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27 December 2020
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hungary

Hungary: Spar Will Create Opportunities for Local Small Producers as a Redress for Abuse of Significant Market Power – a Unique Way to Avoid Fine

The Hungarian Competition Authority ('HCA') was less active in abuse of significant market power cases in the past years, but the outcome of the competition supervision proceedings recently conducted against Spar Magyarország Kereskedelmi kft. ("Spar") leads to a forward-looking solution unprecedented in such cases so far: the supermarket chain will develop a new regional supply system as a proactive reparation for the infringement. The programme with a budget of HUF 1,7 billion will not only improve small producers' sales opportunities but will also create new jobs.

Established infringement

The Hungarian Trade Act prohibits the abuse of significant market power by imposing unfair conditions upon suppliers. This prohibition concerns only non-food products, whereas similar but even stricter provisions are included in the Food Supply Act concerning food products.

In this case the HCA concluded that Spar abused its significant market power between 2014 and 2015 by introducing and applying a prohibited fee for suppliers of non-food products, namely the progressive bonus system implemented by the supermarket chain unilaterally required the payment of fees by suppliers in order to get their products stocked on the shelves of Spar, without any incentive effect or any service rendered by Spar for the suppliers.

Earlier fines for a similar abuse of the Trade Act

This is not the first case that the supplier fee of the supermarket chain was found to be infringing the Trade Act, but case law has been scarce so far: the HCA imposed a HUF 50 million fine on Spar in 2012 for an ex-post supplier fee applied by Spar between 2009 and 2011. Although Spar modified its bonus-system after 2012, the newly introduced supplier fee investigated in the current proceeding entailed similar infringing effects in the HCA's view. The supermarket chain has amended its fee structure in 2016 after the commencement of the proceeding which was considered to be more in compliance with the Trade Act than the one applied in the previous years.

The record fine of HUF 1,06 billion for a similar infringement of applying unallowed fees on suppliers was imposed on Auchan in 2015, which was finally upheld by the Curia, Hungary's highest court only a few weeks ago in November, i.e. towards the end of the current proceeding against Spar.

The outcome of the proceeding: how could Spar avoid the fine despite of the establishment of infringement?

In the HCA's previous decision of 2015 against Auchan the HCA has rejected commitments offered by Auchan for the reason that they only entailed the termination of the application of the infringing supplier fee but would not have contributed to public welfare.

In the current decision against Spar the HCA has also rejected accepting commitments as an alternative to establishing the infringement in light of the circumstances of the case, in particular since the supermarket chain has committed a similar infringement in the past (i.e. the one established in 2012). However, as opposed to the Auchan case, the HCA has now accepted the compensation programme offered by Spar as a fine reducing factor because it serves public welfare. The HCA considered that the social benefits of this measure outweigh those of the fine as the compensation programme will not only serve the public interest in general but will do so directly and effectively, which is evidenced for instance by the fact that the programme is going to have a budget of HUF 1,7 billion and will create 23 jobs. The HCA has also particularly appreciated the employment target pointing to the economic downturn due to the COVID-19 pandemic. The programme was labelled by the HCA as a forward-looking solution also because it allows to avoid further disputes (i.e. Spar will not go to court). Therefore, since the proposed budget of the programme is higher than the calculated amount of the fine (which was calculated at HUF 1,575 billion), the HCA ordered Spar to fulfil the commitments instead of imposing a fine.

The benefits and further details of the future programme

The commitments consist of the establishment of 6 regional supplier centres (Győr, Hódmezővásárhely, Nyíregyháza, Pécs, Székesfehérvár, Zalaegerszeg) instead of the existing centre-based supply system to improve the sales opportunities of small local producers. This regional system will offer opportunities to a large extent (90%) to micro, small and medium suppliers, while it will also favour Spar's existing small producer partners - an increased number of their goods will be placed on the shelves of the supermarket chain. In addition to the above, Spar committed to offer training opportunities on several topics - such as quality assurance and marketing - to support the activities of suppliers. The programme will therefore improve the situation of local small domestic producers, contribute to the development of the local economy by effectively improving the market access of Hungarian products, which is especially important because it is more difficult to sell Hungarian goods abroad during the global COVID-19 pandemic. At the same time the programme will also serve as guidance for other multinational retail chains on how to increase the percentage of Hungarian products on their shelves instead of imports, as explained by the HCA.

Interesting to note that although the established infringement only related to non-food products, the imposed commitments are not limited to non-food, but also apply to suppliers of food products.

The commitments also include a method allowing the HCA to verify compliance, namely Spar has committed to authentically evidence its expenses by annually submitting reposts audited by an independent auditor. Moreover, if its expenses will be below the estimated HUF 1.7 billion, Spar will split and transfer the excess amount to charity.

Takeaways

This case clearly shows the willingness of the HCA to waive fines if the public interest can be effectively benefited thereby. However, this comes at a significant cost for Spar: the cost of the programme will cost Spar more than the fine which the HCA would have imposed. However, this solution will have a fruitful effect on local economy and on the demand for local goods, from which Spar can also benefit indirectly, and several local producers directly. Furthermore, by cooperating with the HCA, Spar can also avoid lengthy future legal disputes (as opposed to the Auchan-case, where five years of litigation followed the aforementioned decision). It is not the first time the HCA established an infringement without imposing a fine, the HCA reached a similar solution in several consumer protection cases – the new trend in HCA's practice seen earlier in consumer protection cases now seems to be visible in unfair trading practices, as well. However, this decision, as well as the Curia's final decision in the Auchan case may also mark a new era for the sector, where large retail chains are likely to face stricter enforcement practices, including possible new proceedings from the HCA.

First published on CEE Legal Matters, 23.12.2020

authors: Anna Turi and Dora Balogh

co-authors