KONKURENCIJOS TARYBA SUGGESTS STRICTER LIABILITY FOR MAJOR RETAILERS‘ UNFAIR PRACTICES TO SUPPLIERS
After conducting the monitoring of the implementation of the Law on the Prohibition of Unfair Practices of Retailers (Law), in its report provided to the Government the Lithuanian competition authority Konkurencijos taryba suggested that higher fines should be envisaged for major retailers for their unfair practices to food and drink suppliers.
The purpose of the aforementioned Law is to limit the use of market power exercised by major retailers and ensure the balance of interests between retail companies and food and drink suppliers. The Law prohibits five major retailers, namely MAXIMA, RIMI, IKI, NORFA and LIDL, from requiring from their suppliers any “entry” fees, asking for compensation for the lost income or for the costs of sales promotion, etc. It was expected that after establishing these prohibitions by law, major retailers would refrain from imposing unfair supply conditions, unreasonable requirements or commitments or transferring the risks of their activity to the suppliers.
In order to find out whether such legal regulation has been effective, from 1 January 2018 to 31 December 2019 Konkurencijos taryba carried out the monitoring of the Law and sent questionnaires to 5 major retailers and 306 suppliers asking if legal regulation is effective and ensures the balance of interests, if Konkurencijos taryba, in their view, has sufficient powers assigned by the Law, if competition in the retail trade market has changed after the Law entered into force, etc.
The majority of 224 respondents (suppliers) said that considering the retailers’ income, a maximum fine of EUR 120,000 is too small and does not ensure the balance of interests between retailers and suppliers. Konkurencijos taryba agrees that the maximum amount of a fine envisaged by the Law does not have a deterrent effect since it makes only 0.007–0.04 per cent of the gross annual income of major retailers. Besides, in accordance with the provisions of the Law and case law, the authority is not able to impose the maximum fine: for the infringements of the Law by major retailers in 2014–2019, the authority imposed fines ranging from EUR 11,590 to EUR 73,000.
Having evaluated the practice of other EU countries where the fines reach up to 10 per cent of the annual income, Konkurencijos taryba suggests introducing stricter financial liability of up to 2 per cent of the annual sales income in the preceding business year. The proposal is also in line with the EU Directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain, the provisions of which will have to be transposed into national law, envisaging deterrent fines for retailers‘ practices to suppliers.
The suppliers also suggested amending the Law by establishing the prohibition for retailers to impose disproportionate fines on suppliers for minor breaches of the contract. As it was stated by food and drink suppliers, retail companies often tend to impose sanctions for insignificant delay of goods or failure to fulfill large orders which the supplier is not able to execute. Konkurencijos taryba is planning to carefully examine information on fines by retailers submitted by the suppliers, as well as the EU practice and, if necessary, submit relevant proposals.