Important competition law guidance for food and drink companies

In October of 2004, the European Commission published draft commitments to be finalised with The Coca-Cola Company concerning a number of its commercial practices in relation to the sale of carbonated soft drinks.

The draft commitments would apply to sales of specified products in any European territory where The Coca-Cola Company was found to have a market share in excess of 40% and more than twice the share of the nearest competitor.

The commitments are wide-ranging and apply to the take-home (supermarkets and other retail outlets) and on-premise (catering) sales channels for carbonated soft drinks. In particular, the ruling gives guidance on the European Commission’s likely approach to suppliers who hold a dominant position in their relevant market and who engage in the following practices:

• exclusivity arrangements with customers including any obligations which require customers to discontinue or reduce commercial relationships with other suppliers;
• customer minimum percentage requirements;
• target or growth rebates;
• tying arrangements making the supply of one product conditional on the purchase of another;
• combined payments or percentage-based payments when a customer commits to an assortment or range of products and to stocking commitments for those products;
• requirements which control space in free-of-charge coolers where the customer has no other cooler capacity.

The European Commission also clarifies its approach to a range of other issues as further commitments concern shelf space arrangements, financing agreements, sponsorship and public and private tender agreements and technical equipment placement.

This case is only the second time that the European Commission has used its new commitments procedure. The commitments, which will become binding on The Coca-Cola Company, prevent the European Commission from undertaking any further proceedings against the company on these issues.

Formal consultation on the commitments took place in December 2004. The final version of the commitments should therefore be published and become legally binding very shortly.

The case provides useful guidance for all food and drink manufacturers holding a dominant position on the application to their distribution practices of Article 82 of the EC Treaty. Article 82 prohibits the abuse of a dominant position. Further and more detailed guidance should become available during 2006 as the European Commission is currently preparing detailed guidelines on the scope and application of Article 82 EC. These guidelines will cover dominance and some of the major abuses such as predation, bundling, refusals to deal and loyalty rebates. Draft guidelines for public consultation are due to be published by the end of 2005.

This article first appeared in our Food industry law bulletin May 2005. To view this publication, please click here to open a new window.