Violation of EU competition law: Commission fines Mondelez EUR 337.5m for cross-border trade restrictions
On 23 May 2024, the European Commission imposed an alarmingly high fine of EUR 337.5 million on the US company Mondelez, one of the world's largest producers of chocolate and biscuit products. The accusations: cross-border trade restrictions between member states of the EU by engaging in anticompetitive agreements or concerted practices and by abusing its dominant position regarding chocolate biscuit products.
The European Commission issued a statement with this decision that it will protect the free movement of goods in the EU single market. With this decision, the Commission sent a clear signal to multinational brands not to threaten this EU core principle. According to the Commission, the single market allows traders to buy products in member states where prices are lower and sell them in member states where prices are higher, thereby creating pressure for reducing prices. According to the Commission, this system of "parallel trade" increases competition, lowers prices and increases consumer choice, and hence a company can only refuse to supply a wholesaler selling products in certain EU member states if it is against the company’s legitimate commercial interests.
Background to the case
In November 2019, the Commission initiated an investigation of suspected anticompetitive practices covering the EU, which led it to carry out unannounced inspections at the premises of Mondelez in Austria, Belgium and Germany. Only two months later, in January 2021, the European Commission opened a formal antitrust investigation due to the competition concerns discovered in its inspections. The European Commission aimed to assess whether Mondelez restricted competition in a range of national markets for chocolate, biscuits and coffee by hindering the cross-border trade of these products between EU member states.
The Commission concluded its formal proceedings by finding that Mondelez violated EU competition law on two grounds:
- Between 2006 and 2020, Mondelez allegedly engaged in 22 anticompetitive agreements or concerted practices covering all EU markets in breach of Article 101 of the Treaty on the Functioning of the European Union (TFU), aiming to restrict cross-border trade of various chocolate, biscuit and coffee products:
Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements and concerted practices between undertakings that affect trade between EU member states and that have as their object or effect the prevention, restriction or distortion of competition within the internal market.
The European Commission accused the biscuit-maker of breaching this rule by limiting the territories or customers to which seven wholesale customers (i.e. traders or "brokers") could resell Mondelez' products. According to the Commission's decision, one agreement also included a provision instructing Mondelez's customers to apply higher prices for exports compared to domestic sales.
Furthermore, Mondelez allegedly hindered ten exclusive distributors, which are active in certain member states, from replying to sale requests from customers located in other member states without prior permission from Mondelez.
- Between 2015 and 2019, the European Commission accuses Mondelez of having abused its dominant position in certain national markets in breach of Article 102 TFEU for the sale of chocolate products:
Article 102 of the TFEU prohibits the abuse of a dominant position that may affect trade within the EU and prevent or restrict competition.
Mondelez allegedly breached this rule by refusing to supply a broker in Germany to prevent the resale of products in the territories of Austria, Belgium, Bulgaria and Romania where prices were higher.
In addition, the European Commission found that the company ceased the supply of products in the Netherlands to prevent them from being imported into Belgium, where Mondelez was selling these products at higher prices. In general, decisions of the European Commission based on the abuse of a dominant position are rare because providing evidence for the dominant position of a company on a specific market may be difficult. Moreover, in the recent past, breaches of this competition law prohibition occurred primarily in the world of digital markets.
The European Commission stated that these supposed violations of EU competition law prevented retailers from being able to freely source products in EU member states with lower prices. Therefore, Mondelez artificially partitioned the internal market. Hence, the Commission accuses Mondelez of trying to prevent cross-border trade from resulting in price decreases in countries with higher prices by continuing to charge more for its own products to the ultimate detriment of EU consumers.
Taking this into account, the European Commission fined the company EUR 337.5 million. In setting the fine, the European Commission recognised that the company cooperated with the European Commission under the cooperation procedure and expressly acknowledged its liability for the infringement of EU competition rules. Therefore, the European Commission granted the company a 15% fine reduction.
As is usually the case, the European Commission explained how persons or companies affected by anticompetitive behaviour can obtain damages. In addition, it pointed out its whistleblower tool, which enables victims of anticompetitive practices to alert the European Commission about anticompetitive behaviour while maintaining their anonymity.
More information on the decision will be published on the European Commission's competition website in the public-case register under case number AT.40632 as soon as confidentiality issues have been resolved.
European Commission's prosecution practice
Although it might seem that "hardcore restrictions" such as price fixing, restrictions on production and sales, customer restrictions and territorial agreements are more frequently subject to the imposition of heavy fines, the following review of the European Commission's prosecution practice demonstrates that cross-border restrictions are being consistently monitored and sanctioned:
- In March 2019, the Commission fined a designer and seller of athletic footwear and apparel, including for football clubs and federations, EUR 12.5 million for banning traders from selling licensed merchandise to other countries within the EEA.
- In May 2019, the Commission imposed a fine of EUR 200 million on a large beer company for abusing its dominant position on the Belgian beer market by hindering cheaper imports of its beer from the Netherlands into Belgium.
- In July 2019, the Commission sanctioned a Japanese company that designs, licenses, produces and sells licensed merchandise products for restricting cross-border sales by banning traders from selling licensed merchandise cross-border within the EU Single Market by imposing a fine of EUR 6.2 million.
- In January 2020, the Commission fined a US company that operates cable and broadcast networks, as well as film and television production companies worldwide, EUR 14.3 million for restricting traders from selling licensed film merchandise freely within the EU Single Market.
Concluding remarks
The following conclusions can be drawn from this decision:
- Not only the "hardcore restrictions" such as price fixing, restrictions on production and sales, customer restrictions and territorial agreements are prohibited under EU competition law and subject to fines by the European Commission. EU competition law also prohibits cross-border trade restrictions, and breaches can be fined heavily.
- Decisions of the Commission based on the abuse of a dominant position are rare because providing the evidence for a dominant position of a company on a specific market may be difficult. In the recent past, these breaches occurred primarily in the world of digital markets.
- Companies are advised to review their contracts, take care to comply with EU competition rules and ensure that they do not restrict cross-border trade. Otherwise, they risk the imposition of painful fines.
For more information on this decision and EU competition law, contact your CMS client partner or CMS expert: Harald Kahlenberg, Peter Giese and Elisa Götz
