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Editorial

Serbian brewery fined in Bosnia for abuse of dominance

On 20 November 2013, the Bosnian Competition Council issued a decision establishing that the Serbian brewery "Apatinska" abused its dominant position on the relevant market of beer distribution in Bosnia and Herzegovina. The Council imposed a fine on the brewery in the amount of BAM 430,000 (EUR 215,000).

This is the second time in a little over a year that the Bosnian competition authority has handed Apatinska a fine for infringement of competition rules. On 4 September 2012, the Council rendered a decision fining the brewery with BAM 265,000 (EUR 135,000).

Factual background

Both decisions of the Bosnian competition authority concerned the relationship between Apatinska and the company Dejan Komerc, which had been acting as brewery's distributor in the territory of Bosnia & Herzegovina for several years. In 2011, the relations between the parties turned sour and Dejan Komerc sued Apatinska in Serbia in April 2011, claiming unpaid rebates for the period 2008-2011. Information on the outcome of this litigation is not publicly available. Eventually, Apatinska did not extend the distribution contract with Dejan Komerc to 2012.

Dejan Komerc retorted by initiating two proceedings against Apatinska before the Bosnian Competition Council - the first one in December 2011 and the second one in January 2013.

2012 decision of the Competition Council

In its first complaint to the Council, filed in December 2011, Dejan Komerc alleged that the brewery abused dominance and entered into a number of vertical restrictive agreements in the period between 2008 and 2011.

According to distributor, the brewery's rebate system was discriminatory because it subjected distributors to individualized sales plans and to different payment terms.

Dejan Komerc also alleged that Apatinska conditioned rebates by compliance with minimum resale prices. In this respect, the aggrieved distributor referred to a provision in the distribution contract stipulating that the distributor "when forming its prices, must take into account the sales terms of [Apatinska] and maintain its prices at a level not lower than the sales prices of [Apatinska]". According to the decision, the distributor delivered to the Council a "smoking gun" in the form of an email in which a representative of Apatinska brewery informed Dejan Komerc that the rebate for the relevant month was going to be withheld because of a breach of the mentioned contractual provision and requested that the distributor "respect minimum recommended prices, in mutual interest".

The distributor maintained that Apatinska decided not to extend his contract into 2012 because of his participation in a promotional campaign of another beer producer and refusal to withdraw his claim against the brewery pending in Serbia. According to the distributor, this amounted to abuse in the form of illegal tying.

In its defense, Apatinska submitted that it was not dominant on the relevant market of beer distribution in the territory of Bosnia and Herzegovina and thus could not have committed any act of abuse of dominance. It also claimed that it had ended the relationship for commercial reasons, namely because of lack of liquidity and low creditworthiness of Dejan Komerc, as well as because of the distributor's outstanding debt to Apatinska arising out of a failure to return beer packaging.

The brewery also maintained that its rebate system and differing payment terms were not discriminatory, as they reflected distributor's individual circumstances. The brewery denied involvement in resale price maintenance practices, relying on a provision in the distribution contracts according to which the distributors were free to set their resale price without any interference from Apatinska.

In its decision rendered in September 2012, the Council accepted Apatinska's definition of the relevant market as the market of sale and distribution of beer in the territory of Bosnia and Herzegovina and established that the brewery's share on thus defined market was around 30% (the bulk of Apatinska's sales are in the part of the country called Republika Srpska, where Apatinska's share amounted in the relevant period to approximately 50%). Accordingly, the Council established that Apatinska was not dominant on the relevant market.

However, the Council proceeded to analyze the alleged infringements within the framework of restrictive agreements. On that front, the authority noted that due to significant market share (30%), the brewery had special responsibility towards its distributors, which assumed an obligation to formulate transparent and precise criteria for determination of sales plans, payment terms, rebates and termination of business cooperation. The Council thus seems to have ushered the abuse of dominance analysis though the back door, even though it had found that Apatinska was not dominant on the relevant market.

