European Union: Ice Cream Judgment - CFI Upholds Commission Decision

Last Updated: 1 September 2004
Article by Emily Gibson

Originally published June 2004

On 23 October 2003, the European Court of First Instance (the "CFI") held that an exclusivity clause restricting ice-cream retailers' use of freezers supplied by Van den Bergh Foods in Ireland infringed EC competition law.

FACTS

Van Den Bergh Foods, formerly HB Ice Cream Ltd ("HB") is a wholly owned subsidiary of Unilever plc. It is the main manufacturer of impulse ice-cream products (single-wrapped ice-creams for immediate consumption) in Ireland. For a number of years it has supplied retailers with freezer cabinets, in which it retains ownership, for no direct charge on the condition that the cabinets are used exclusively for the sale of HB products.

In 1989, Masterfoods Ltd (a subsidiary of Mars Inc) entered the Irish ice-cream market and persuaded some retailers to include its products in HB freezers. HB responded by enforcing the exclusivity clause in its distribution agreements. The distribution share of Masterfoods' ice-creams subsequently fell from 42% to 20%.

Masterfoods brought an action in the Irish High Court claiming that HB's exclusivity clause infringed domestic competition law and Articles 81 (prohibition on anti-competitive agreements) and 82 (prohibition on the abuse of a dominant position) of the EC Treaty. It also lodged a complaint with the European Commission. The Commission adopted a decision in March 1998 finding that the exclusivity provision in HB's distribution agreements relating to the use of its freezers infringed both Article 81 and Article 82. The Commission also refused to grant the distribution agreements an exemption under Article 81(3). The Commission decision required HB to release the retailers from the exclusivity provision.

The Irish High Court rejected Masterfoods' action and, on appeal, the Irish Supreme Court referred certain questions to the European Court of Justice (the "ECJ"). The ECJ found that, where a national court is considering issues that are already subject to a Commission decision, the court must not reach a judgment which conflicts with that decision.

HB applied to the CFI for an annulment of the Commission decision claiming that the Commission had overestimated the existence and extent of foreclosure, had erred in its application of Articles 81 and 82, had failed to respect HB's property rights as required by the general principles of EC law and had failed to give sufficient reasons for its decision.

CFI JUDGMENT

The CFI dismissed HB's action and upheld the Commission's decision on the following grounds:

Article 81

The CFI considered the following elements in reaching its conclusion that the agreements as a whole restricted competition on the market, and so infringed Article 81:

  • The provision of a freezer without charge, the evident popularity of HB's ice cream, the breadth of its range of products and the benefits associated with the sale of them are all very important considerations in the eyes of retailers when they consider their strategy for selling impulse icecreams (that is whether to replace the HB freezer or to acquire an additional freezer).
  • HB had an undisputed dominant position on the market and the CFI found that the Commission was right to take this into account in its assessment. It was relevant to the economic market conditions and the way in which retailers assess the risks and disadvantages of stocking another make of ice-cream. In reality, retailers have only very rarely opted to replace freezer cabinets supplied by HB.
  • The measures taken by HB in order to ensure compliance with the exclusivity clause had the effect of causing retailers to act differently in regard to HB's products than they do in regard to the ice creams of other brands. This acted in a way which was liable to distort competition in the relevant market. Despite the popularity of HB's products, retailers would wish to stock ice creams of other brands alongside those of HB, provided that they could do so in the same freezer. The effect of the enforcement of the exclusivity provision was demonstrated by the fact that the distribution share of Masterfoods' products fell from 42% to less than 20% after HB started actively enforcing the provision.
  • An exclusivity provision such as HB's has a considerable dissuasive effect on retailers with regard to the installation of their own cabinet or that of another manufacturer and has the effect of a tie on sales outlets that have only HB freezer cabinets. Although it is theoretically possible for retailers who have only an HB freezer cabinet to sell the ice creams of other manufacturers, the effect of the exclusivity clause in practice is to restrict the commercial freedom of retailers to choose the products that they wish to sell in their sales outlets.
  • Competing suppliers are in effect prevented from gaining access to the relevant market and from expanding by a series of factors including the burden which the purchase and maintenance of a freezer cabinet represents for retailers, the retailers' aversion to risk and their reluctance to sever established relations with their suppliers. The ability to supply retailers with freezer cabinets and the running maintenance costs of those freezers represents a financial barrier to the entry of new suppliers and to the expansion of existing suppliers.

Article 81(3)

As regards the possibility of the grant of an individual exemption by the Commission, the CFI found that the Commission had correctly concluded that the first of the conditions for exemption in Article 81(3) (that the agreement contributes to the production or distribution of goods or to promoting technical or economic progress) did not apply. According to established case law this condition will only be satisfied where the improvement resulting from the agreement displays appreciable objective advantages for consumers of such a character as to compensate for the disadvantages which they cause to competition1. The Commission found that due to the barriers to entry presented by HB's network of agreements and the consequent weakening of competition, this condition was not satisfied. The CFI agreed with this approach.

As the conditions for exemption apply cumulatively, the CFI did not consider it necessary to review the possible application of other conditions in Article 81(3).

Article 82

Although the CFI accepted HB's argument that the provision of freezer cabinets on a condition of exclusivity constitutes a standard practice on the relevant market, this did not mean that it amounted to the conduct of normal competition by a dominant undertaking. The existence of a dominant player means that competition in the market is already restricted.

The CFI found that the Commission correctly held that HB is an "unavoidable partner" for many icecream retailers in Ireland and that it has a dominant position on that market. HB had a share of 89% of the relevant market at the time of the Commission's decision and it has the most extensive and most popular range of products on the relevant market. The CFI found that HB was the sole supplier of impulse ice-creams in approximately 40% of outlets in Ireland, and was part of the multinational Unilever group which has been producing and marketing ice creams for many years in all the Member States and many other countries (where it is often the leading supplier) and that the HB brand is very well-known.

HB had effectively tied 40% of the outlets in the relevant market by an exclusivity clause, which in reality created outlet exclusivity. This amounts to an abuse of a dominant position within the meaning of Article 82. The exclusivity clause has the effect of preventing (or restricting the ability of) the retailers concerned from selling other brands of ice cream. This is despite the fact that there is a demand for such brands. This therefore prevents competing manufacturers from gaining access to the relevant market. The CFI found that the Commission rightly held that HB was abusing its dominant position by inducing retailers who did not have any other ice cream freezer cabinet to accept agreements for the provision of cabinets subject to a condition of exclusivity and maintaining these cabinets free of any direct charge to the retailers.

The CFI also rejected HB's claims that the Commission's decision unlawfully infringed its right to property and that it failed to give adequate reasons for its decision.

CONCLUSION

The CFI judgment fully supports the Commission's application of law and fact. Following on from the earlier German ice-cream cases (Langnese-Iglo and Schöller) it confirms that, in the context of the market for impulse ice-creams, a network of agreements, which foreclose competition by virtue of requiring exclusive use of supplied freezer cabinets, infringes Article 81. This is the case even where, as in this case, the retailers are contractually free to sell the products of other manufacturers. Further, where the supplier is in a position of dominance the provision and maintenance of such cabinets, without extra charge, infringes Article 82.

The CFI specifically referred to the "wider Community importance" of the issues raised by the Commission decision, in particular in light of the fact that various national courts and competition authorities are dealing with parallel cases raising similar issues. It considered that the Commission decision was appropriate to ensure that the Community competition rules were applied coherently to the various forms of exclusivity practised by ice-cream manufacturers throughout the Community.

This case is currently under appeal to the ECJ.

Footnote

1. Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 299

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
 
In association with
Related Video
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.