Is the restriction of cross-border trade an enforcement priority for the European Commission? Mondelēz fined €337.5 million

Recently, the European Commission (“Commission”) imposed a fine of €337.5 million on Mondelēz International, Inc. (“Mondelēz”), one of the world’s largest chocolate and biscuit manufacturers, known for brands such as Côte d'Or, Milka, Oreo, Ritz, Toblerone and TUC.

According to the press release (decision not yet published), the Commission found that Mondelēz breached both the EU prohibition of cartels (Article 101 TFEU) and the EU prohibition of the abuse of a dominant position (Article 102 TFEU) due to restricting cross-border trade of various products in the European Union.

Free cross-border trade generally leads to greater price competition and a reduction in prices in countries with higher price levels. According to the Commission, Mondelēz restricted this trade in some of its products through a network of various practices and agreements in order to ensure the highest possible prices in the various Member States.

I. Limiting resale opportunities constitutes a breach of the EU prohibition of cartels

For the period from 2006 to 2020, the Commission identified a total of 22 anticompetitive agreements and concerted practices by Mondelēz that it considered to be in breach of the EU prohibition of cartels. These include (i) limiting the territories or customers to which seven wholesale customers could resell; (ii) in one case, ordering a Mondelēz customer to apply higher prices for exports compared to domestic sales; and (iii) preventing ten exclusive distributors active in certain Member States from replying to purchase requests from customers located in other Member States without prior permission from Mondelēz.

The EU prohibition of cartels generally forbids anticompetitive agreements and concerted practices between undertakings that may affect trade between Member States and that have as their object or effect the prevention, restriction or distortion of competition within the Single Market.

The Commission typically considers restrictions on cross-border trade to be particularly harmful to the competitive process. This is particularly because these restrictions lead to a fragmentation of the internal market along national borders and are therefore diametrically opposed to the declared Union objective of creating an EU-wide internal market (Article 3(3) TEU).

II. Refusals to supply and ceasing the supply constitute an abuse of a dominant market position

In addition, the Commission found that Mondelēz abused its dominant position on the market for chocolate tablets between 2015 and 2019 by (i) refusing to supply a wholesaler in Germany and (ii) ceasing the supply of chocolate tablet products in the Netherlands. According to the Commission, both practices prevented retailers in Member States with higher prices from being able to freely source products in Member States with lower prices.

Article 102 TFEU prohibits the abuse of a dominant position which may affect trade between Member States and prevent or restrict competition. The Commission last found a breach of the prohibition of abuse of a dominant position through artificial partitioning of the internal market in 2019. The world’s largest beer brewer, Anheuser-Busch, prevented sales of the Jupiler brand of beer from the Netherlands to Belgium.

There are generally high requirements to prove a Article 102 TFEU case. An authority must establish the existence of a dominant market position on a case-by-case basis. Very high market shares are typically one of the relevant indicators (see Noerr News article). The Commission considers the “artificial partitioning of the internal market” in this case to be abusive because it has a negative impact on prices and the product range for consumers in the EU.

III. The functioning of the internal market as a rediscovered priority of the Commission – not only in the food sector

In her comments on the Mondelēz decision, Executive Vice-President Vestager emphasised the importance of the free movement of goods in the internal market. Particularly in the food sector, prices vary across the Member States. Cross-border trade could contribute to lower prices and a wider range of products for consumers, she said.

The Mondelēz decision is part of the Commission’s broader efforts to enforce competition rules in the food retail industry, she added. But companies should also take the decision as a warning beyond this sector, according to Vestager: the Commission is once again increasing its attention on restrictions on cross-border trade. While until now the focus has been on prohibiting cartels, the decision indicates that the Commission could also increasingly invoke the prohibition on abuse when companies have a dominant market position.

IV. An increase in fines due to the breach of the Commission’s clear case practice?

The importance of effective cross-border trade in the Single Market for the Commission can be seen not least in the amount of the fine imposed on Mondelēz, which would have been 15% higher without the company’s cooperation.

Fines are set using the Commission’s guidelines on the method of setting fines. The factors to be taken into account are, in particular, the value of the goods or services sold, the gravity and the duration of the infringement. Although the guidelines specify how to set the fine, the Commission still has a wide margin of discretion. In the present case, it was apparently taken into account that the Commission has a “clear case practice” based on past decisions concerning the restriction of cross-border trade. The Commission refers to the fines imposed on (i) Valve (owner of the gaming platform Steam) and other video game manufacturers in 2021 for “geo-blocking” practices, and (ii) Anheuser-Busch.

The Commission’s position and its warning are clear. Restrictions on cross-border trade will not be tolerated and can incur significant fines.

V. Outlook and practical implications

Companies are well advised to continuously review their sales practices on the internal market with regard to possible restrictions on cross-border trade, as the Commission is increasingly re-focusing on these restrictions – not just in the food sector. This is also shown e.g. by the Commission’s dawn raids of several Red Bull premises in March 2023. The Commission is not only launching investigations based on information from third parties, but also on its own initiative.

Not every case will be as clear-cut as this one. If a company does not have a dominant market position, there is certainly more room to manoeuvre in terms of its sales strategy. For example, the Adalat decision by the European Court of Justice (6 January 2004) certainly can be read to suggest that a manufacturer’s unilateral quota policy, which in individual cases can lead to a partial or complete refusal to supply if the quota is exceeded, does not necessarily breach the prohibition of cartels.

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