Germany: German Federal Court Of Justice Rules That Edeka's Request For "Wedding Rebates" Was Abusive

On 23 January 2018, the German Federal Court of Justice ruled that there might be an abuse under competition law if a company asks a dependent company for wedding rebates that are not objectively justified.

The underlying facts of the case are as follows. After the acquisition of supermarket chain Plus by Edeka in 2008, Edeka prompted suppliers of sparkling wine to grant it the same preferential conditions and benefits that they had granted Plus prior to the merger, as well as other bonuses. In 2014, the Federal Cartel Office ("FCO") decided that demanding such "wedding rebates" without justification constituted an abuse of economic dependence (see VBB on Competition Law, Volume 2014, No. 7, available at www.vbb.com).

In this respect, it will be recalled that the German Act against Restraints of Competition prohibits not only the abuse of a dominant position but also the abuse of relative market power and economic dependence. It is abusive to invite or induce a dependent company to grant advantages without any objective justification.

In 2015, the Higher Regional Court of Düsseldorf annulled the FCO's decision (see VBB on Competition Law, Volume 2015, No. 11, available at www.vbb.com) because it saw no indication that Edeka's suppliers were economically dependent, stating that the suppliers had countervailing market power due to their size and the fact that they provided "must-stock" products. This judgment was then appealed by the FCO to the German Federal Court of Justice.

In its judgment dated 23 January 2018, the German Federal Court of Justice set aside the judgment of the Higher Regional Court of Düsseldorf, and thereby upheld the FCO's assessment. Unlike the Higher Regional Court of Düsseldorf, the Federal Court of Justice held that a countervailing market power could not be inferred from the fact that the suppliers were big companies. Reviewing the factual situation, the German Federal Court of Justice found instead that these suppliers were dependent on Edeka. In this regard, it noted that the suppliers of sparkling wine generate between 10% and 40% of their total turnover with Edeka, and were unlikely to be able to redirect such sales to other supermarkets at short notice. In contrast, the turnover share of sales of sparkling wine of each individual producer for Edeka was negligible and brand loyalty of customers in relation to sparkling wine was low (with customers more likely to buy a different product than go to a different supermarket). The Federal Court of Justice further held that successful contract negotiations by the suppliers of sparkling wine did not indicate that they had countervailing market power and were not dependent on Edeka.

The Federal Court of Justice also found that Edeka had demanded advantages without objective justification. Edeka requested more favourable contract and payment terms based on a comparison of its own purchase conditions with those of Plus. According to the Federal Court of Justice, there is no objective justification for requiring the selective transfer of past individual conditions to a current contract without taking into account the other conditions that had previously been agreed upon in this context.

Moreover, the Federal Court of Justice found that Edeka's request for a "partnership compensation" (by which the suppliers were to share part of the costs for the refurbishment of stores) amounting to 4% of the suppliers' turnover with Plus was unjustified. In this context it was noted that Edeka had neither offered to earmark the partnership compensation for investments in relation to the supplier or its goods nor had it offered a guarantee to list or purchase their products for a certain duration.

The present ruling was handed down very shortly after the FCO's intervention in a similar case of "wedding rebates". Following the merger clearance between furniture chain XXXLutz and Möbel Buhl in November 2017, XXXLutz had asked its suppliers to retroactively apply contract conditions agreed between them also to purchases made by Möbel Buhl since 1 January 2017. According to a press release of 11 January 2018, XXXLutz did not further pursue its claims after the FCO informed the furniture chain of its assessment that there was no objective justification for such demands.

Both decisions show that the FCO and German courts do not shy away from a case-by-case assessment of contract conditions in order to assess whether there is an abuse of economic dependence. When driving hard negotiations, special care has to be taken with respect to the reasons for the demands and the consideration offered. Furthermore, the stronger the market power, the higher the risk that such demands will be considered an abuse.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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