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Dominant firm may refuse to supply retailer after initial delivery

Dominant firm may refuse to supply retailer after initial delivery

Dominant firm may refuse to supply retailer after initial delivery

02.12.2021 NL law

The Brussels Court of Appeal has held that a dominant producer firm may have valid reasons to refuse further supplies to a retailer, despite its dominance and despite previous deliveries. The Court of Appeal stressed the freedom for any company, including dominant firms, to choose their trading partners, in particular when there are valid and objective non-discriminatory reasons to refuse further direct supplies and when the retailer has alternative sources of supply.

The Brussels Court of Appeal (the “Court”) ruled on the possibility for a dominant producer to refuse supplying a retailer which it had previously directly supplied. The Court held that a dominant firm may have valid reasons to refuse further supplies despite its dominance and despite previous deliveries. The Court stressed the freedom for any company to choose their trading partners and upheld the possibility for a dominant firm to prefer working with wholesalers, which is a valid and objective non-discriminatory reason to refuse direct supplies to retailers.

A company active in the production and distribution of products for the building sector was considered dominant for a number of products it supplied. It used to apply a three-step distribution system, and in principle only supplied wholesalers. Wholesalers subsequently supplied retailers, who sold to end users. For a short period, the dominant company had made direct supplies to a large retail chain, but quickly stopped these direct supplies. When the retail chain requested further supplies, the dominant producer refused.

The retail chain asked the Court to issue an order for compulsory deliveries, claiming that the refusal to supply was a violation of the rules prohibiting abuse of a dominant position and abuse of a position of economic dependence.

The Court rejected the request. It considered that the three-step distribution system is a generally recognised and valid distribution system, and that the refusal to supply is in line with such a distribution system and is an objective criterion. The Court also considered that this refusal did not affect downstream competition, in particular since the refusing dominant firm itself was not active on the retail market.

The fact that some wholesalers had limited direct sales to end-consumers did not alter the Court’s conclusion, since prohibiting such further resales would potentially violate competition law and those sales were in any event not the core business of the wholesalers, thereby not affecting downstream competition.

As the retail chain had alternative sources of supply (namely supplies from the various wholesalers in the market), the Court considered that the large retail chain was not dependent on the producer. The conditions for a potential abuse of a position of economic dependence were not fulfilled. Finally, the Court held that the refusal to supply was also no act of unfair competition. It considered in that respect the objective reasons for the dominant firm to refuse to supply, and the fact that the possible harm to the retail chain was limited compared to the dominant firm’s interest in a consistent distribution policy.

This article was published in the Competition Newsletter of December 2021. Other articles in this newsletter:

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