyarország Kereskedelmi kft creates a forward-looking solution which is unprecedented in such cases. As a proactive reparation for the competition infringement and in order to avoid a fine from the HCA, the supermarket chain will develop a new regional supply system. The programme will have a budget of HUF1.7 billion and will not only improve small producers' sales opportunities, but also create new jobs.
The Trade Act prohibits parties from abusing their significant market power by imposing unfair conditions on suppliers. This prohibition concerns only non-food products; similar (albeit even stricter) provisions concerning food products are included in the Food Supply Act.
In this case, the HCA concluded that Spar had abused its significant market power between 2014 and 2015 by introducing and applying a prohibited fee for suppliers of non-food products – namely, the progressive bonus system implemented by the supermarket chain unilaterally required suppliers to pay fees in order to have their products stocked on Spar's shelves, without any incentive effect or any service rendered by Spar for the suppliers.
This is not the first case that the supplier fee of the supermarket chain was found to infringe the Trade Act, but case law has been scarce so far. In 2012 the HCA imposed a HUF50 million fine on Spar for an ex post supplier fee which it had applied between 2009 and 2011. Although Spar modified its bonus system after 2012, the newly introduced supplier fee investigated in the current proceeding involved similar infringing effects in the HCA's view. In 2016, after the commencement of the proceeding, Spar amended its fee structure, and this was considered to comply more closely with the Trade Act than the one applied in previous years.
The record fine of HUF1.06 billion for a similar infringement of applying unallowed fees on suppliers was imposed on Auchan in 2015, which was finally upheld by the Supreme Court in November 2020 (ie, towards the end of the current proceeding against Spar).
In its 2015 decision against Auchan, the HCA rejected commitments offered by Auchan because they entailed only the termination of the application of the infringing supplier fee and would not have contributed to public welfare.
In the current decision against Spar, the HCA also rejected accepting commitments as an alternative to establishing the infringement in light of the circumstances of the case, particularly since Spar had committed a similar infringement in the past (ie, the one established in 2012). However, as opposed to with Auchan, the HCA accepted Spar's offered compensation programme as a fine-reducing factor because it serves public welfare. The HCA considered that the social benefits of this measure outweigh those of the fine as the compensation programme will serve the public interest not only in general but also directly and effectively, which is evidenced, for instance, by the fact that the programme will have a budget of HUF1.7 billion and will create 23 jobs. In particular, the HCA appreciated the creation of employment considering the economic downturn caused by the COVID-19 pandemic. The HCA labelled the programme a forward-looking solution because it should avoid further disputes (ie, Spar will not go to court). Therefore, since the programme's proposed budget is more than the calculated amount of the fine (which was calculated at HUF1.575 billion), the HCA ordered Spar to fulfil the commitments instead of imposing a fine.
Spar's commitments consist of the establishment of six regional supplier centres (in Győr, Hódmezővásárhely, Nyíregyháza, Pécs, Székesfehérvár and Zalaegerszeg) instead of its existing centre-based supply system to improve local small producers' sales opportunities. This regional system will offer opportunities to a large extent (90%) to micro, small and medium-sized suppliers and will also favour Spar's existing small producer partners – as an increased number of their goods will be placed on Spar's shelves. In addition, Spar committed to offer training opportunities on several topics (eg, quality assurance and marketing) to support suppliers' activities. Therefore, the programme will improve the situation of local small domestic producers and contribute to the development of the local economy by effectively improving the market access of Hungarian products, which is especially important because it is more difficult to sell Hungarian goods abroad during the global COVID-19 pandemic. At the same time, the programme will serve as guidance for other multinational retail chains on how to increase the percentage of Hungarian products on their shelves instead of imports, as explained by the HCA.
Although the established infringement related only to non-food products, the imposed commitments are not limited to non-food products, but also apply to suppliers of food products.
The commitments also include a method allowing the HCA to verify compliance – namely, Spar has committed to authentically evidence its expenses by annually submitting reposts audited by an independent auditor. Moreover, if its expenses will be below the estimated HUF1.7 billion, Spar will split and transfer the excess amount to various charities.
This case clearly shows the HCA's willingness to waive fines if the public interest can be effectively benefited thereby. However, this comes at a significant cost for Spar: the programme will cost Spar more than the fine which the HCA would have imposed. However, this solution will have a fruitful effect on the local economy and the demand for local goods, from which Spar can also benefit indirectly, and several local producers will benefit directly. Further, by cooperating with the HCA, Spar can also avoid lengthy future legal disputes (as opposed to Auchan, which underwent five years of litigation following the decision). This is not the first time that the HCA has established an infringement without imposing a fine: the HCA has reached a similar solution in several consumer protection cases, but this case demonstrates that the HCA's new trend is spilling into unfair trading practice cases. However, this decision, as well as the Supreme Court's final decision in Auchan, may mark a new era for the retail sector, in which large retail chains are likely to face stricter enforcement practices, including possible new proceedings from the HCA.
For further information on this topic please contact Anna Turi or Dóra Balogh at Schoenherr Attorneys at Law by telephone (+36 1 8700 700) or email (firstname.lastname@example.org or email@example.com). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.
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