German Federal Court of Justice: Some aspects of Edeka’s request for “wedding re-bates” were abusive

In a decision dated 23 January 2018 (Case no. KVR 3/17), the German Federal Court of Justice (FCJ) confirmed aspects of the restrictive approach taken by the German Federal Cartel Office (Bundeskartellamt) to “wedding rebates” in the food retail sector. The court reversed a 2015 decision by the Düsseldorf Higher Regional Court that had adjudicated the issue significantly more generously toward the food retailers. The specific consequences for everyday practice are not yet foreseeable because the grounds for the FCJ’s decision have not yet been released to the public. What is already known is that the decision will probably have consequences far beyond the food retail sector.

Background

It is prohibited under the German Act against Restraints of Competition (ARC) for buyers with superior market power to use this superiority in an abusive manner to require that suppliers give them advantages that are not objectively justified (abusive exploitation, in German Anzapfverbot). This prohibition applies not only to companies that dominate a market but even in cases in which a supplier is dependent on a buyer, giving the buyer superior market power (section 19 (1),(2) no. 5 in connection with section 20(2) ARC, previously section 20(3), 1st case of the old version of the ARC). Now the FCJ has addressed the issue of where the line should be drawn for buyers with market power between hard negotiations and illicit exploiting of suppliers with reference to the “wedding rebates” that Edeka demanded from its suppliers when it took over about 2,300 stores of the discounter “Plus” in 2008.

At the beginning of 2009, Edeka had conducted “special negotiations” with its more than 500 suppliers. Citing the synergy effects arising from the transaction, it made demands including that certain conditions and payment goals that had been agreed with “Plus” be (retroactively) applied to Edeka if they were more beneficial to Edeka than its own conditions (“best value comparison”) and that the suppliers share the costs of redecorating Edeka stores (“partnership remuneration”).

After investigating the example of four sparkling wine producers it considered dependent companies, the Bundeskartellamt had deemed Edeka’s course of action abusive (decision dated 3 July 2014, Case no. B 2-58/09). The Düsseldorf Higher Regional Court had completely reversed the Federal Cartel Office’s decision after Edeka’s appeal (decision dated 18 November 2015, Case no.: VI-Kart 6/12 (V), about which we reported in detail in our News dated 30 November 2015). In a decision dated 15 November 2016, the FCJ permitted the appeal against the decision by the Düsseldorf Higher Regional Court with regard to a few specific legal issues. These legal issues were related to not only the causal correlation between demanding advantages and superior market power but also especially to the criteria according to which demands by buyers for advantages would be objectively justified.

The FCJ’s decision

To the extent that it permitted the appeal, the FCJ reversed the Düsseldorf Higher Regional Court’s decision and confirmed the Bundeskartellamt in the end.

The information that is currently available to the public reveals that the FCJ saw the retroactive demand for more favourable price components of certain products without regard to the price structures otherwise in use (“cherry picking” in the context of the “best value comparison”) as abusive in any case. Thus, it seems that the FCJ has taken the position that the aspect being vetted for abuse (which begs questions such as whether an appropriate counter-performance was given) was not the buyer’s general demand for rebates but the specific individual conditions it demanded. One aspect that probably played a role in the FCJ’s classification of Edeka’s demands as abusive was that some of the conditions were retroactive special conditions that related to a time period long before the merger of Edeka and Plus. The Düsseldorf Higher Regional Court’s reasoning – that even retroactive “cherry picking” can be justified if the supplier has an equivalent countervailing bargaining power and the agreed conditions are the result of a commercial negotiation process – was apparently deemed by the FCJ, at least in this specific case, not to be convincing enough to rule out abusive market tactics on the whole.

Likewise, the FCJ was apparently of the opinion that the demand (as such) for “partnership remuneration”, i.e. that the suppliers make financial contributions to the modernisation of stores, was not objectively justified. The Düsseldorf Higher Regional Court had seen the redecorating and modernisation as adequate counter-performance by Edeka because it had increased the attractiveness and thus improved the product presentation of the stores which Edeka had acquired, which would also benefit the suppliers.

What other fundamental legal questions the FCJ also answered in its decision – perhaps the question of the necessity of strict causality between market position and demands – cannot be gleaned with certainty from the information currently available. Specifically, it is still not clear at present what specific demands the FCJ’s decision places on linking performance and counter-performance.

Conclusion and outlook

This latest decision by the FCJ will – at least as soon as the grounds for the decision are made public – further increase legal certainty regarding the line between hard negotiations and an abuse of market power. The principles that the FCJ establishes will probably be transferable to other sectors, at least after taking into consideration each sector’s market structures and each player’s position in the market.

However, even after the FCJ decision, many questions regarding details will remain unanswered. For example, it is not clear whether the other decision-making criteria developed by the Bundeskartellamt in this context (e.g. to determine whether a supplier is dependent on a particular buyer) will retain authority. The FCJ did not address this issue.

Initial reactions show that the Bundeskartellamt considers the FCJ’s most recent decision confirmation of its current decision-making policy. Just recently, the Bundeskartellamt was able to add a new and updated chapter to the book on “wedding rebates” in that it intervened against (retroactive) rebate requests on the part of the furniture manufacturer XXXLutz in the context of taking over another furniture retailer (for more information on this, see the Bundeskartellamt’s press release dated 11 January 2018).

This makes it very likely that, in light of this new knowledge, the Bundeskartellamt will in the future cast a critical eye on negotiations in the food retail sector but also in other sectors, and intervene where it deems appropriate as it has in the past.

It is highly advisable for companies with a strong market position – but also for dependent companies – to have close legal support in their negotiations. By the way, not only demanding favourable conditions from suppliers (as in the Edeka case) can be deemed abusive. Granting certain rebates to buyers that place competitors at a disadvantage can likewise lead to restraints on competition, as has been determined in legal practice by no less important a court than the European Court of Justice (see our news item on this dated 13 October 2015).

Against this background, there is every indication that special conditions will remain a particularly sensitive topic in the future.