Selling at a loss now only forbidden when deemed unfair

Carlos Vérgez, Aida Oviedo & Ramón Abaroa 

The recent amendment to the Spanish Retail Commerce Act (RCA) regarding selling at a loss has removed the general prohibition of this commercial practice. Thus, pursuant to the changes introduced by Royal Decree-Law 20/2018 (RDL) of 7 December, the unlawfulness of said practice will from now on depend exclusively on the unfair nature of the conduct, in accordance with the Unfair Competition Act and the Unfair Commercial Practices Directive.

Article 14.1 of the RCA’s previous wording established a general ban on selling at a loss (with the exception of clearance and closing-down sales), considering such practice as a “severe” infringement that could be sanctioned with fines of EUR 6k-300k (in cases of repeat infringement).

The consequences of the ban, due to its absolute and general nature, included the fact that administrative authorities were not required to analyse the specific context in which selling at a loss had occurred, and were thereby able to directly apply fines on infringing companies. Furthermore, the general ban also entailed a reversal of the burden of proof, as the company selling at a loss was required to prove that such sale was performed under the exemption of clearance or closing-down sales. As it was a specific infringement, drafted as a general provision –albeit within the scope of the RCA– the fine was unavoidable, even if it was proven that the requirements of the unfair nature of the conduct, pursuant to article 17 of the Unfair Competition Act (UCA), were not met.

On 19 October 2017, as a result of a preliminary ruling in relation to Article 14.1 of the RCA, the Court of Justice of the European Union (CJEU) issued a judgment (Europamur Case) stating that Article 14 of the RCA breached EU Law (specifically, the Unfair Commercial Practices Directive) because it established a general ban on selling at a loss.

In this regard, and after a year of legal uncertainty, the Spanish Government has adopted the RDL in a bid to adapt the RCA to the provisions of the Unfair Commercial Practices Directive and to the doctrine established in the Europamur judgment. It is noteworthy that throughout this year, some Competition Authorities have adopted an opposing stance to the application of the general ban (for instance, the Spanish Competition Authority in the Uber decision and the Valencian Competition Authority in the Cacsa decision).

The amended Article 14 of the RCA allows selling at a loss with the sole limitation that it is not unfair, and details the only four cases whereby selling at a loss would thus be considered as such. The first three are the same instances provided for in Article 17.2 of the UCA, i.e. when selling at a loss:

(a) “Is susceptible to causing error among consumers regarding the prices of other products within the same establishment”;

(b) “Discredits an unrelated company or product’s image”; and

(c) “Is part of a strategy aimed at excluding a competitor or group of competitors from the market”.

The final provision (“[d] when it forms part of a commercial practice that contains inaccurate information pursuant to the price or the manner in which the price is calculated, or on the existence of a specific advantage thereof that deceives or is likely to deceive and lead the average consumer to error, causing them to take a transactional decision that they would not have taken otherwise”) is a transposition of Article 6.1 of the Unfair Commercial Practices Directive. In this regard, although the Directive had already been transposed into Spanish Law, said transposition had not removed the general ban (which is now amended by the RDL).

Pursuant to the foregoing, the most relevant amendment introduced by the RDL is the removal of the general and automatic nature of the ban –and of the fines to be imposed– in cases of selling at a loss.

The Government could have directly eliminated Article 14.1 RCA since unfair selling at a loss was already provided for in the UCA. However, the Government has opted for regulatory duplication, as the amendment establishes that it could only be sanctioned when it is unfair (under one of the four aforementioned provisions). This solution is not neutral. Although such duplication may cause coordination issues, it still provides for the possibility of administrative sanctions within the scope of the RCA, something that would not have been possible had it not been kept in that Act. Thus, the regional administrations will retain the authority to prosecute and impose fines for selling at a loss, albeit with the burden of proving the unfair nature thereof. This renders the administrative route much less attractive, as opposed to the situation that existed prior to the amendment of Article 14 RCA.

On the other hand, the legal standard to be applied by the regional administrations when invoking an infringement of this provision must be comparable to the standard followed by the Commercial Courts when triggering an infringement of Article 17 UCA.

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