European Union: Chilling: ICA Fines Unilever/Algida €60 Million For Ice Cream Rebate Schemes

Last Updated: 22 February 2018
Article by Mario Todino

In Short

The Background: The Italian Competition Authority has imposed a €60 million fine on Unilever's Italian subsidiary Algida, which sells impulse ice creams, for having implemented a complex system of exclusivity clauses and rebate schemes aimed at excluding competitors from the market.

The Result: This is the first European Competition Authority decision dealing with exclusionary rebates that provides a possible interpretation of the European Court of Justice's recent Intel ruling.

Looking Ahead: The ICA's actions appear to indicate that there is no legal obligation to run a price test, or AEC test, to prove that a dominant firm's rebate scheme is abusive, when clear evidence illustrates that tangible foreclosure effects exist as a result of such rebate practices.


The Investigation

In 2015, the Italian Competition Authority ("ICA") launched an in-depth antitrust investigation into exclusivity agreements implemented by Unilever's Italian subsidiary Algida, which is in the market for single-wrapped impulse ice creams, following a complaint filed by a small Italian producer of ice lollies.

The ICA thoroughly assessed three main aspects of Algida's commercial practices, which the authority categorized as:

  • Commitment to provide retailers with freezer cabinets without any charge, on the condition that retailers would not stock competitors' products in the freezer (i.e., freezer exclusivity).
  • Concession to retailers of rebates that were retroactive, incremental, and conditional upon the retailers meeting some selling targets, with the aim of strengthening the loyalty-inducing effects of such schemes.
  • A strict monitoring policy by which Unilever penalized customers that breached exclusivity clauses, pressured retailers into buying its least successful products alongside its most successful ones, and paid trade associations to monitor their members' compliance with the company's overall loyalty-inducing strategy.

Following the Article 102 TFEU Guidance Paper (§ 36) of the Commission, the ICA argued that exclusive purchasing obligations, by nature, are capable of foreclosing rivals that are in a position to compete for the full supply of customers and, even more, less-efficient competitors with a limited range of products. Such foreclosure effects are exacerbated when associated with long-term contractual obligations and switching costs linked to specific rebate schemes.

Against this background, the ICA went on to reject Unilever's price test on the basis that, whenever tangible foreclosure effects by a dominant undertaking hit a substantial part of the market (30–50 percent in this case), such effects cannot be justified by showing that there would be a hypothetical contestable part of the market sufficient to accommodate a limited number of as-efficient competitors.

In drawing its conclusions, the ICA extensively referenced leading case law concerning rebates and also went through the recent Intel ruling, in order to establish whether the principles laid down by the ECJ could apply to the overall exclusionary behavior put into place by Unilever. As a reminder, in Intel (C-413/14 P), the European Court of Justice ("ECJ") annulled the General Court judgment by ruling that, even with respect to exclusivity-inducing rebates—which are presumptively unlawful—the Commission is nonetheless required to analyze the capacity of the rebate to foreclose where the undertaking provides supporting evidence to the contrary (§138). In particular, the Commission is required to assess all the relevant circumstances of the case necessary to establish foreclosure effects, such as: (i) the extent of the dominant position; (ii) the share of the market covered by the rebates; (iii) the conditions, duration, and amount of the rebates; and (iv) whether the company had a strategy aimed at excluding efficient operators (§139).

In the same vein, to properly weigh favorable and unfavorable effects of the practice on competition, the Commission is required to conduct an analysis of the intrinsic capacity of a rebate scheme to restrict competition by assessing whether as-efficient competitors may challenge the dominant firm's commercial practice. To this end, if a price test ("AEC test") had been conducted to assess Intel rebates' potential to foreclose, this test should not have been dismissed as an irrelevant piece of evidence for the purpose of proving the abusive nature of Intel rebate practices.

Main Significance of the Case in Light of the Intel Ruling

The Algida case represents the first decision of a national competition authority since the European Court of Justice's Intel ruling and following the United Kingdom's antitrust enforcer dropped an investigation against Unilever, after finding the ice cream supplier's promotional deals with retailers for single-wrapped impulse ice creams did not affect customer purchasing patterns.

The ICA drew analogies and differences with the Intel ruling, providing a possible interpretation on the scope of application of the ECJ case law. In particular, the ICA held that, unlike the fidelity rebates granted by Intel (potentially replicable by as-efficient competitors), Unilever imposed exclusivity obligations that, by definition, have exclusionary effects, especially when associated with long-term contractual obligations and switching costs linked to specific rebate schemes. In this respect, the ICA held that the discounts applied by Unilever were abusive, not because they forced as-efficient competitors to sell below cost, but because they were part of a complex exclusionary strategy that could not be assessed based on the AEC test. Therefore, the result of the AEC test as provided by Unilever was not deemed sufficient to rebut the presumption of unlawfulness of the exclusionary conduct put into place by Unilever.

Reading between the lines, the ICA seems to argue that there is no legal obligation to run the AEC test to prove that a rebate scheme by a dominant firm is abusive, to the extent that cogent evidence has been collected showing that tangible foreclosure effects exist as a result of such a practice. In any event, fulfilling the AEC test is not sufficient for a dominant firm to stand scrutiny.

In sum, the ICA provides a consistent interpretation of both Intel and the previous case law (i.e., presumption of unlawfulness of fidelity rebates) while allowing parties to rebut such presumption through an effects-based economic analysis. Furthermore, the ICA partially addressed the question left open by the ECJ's Intel ruling by establishing that the result of the AEC price-test is not a conclusive piece of evidence to rule out any type of exclusionary abuse.

The decision is available in Italian on the ICA's website.


Three Key Takeaways

  1. The ECJ's Intel ruling is starting to influence the enforcement practices of national competition agencies across the European Union with respect to abuse of dominance investigations involving fidelity rebates.
  2. The ICA is the first national competition authority in the European Union having to deal with, and trying to contain, the potentially far-reaching implications stemming from the Intel ruling, particularly in connection with the application of the AEC test.
  3. The ICA's decision might inspire the Commission to endorse a narrow reading of the Intel ruling, namely that while there should not be a per se approach to rebate schemes, neither should there be an obligation for a competition agency to run an AEC test in order to prove that a fidelity rebate scheme is abusive.

Niccolò Colombo of the Brussels Office assisted in the preparation of this Commentary.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions