Pricey chocolate? High fines for competition law violations in distribution

published on 21 June 2024 | reading time approx. 3 minutes

The EU Commission has fined food group Mondelez (brands: Milka, Toblerone, Oreo and others) 337.5 million after dawn raids in several countries and several years of cartel proceedings. The allegation: Mondelez is said to have foreclosed national markets through sales practices that violated competition law. Retailers were thus restricted in their ability to purchase goods from suppliers in other Member States. This enabled Mondelez to sell its own products at a higher price. By imposing this fine, the European Commission has once again shown that it also pursues anti-competitive behaviour in the supply chain with the utmost vigour.

The free movement of goods and a single internal market are among the cornerstones of the European Union. European competition law therefore particularly protects cross-border sales between Member States. For example, it is a restriction of competition if manufacturers prohibit their dealers from selling to other European countries. Such and other anti-competitive behaviour has therefore been repeatedly punished by the EU Commission with high fines.

Background: Price differences are an incentive for market foreclosure

What led to Mondelez's behaviour? As in many industries, there are significant price differences in the food sector between EU Member States. Manufacturers may have an interest in maintaining these differences. They allow better margins in countries where prices are higher.

Over a period of more than ten years, Mondelez entered into various agreements with retailers to restrict the cross-border distribution of chocolate, biscuits and coffee products. The EU Commission found the following behaviour to be anticompetitive

Several wholesalers were only allowed to sell Mondelez products to certain customers or in certain territories.
In one agreement, the wholesaler was instructed to charge higher prices for international sales than for domestic sales.
In some cases, exclusive distributors were required to obtain prior export approval from Mondelez.

The Commission also found that Mondelez had a dominant position in the distribution of chocolate tablets in certain Member States. Mondelez abused this market power by refusing to supply a German wholesaler for four years. The aim was to prevent the wholesaler from selling Mondelez products to higher-priced foreign countries. Mondelez also stopped supplying certain products to the Netherlands to prevent them being sold from there to higher-priced Belgium. Because of the better margin in Belgium, this approach was profitable for Mondelez.

Parallel imports can only be prevented within the limits of competition law

Competition law also prohibits anti-competitive behaviour in the supply chain. Irrespective of market shares, a manufacturer is not allowed to completely prohibit its dealers from selling to customers in other Member States. Within the limits of competition law, a manufacturer may prohibit a dealer from promoting the products outside an allocated territory or to a specific customer group (so-called active sales). However, even in these cases, it is illegal to prohibit passive sales. The retailer must therefore still be allowed to supply customers from abroad upon request.

Purely unilateral conduct may also be prohibited for companies with a dominant position. This is the case, for example, for Mondelez's decision to stop offering certain products in the Netherlands so as not to jeopardise its higher margins in Belgium through (parallel) imports from the Netherlands. Competition law does not oblige even dominant companies to offer all products in all Member States. However, Mondelez was fined for the anti-competitive intent behind the behaviour described. The EU Commission may have been able to prove this through internal documents obtained, for example, during searches at Mondelez's premises.

Conclusion: More cases on the way – companies can protect themselves

The EU Commission sees this decision as a warning to all companies not to illegally restrict cross-border trade. Commissioner Margrethe Vestager announced that the Commission will continue to pursue such infringements vigorously.

What can companies do?

Measures taken by companies to prevent parallel imports carry a significant risk of fines and therefore need to be carefully assessed from an competition law perspective.
Companies can use the decision as an opportunity to critically review their distribution agreements and ensure that they do not contain clauses that violate competition law.
In addition to the restrictions on cross-border sales described above, particular attention should be paid to restrictions on online sales or on retailers' freedom to set prices.
It is not only direct agreements in the supply chain that may be illegal under competition law. Indirect measures (incentives, bonuses, rebates, disadvantages, threats, etc.) aimed at foreclosing markets, online sales and resale price restrictions also regularly violate competition law.
Such violations can also occur outside of contractual agreements in direct contact between sales staff and customers.
It is therefore essential that sales staff are made aware of competition law and receive training, which should be regularly refreshed.

Companies with high market shares and a possible dominant position also need to be particularly careful if they want to stop serving customers or markets. Dominant companies should regularly compare their sales policies and practices with the special antitrust requirements for companies with market power.