Legality of large retail chains' use of rebates remains dubious

Recent investigations

In recent years, the Hungarian Competition Authority (HCA) has investigated retail chains with regard to the abuse of their significant market power, as prohibited by the Trade Act.(1) The HCA imposed significant fines on Spar(2) and Auchan(3) for imposing fees on suppliers in violation of the Trade Act, which prohibits retailers with significant buyer power from unilaterally imposing fees on suppliers, particularly for the mere sale of a supplier's product (ie, simply being admitted to the retailer's list of suppliers or products).

Most of Spar's non-food suppliers and several of Auchan's had to pay a rebate at the end of the year, which was calculated as a percentage of the goods purchased by the retail chain that year.

While the facts in Spar and Auchan were different, the chains' rebate systems were similar. The HCA found that both rebate systems violated the Trade Act, as the rebates were in fact fees charged unilaterally by the retail chains. These decisions had a significant impact on market practices, as similar rebates were used by many other retail chains.

Spar

Spar contested the HCA's decision before the courts, arguing that:

• the rebate was a price discount and not a unilateral fee; and
• in practice, the rebate was simply a part of the purchase price setting mechanism.

Spar claimed that whether the retail chain as the buyer pays a lower purchase price to the supplier right away or the supplier pays a rebate at the end of the year was irrelevant. In fact, the latter system is more beneficial for the supplier, which can use the money during the period between receiving the higher purchase price and paying the rebate.

Spar went all the way to the Supreme Court, but all judicial forums upheld the HCA's decision. While the decisions received criticism for taking a formal approach and not examining the case's economic background, the illegality of such rebates seemed to be settled after the Supreme Court decision.(4)

Auchan

However, the Budapest Metropolitan Court overturned the HCA's decision in Auchan in Spring 2017. This was somewhat surprising considering that the Supreme Court had already upheld the HCA's decision in the relatively similar Spar.

The Budapest Metropolitan Court held that Auchan's rebate was a price discount given to Auchan by suppliers. The fact that retail chains have a strong position in negotiations and may be able to negotiate lower prices than what the supplier is hoping for does not make a rebate illegal. The court also dismissed the HCA's argument that such a rebate will be legal only if it is payable after extra sales or some kind of extra performance.

In the Budapest Metropolitan Court's opinion, these rebates (as price discounts) are generally not illegal and will violate the Trade Act only if it is proven that they were not a result of normal price negotiations, but were forced on suppliers by a retail chain as a fee for being admitted to the retailer's list of suppliers or products. In the court's opinion, the HCA failed to present sufficient evidence to this effect. Therefore, the court ordered the HCA to reopen the investigation and gather more evidence regarding the background of the rebate and the negotiations between Auchan and its suppliers.

Comment

Both Auchan and the HCA may ask the Supreme Court to review the Budapest Metropolitan Court's decision. In light of the Supreme Court's contrary decision in Spar, there is a chance that it might overturn Auchan.

In any case, the Budapest Metropolitan Court's decision in Auchan adds to the legal uncertainty surrounding the legality of similar rebate schemes. It will thus be interesting to see how the case will eventually end, as it would be beneficial for the whole market if this issue were finally settled.

This article was first published on www.internationallawoffice.com