AB InBev hit with a EUR 200 m fine for restricting cross-border sales

Europe

On 13 May 2019, the European Commission fined AB InBev EUR 200 million for abusing its dominant position on the beer market by restricting cross-border sales of its products. As an example of the Commission's new policy of leniency in vertical non-cartel cases, this fine included a 15% reduction for AB InBev's extensive cooperation during the investigation and for acknowledging its infringement of EU competition rules.

As a remedy, AB InBev offered to provide mandatory food information in both French and Dutch on the packaging of all existing and new products in Belgium, France and the Netherlands over the next five years.

Background

AB InBev is the world's biggest beer brewer. Its most popular beer brand in Belgium is Jupiler, which represents approximately 40% of the total Belgian beer market in sales volume. AB InBev also sells Jupiler beer in other EU markets such as the Netherlands and France. In the Netherlands, AB InBev sold Jupiler to retailers and wholesalers at lower prices than in Belgium due to increased competition.

The Commission's finding: abuse of dominance

In its final decision, the Commission came to the conclusion that AB InBev had abused its dominant position in Belgium by restricting cross-border sales of its beer to Belgium from France and the Netherlands in order to maintain a higher price level in the Belgian market.

The Commission's finding that AB InBev is dominant on the Belgian beer market was based on its high market share, its ability to increase prices independently vis-à-vis other beer manufacturers, the existence of significant barriers to market entry and expansion for competitors, and the limited countervailing buyer power of retailers.

Hence, the Commission appreciated the lack of countervailing buyer power as one of the key elements of determining a manufacturer's dominant position, echoing the Commission's 2009 Priority Paper, which stresses that "even an undertaking with a high market share may not be able to act to an appreciable extent independently of customers with sufficient bargaining strength".

AB InBev's strong bargaining position over clients was increased by one specific circumstance: the "must stock" nature of its Jupiler beer. (This "must stock" profile, making it almost impossible for retailers to go without, affects only a limited number of branded food products. According to the German Federal Cartel Office, only a low percentage of branded products sold in Germany are "must stock" items, and the same situation is believed to be true in other European countries.)

Moreover, the general market structure in Europe is changing with retailers now teaming up in national and international purchasing alliances, which significantly increases their bargaining power — even towards powerful suppliers.

Given these special factors in the AB InBev case, it remains to be seen to what extent the Commission would assume a supplier to be in a dominant position if it supplies products other than "must stock" items, and must negotiate with a network of retail alliances. After an investigation, the Commission ultimately ruled that AB InBev restricted cross-border sales in four different ways:

  • it removed the French version of mandatory information from the label of beer products sold in the Netherlands, and changed the design and size of beer cans;
  • it limited the volume of sales of Jupiler beer supplied to a wholesaler in the Netherlands;
  • it refused to sell a number of its "must stock" items to a retailer in Belgium unless this retailer limited its imports of Jupiler beer from the Netherlands; and
  • it made customer promotions offered to a retailer in the Netherlands conditional upon the retailer not offering the same promotions to its customers in Belgium.

Where the first two measures mentioned are unilateral, the two latter could qualify as bilateral agreements, leading to the Commission's finding that the four practices used by AB InBev were an infringement of Article 102 of the Treaty, which prohibits the abuse of a dominant market position. According to the Commission, the infringement lasted from 2009 until 2016. 

15% fine reduction: a reward for cooperation in a non-cartel case

The Commission's fine of EUR 200,409,000 included a 15% reduction, which was granted for AB InBev's extensive cooperation during the investigations and for acknowledging the facts of the case and its infringement of EU competition rules.

AB InBev's proposed remedy of providing mandatory food information in both French and Dutch on the packaging of all existing and new products in Belgium, France and the Netherlands for the next five years was declared legally binding in the Commission's decision.

The AB InBev case is an example of the Commission's relatively new approach in granting fine reductions in return for cooperation in vertical cases. Where application for leniency and fine reductions is an established practice in horizontal cases and laid down in the Commission's Leniency Notice, this has not been the case for non-cartel cases. On 19 March 2019, however, the Commission launched a new eLeniency tool on its website, which can also be used for cooperation in non-cartel cases.

Other non-cartel cases in which the Commission has already granted a reduction in fines include actions against the companies Philips, Pioneer, ASUS, and Denon & Marantz, which were fined EUR 111 million in total (a fine reduction of 40% to 50%) in 2018 for fixing the prices of their online retailers; Guess in 2018 (a EUR 40 million fine after a 50% reduction); and Nike in 2018 (a EUR 12.5 million fine after a 40% reduction) fined for cross-border sales restrictions. In all these cases, the companies cooperated, provided additional evidence and acknowledged the infringement. were related to infringements of Article 101 of the Treaty on the Functioning of the European Union (TFEU).

There has only been one other case relating to an Article 102 TFEU infringement in which the Commission rewarded a company's cooperation through a reduction in fines: a 2016 case concerning market foreclosure in Austria of by ARA, a dominant company in the management of household packaging waste. ARA foreclosed the Austrian market by refusing competitors access to its nationwide infrastructure network. Like AB InBev, however, ARA fully cooperated by not only acknowledging the infringement, but also by proposing a remedy: divesting a part of its household collection infrastructure in order to deprive itself of the ability of foreclosing the market in the future. The Commission rewarded this cooperation by imposing a EUR 6 million fine that included a 30% reduction. (Further case law will establish whether the Commission systematically rewards structural remedies over behavioural remedies with higher reductions in fines.)

Cross-border sales restrictions: a hot topic for compliance

It is common sense that agreements with resellers aimed at restricting imports within the Single Market could constitute an infringement of Article 101 of the Treaty. The Commission's recent decision, however, marks a new development in that companies holding a dominant market position may be held liable under the prohibition of abuse of dominance if they restrict cross-border sales even though unilateral measures such as the removal of certain language versions of mandatory food information or through the design and size of products.

Manufacturing companies (especially from the consumer products sector) are advised to double-check whether they are applying any unilateral measures that could hinder cross-border product sales, particularly if the company is likely to hold a dominant market position.

The full version of the Commission's decision should be published in the coming weeks. For more information on this decision and the contents of this eAlert, feel free to contact the following local CMS experts.