Against the backdrop of "significant market power" theory, the Council found that, by not applying uniform criteria for determination of individual monthly plans and clear and transparent criteria for fixing payment terms, Apatinska breached Article 4, paragraph 1, item d) of the Bosnian Competition Act, which is a carbon copy of Article 101, paragraph 1, item (d) of the Treaty on the Functioning of the EU ("applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage").

The Council also established that Apatinska imposed minimum resale prices on Dejan Komerc, thus committing a breach of Article 4, paragraph 1, item a) of the Competition Act, an equivalent of Article 101, paragraph 1, item (a) of the TFEU ("directly or indirectly fixing purchase or selling prices or any other trading conditions").

The Council dismissed the allegations of "tying", because Dejan Komerc failed to provide evidence that Apatinska conditioned his 2012 contract with his abandonment of Serbian litigation.

Having established the existence of vertical restrictive agreement between Apatinska and Dejan Komerc, the Council fined the brewery with EUR 135,000 and the distributor with the symbolic EUR 500.

2013 decision of the Competition Council

Dejan Komerc turned to the Council again in January 2013, with a new complaint against Apatinska, this time concerning the brewery's 2012 distribution contracts. It alleged that the 2012 rebate policy was discriminatory and liable to create loyalty effect, that payment terms granted to distributors were discriminatory and that the brewery engaged in resale price maintenance. Dejan Komerc further submitted that Apatinska had a duty to deal with all Bosnian distributors and sought reinstatement of his contract.

Concerning the relevant market definition, Dejan Komerc proposed that the relevant geographic market be defined more narrowly to comprise Republika Srpska only, and not the entire territory of Bosnia and Herzegovina.

Apatinska dismissed all allegations of infringement and submitted that it did not have the duty to deal with Dejan Komerc since it did not sell irreplaceable and unique product essential for further production or use. It asked the Council to define the relevant geographic market as the whole territory of Bosnia and Herzegovina.

Unlike in its 2012 decision, the Council this time defined the relevant geographic market as the market of Republika Srpska. This opened the door to the establishment of Apatinska's dominance on the relevant product market (beer distribution). The definition of relevant geographic market turned on the fact that in 2012, 17 out of 18 Apatinska's Bosnian distributors were registered in Republika Srpska, while the bulk of Apatinska's Bosnian sales were also achieved on that market.

Having established the brewery's dominance on the relevant market, the Council found that refusal by Apatinska to continue business cooperation with Dejan Komerc was an act of abuse of such dominance. According to the Council, refusal to deal was not justified, since any damages stemming from the distributor's failure to return beer packaging could have been covered from the proceeds of a bank guarantee in possession of the brewery. The infringement was qualified as "application of dissimilar conditions to equivalent transactions" (some distributors were offered contracts for 2012 while Dejan Komerc was not). As a result, the Council imposed on the brewery a fine in the amount of EUR 215,000 and ordered it to conclude a distribution contract with Dejan Komerc.

Notwithstanding its finding of abuse of dominance on the part of Apatinska, the Council proceeded to examine the allegation of infringement within the paradigm of restrictive agreement and found that the 2012 contracts were not prohibited restrictive agreements. Specifically, the Council dismissed RPM allegations, finding that the provision of 2012 contracts prohibiting distributors from reselling beer at prices below those paid to Apatinska (unless there are "justified economic reasons") did not amount to RPM. The Council also dismissed the allegation of discriminatory sales policy, finding the methodology used to determine sales plans and payment terms clear and transparent.

***

The peculiarity of the two decisions described above is in that they analyze rebate schemes of a non-dominant undertaking with "significant market power" in the context of restrictive agreements. The second of the two cases also demonstrates that, according to the Bosnian Competition Council, a dominant undertaking, even if it is not an "essential facility" provider, is not free to choose whether to enter into a contract with a particular customer.

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