The Netherlands Authority for Consumer & Market (ACM) recently issued two important cartel fines. Tech giant Samsung and two collectors of used cooking oil were fined for making anti-competitive agreements. Samsung was more specifically fined for a practice that frequently occurs: influencing the retail price. The other fine relates to agreements on purchasing. The question is what both fines have in common. One could say that it is clear that the ACM wanted to send a signal to the market regarding what type of behaviour will be fined. This in itself is a good enough reason to take a deeper look at both cases.
Cartel prohibition in brief
The Dutch Competition Act prohibits agreements between companies that may restrict competition. Companies that make such inadmissible agreements form a cartel. There are two main types of cartels: horizontal and vertical cartels.
Horizontal cartels involve agreements between companies in the same production or distribution level; therefore concerning cooperation between competitors. Common examples of prohibited horizontal agreements are ones related to price or production agreements. Agreements regarding the division of the market (e.g. in het context of tenders) or customers also fall within this category.
A vertical cartel is formed between companies that operate at different levels of the supply chain (i.e. supply of goods between a manufacturer and retailer). Examples include the imposition of a fixed sales price by the supplier or restrictions on the area in which the retailer may sell.
Companies must be vigilant especially with agreements that at first sight seem to serve a good cause. This is particularly the case with agreements in the context of sustainability which may well have a negative impact on competition. These kinds of agreements with a negative impact on competition are also often prohibited and can be costly to parties.
In the event of a competition law infringement, fines may be imposed on the companies involved. The fines may be as high as up to 10% of the (group’s) annual turnover. In addition, ACM may impose fines of up to €900,000 on individuals within the company who are deemed to have been actively involved in the cartel. These are explicitly not only the directors of the companies, but any employee that has contributed to the cartel.
Influencing television prices by Samsung
According to the ACM, Samsung exerted undue influence over the online sales prices for televisions of seven retailers over a period of almost six years. Samsung gave ‘price recommendations’, but challenged retailers in the event that they used lower prices. This was actively monitored by Samsung through automatic online monitoring; if the sales price was too low, Samsung would contact the retailers and urge them to raise the price. Samsung also informed the retailers that it would contact other retailers who were similarly charging too low of a price.
Retailers thus knew that they would not be pricing themselves out of the market by following the recommended retail price. and therefore drew attention to Samsung’s underpricing. It therefore managed to unlawfully keep its prices high in order to protect its margins and those of its retailers.
All this was to the detriment of consumers. A supplier may give non-binding price recommendations, but further steering with regard to these recommended retail prices is not permitted. The fine imposed on Samsung amounts to over EUR 39 million. Samsung is currently appealing this fine.
Enforcement of the ban on vertical agreements
With this decision, the ACM has embarked on a new path concerning vertical agreements. Until 2018, the ACM did not give priority to the enforcement of the ban on such agreements, as it was of the opinion that vertical agreements do not significantly restrict competition. The ACM – under its new chairman of the board and in line with the view of the European Commission – has abandoned this approach and has now confirmed the application of the enforcement of a ban against vertical agreements.
Buying a cartel of collectors of used deep-frying fat
Three companies – UCO Kampen, Nieuwcom and Rotie – have made (horizontal) agreements about the purchase prices of used cooking oil. The used cooking oil was in this case bought by the aforementioned collectors from catering establishments, in order to sell it on as a raw material for biodiesel. By agreeing on purchasing arrangements between them, the collectors could keep the purchase price as low as possible. In addition, the three collectors also made arrangements about who was allowed to visit which supplier. If the purchase price was too high, the collectors would call each other out on it. For this reason, the ACM concluded that such purchasing cartels are harmful to competition and also disadvantage suppliers.
Due to the bankruptcy of UCO Kampen, it was not included in the investigation of the ACM. The highest fine was imposed on Rotie, which made cartel agreements with both other collectors. However, due to the cooperation of the companies in the investigation, the fines were reduced. In the end, Rotie and Nieuwcom have to pay a total of more than 3.5 million euros. On top of that, the ACM decided to fine three employees involved for a total of almost 190,000 euros.
Cartels on the purchasing side are also tackled
Cartels between competitors usually concern the sales side of the market. As a result, these are also usually the cartels for which the ACM imposes fines. With this fine, the ACM emphasises that cartels that distort the purchasing side of the market will also be tackled. An important nuance here is that in the used cooking oil case it concerned secret agreements. The suppliers of the used cooking oil are hotel and catering businesses that have been disadvantaged for years. However, legitimate purchasing cooperations between competitors can be permitted if they actually enhance competition and if the suppliers are aware of this cooperation.
Conclusion: a change of course to be reckoned with
The Samsung case shows that the ACM no longer shies away from tackling anti-competitive agreements between suppliers and distributors. It is therefore as important as ever that distribution agreements are in line with the cartel prohibition. It is important to note that there is a (group) exemption from the cartel ban that provides a clear framework for what may and may not be agreed in vertical (distribution) agreements.
Purchasing collaborations between competitors should always be critically examined. The used cooking oil case shows how not to collaborate, but in many cases purchasing organisations can actually have a competition-enhancing effect. In short, it is important that the cooperation is transparent to the suppliers, does not go beyond what is necessary and that there is sufficient competition on the sales side of the market. It is required to perform this analysis objectively and thoroughly in advance in order to avoid future problems under the cartel prohibition
In addition, it is essential to have clear rules within a purchasing organisation about what can and cannot be agreed and exchanged with each other. As soon as the cooperation goes further than necessary and also relates to sales, then there may quickly be a breach of competition law.