The Competition Authority imposes an ISK 260m administrative fine on Vífilfell for a serious violation of the Competition Act
The Competition Authority has, with its decision today, reached the conclusion that Vífilfell hf. abused its market dominant position in the soft drinks market and thus infringed the provisions of the Competition Act that prohibit certain conduct. The Company did this by entering into numerous exclusive purchase agreements with its customers. Exclusive purchasing means, in this context, agreements whereby Vífilfell obligated their customers to purchase soft drinks solely from the Company. Exclusive purchase agreements are illegal when there is a market dominant undertaking involved. The Competition Authority imposes an ISK 260m fine on Vífilfell.
Vífilfell in a market dominant position
Article 11 of the Competition Act prohibits any form of abuse of a market dominant position. In order for this provision to apply, the competitive market relevant to the case in question must be defined and the position of undertakings in the market assessed. As Vífilfell argued that the Company did not have a market dominant position, it was therefore necessary to examine this point in detail. The Competition Authority did not agree to the arguments by Vífilfell that soft drinks are considered to be part of the same market as dairy drinks, juices or other non-alcoholic beverages. The case considered the market share of Vífilfell and its only competitor (Ölgerd Egils Skallagrímssonar) in the soft drinks market over a four-year period. Vífilfell was found to hold a dominant position with respect to market share (about a 70–75% share). In view of this share and referring to the Company's superior position in other respects, it is the finding of the Competition Authority that Vífilfell had held a market dominant position.
The infringement by Vífilfell
In it's decision, the Competition Authority states that Vífilfell has made hundreds of illegal contracts with its customers that constituted, in effect, exclusive purchase agreements. These contracts were entered into with grocery stores, restaurants, kiosks and other soft drink retailers. Exclusive purchasing means, in this context, contracts whereby Vífilfell obligated their customers to purchase soft drinks solely from the Company. Vífilfell also used competition restrictive discount clauses to further make sure that customers would not do business with present or prospective competitors of the Company in the soft drink market.
Contracts of this type are suited to prevent the competitors of a market dominant undertaking from growing and thriving. At the same time, such contracts will also counteract/restrict new competitors from gaining a foothold in the market and thus strengthen competition. Such contracts therefore bolster or maintain a market dominant position and that way distort competition. The Competition Authority's decision gives an account of numerous contracts by Vífilfell that the Competition Authority feels that have, in this respect, constituted a violation of Article 11 of the Competition Act.
With reference to the scope and nature of these infringements, the Competition Authority, in its decision, has determined that a fine amounting to ISK 260m is appropriate.
In 2007, the Competition Authority initiated a general examination of the contracts of suppliers and their customers in the foodstuffs market. The fact finding was directed against approximately 70 suppliers, including Vífilfell. As a result of this examination, the Competition Authority issued in May of 2008 report no. 1/2008: The Supplier Business Agreements and Other Collaboration by Undertakings in the Foodstuffs Market. The report restated the viewpoint of competition law that a market dominant undertaking, including suppliers, may violate Article 11 of the Competition Act by making contracts that contain a customer loyalty clause and provisions on exclusive purchasing. Recommendations were made to suppliers, among others, that an effort be made to ensure that their contracts did not contain competition distortive provisions. The report also stated that the Competition Authority would, in certain administrative cases, make a decision as to whether any specific undertakings had infringed the provisions of the Competition Act. This has now been done regarding the Vífilfell contracts.