Brussels – The German Federal Court of Justice (BGH) has placed curbs on Germany’s leading food retailer, EDEKA, in its price negotiations with suppliers. In a landmark decision handed down on Tuesday, the Competition Senate overturned a ruling by Düsseldorf Higher Regional Court (HRC) that found in favour of EDEKA. The dispute involves “wedding rebates” that EDEKA sought to impose on around 500 suppliers after acquiring approximately 2,300 Plus discount stores from Kaiser’s Tengelmann. The aim was to use the funds to finance a significant portion of the acquisition costs, which amounted to several hundred million euros.
This is the first time that the highest German competition court has agreed that a retailer’s demands constitute a breach of the prohibition on “tapping” (“Anzapfverbot”), which is designed to protect suppliers against buyer power. The BGH confirmed crucial points of a 2014 judgment by the Federal Cartel Office, which had been completely overturned by Düsseldorf HRC in November 2015. On appeal by the Federal Cartel Office and Germany’s Markenverband (Brands Association), the BGH confirmed the unlawfulness of a large number of the rebates demanded by the retailer. The Cartel Office proceedings were triggered by a complaint from the Markenverband.
A team of CMS lawyers headed by Brussels-based competition law partner Dr Michael Bauer advised and represented the Markenverband in all levels of the court proceedings. The same team previously acted on behalf of the Markenverband in various proceedings relating to the acquisition of Kaiser’s Tengelmann by EDEKA.
The BGH ruling is of very wide-ranging legal significance and has considerable economic importance for the branded goods industry and its relationships with food retailers.
The BGH found that the best value comparisons conducted by EDEKA were unlawful. This relates to a comparison of the terms granted to the individual parties prior to a merger. The BGH also regarded as unlawful the demand by the retail chain for payment of “partnership compensation”, through which the suppliers were expected to pay for refurbishment of the Plus stores.
Demands that EDEKA made to four producers of sparkling wine were the specific focus of the decision. The Federal Cartel Office selected this product segment as providing a representative example for the industry. Accordingly, the content of the decision can be applied to a large number of other product segments. Since the BGH took the view that the demands were made wrongfully, this raises the prospect of legal grounds for claims for compensation by suppliers.
The judgment is the first to be based on the “Anzapfverbot”, as amended several years ago. This legislation prohibits retailers from demanding benefits from dependent suppliers without objective justification.
The BGH has now also indirectly confirmed that a large percentage of the suppliers are dependent on EDEKA, thereby entitling them to protection under the “Anzapfverbot”. As a result, the supermarket chain must expect consequences in future if it imposes terms that cannot be objectively justified. This applies all the more because the “Anzapfverbot” was tightened again last year, meaning that a higher degree of justification is now required.
CMS Germany
Dr Michael Bauer, Partner
Dr Björn Herbers, Partner
Jan Gottschalk, Associate, all Competition, Brussels
