Acting Against a More Powerful Business Partner: Banning Abuses of Economic Dependence

Business-to-Business (B2B) commercial relations are often characterized by an imbalance in power between negotiating parties. For example, a concentration of market power on the buyer’s side can put pressure on smaller suppliers, forcing them to agree to lower selling prices or to accept longer payment terms or other unfair conditions. Such practices not only harm the interests of the weaker commercial party, they may also be harmful to consumers in the long run, as they may lead to reduced consumer choice, higher prices, and less innovation.

Neither antitrust law nor the law of unfair competition (under the Paris Union Convention 1900, as implemented in the majority of European Union (EU) Member States) has proven to be adequate to cope with this form of abuse. At the EU level, there is no specific law that generally deals with these abuses. As further described below, the only law that comes close to a restriction on such practices concerns “unfair trading practices” in the food supply chain. Hence, national legislators in the European Union––notably but not limited to France, Germany, and, more recently, Belgium––have adopted special laws to protect those perceived as weaker commercial parties against abusive conduct.

The recent surge of attention on issues of abuse of economic dependence across Europe may have been prompted by a recent French decision. In March 2020, in one of the rare applications of the longstanding French law, the French Competition Authority (FCA) fined Apple €218 million for abusing a situation of economic dependence of its premium independent distributors of its computer and phone products. Apple was found to have subjected these distributors to unfair and unfavorable commercial conditions, compared with the terms offered to its network of integrated distributors. This was found to have adversely affected the ability of these independent distributors to compete with Apple’s integrated channels. This high-profile matter received a lot of attention throughout the EU and has recently invigorated the theory across the EU.

This article focuses on recent developments in Belgium, as the Belgian law was drafted with the benefit of the experience gained in several other Member States. In Belgium, the law prohibiting this type of abuse is considered to be part of the country’s antitrust law, as is the case in France and Germany. This means that substantive concepts originate partly in antitrust law and that the enforcement mechanism is basically the same as the mechanisms used to enforce EU and national antitrust laws.

EU Antitrust Law Leaves a Gap

As mentioned above, EU antitrust law prohibits exploitative and exclusionary abuses of dominance but does not deal specifically with the abuse of economic dependence. Specifically, Article 102 of the Treaty on the Functioning of the European Union (Article 102 TFEU) prohibits the abuse of a dominant position, including unilateral practices by a dominant market participant that exploit its market power to charge excessive prices (even in the absence of foreclosure of competitors). Market share is a useful and important first indication of dominance. And, while market power in a relationship with a commercial partner is considered as a relevant factor in the determination of whether a party has a dominant market position, these prohibitions still focus on unilateral practices to curb abuses of power affecting an entire market, not on unbalanced trading positions.

In the past, the European Commission (EC) has attempted to bring a number of cases under Article 102 TFEU based on relative market dominance, but the Court of Justice of the European Union rejected this view. Article 102 TFEU is therefore inadequate to address conduct of firms that may not technically be considered “dominant” in a relevant market, so that the firms (often buyers) that are generally reported to abuse their relative market power vis-à-vis their commercial partners are not dominant within the meaning of that provision. EU antitrust law therefore leaves a gap.

Limited Restrictions in the Food Supply Chain. The European Union has recently acted to address issues of imbalance in power in the B2B context in some limited circumstances. In 2019, the European Parliament adopted the UTP Directive to improve the protection of farmers and of small- and medium-sized suppliers in the food supply chain. The UTP Directive aims to prevent larger firms from exploiting the weaker bargaining power of small- and medium-sized suppliers. The UTP Directive contains a non-exhaustive list of prohibited unfair commercial practices identified as being the most damaging between buyers and suppliers in the agricultural and food supply chain (such as short-notice cancellations of orders for perishable agricultural and food products) and does not prohibit unfair trading practices in general.

The scope of the UTP Directive is narrower than existing national laws on abuse of economic dependence. First, the UTP Directive applies only to foodstuffs (whether or not they are agricultural products or contain such products) and to agricultural products (whether foodstuffs or not). Second, all the prohibited practices are practices carried out by buyers (such as retailers) in their relationship with their suppliers (such as farmers, their cooperatives, foodstuff producers, wholesalers, or producers of foodstuffs or agricultural products). Possible abuses by suppliers vis-à-vis buyers are not covered. However, the UTP Directive merely establishes a mandatory minimum level of harmonization between the national legislation applicable in all EU Member States. Member States are expressly authorized to adopt rules that go beyond that minimum level of protection, including those that protect buyers against suppliers. The UTP Directive must be implemented in Member States’ national law by May 1, 2021, and the implementing provisions have to be applied by November 1, 2021.

The Belgian prohibition of abuses of economic dependence is a separate initiative and does not constitute the Belgian implementation of the UTP Directive. It is puzzling to note that the Belgian legislature adopted this prohibition that overlaps with the UTP Directive, the content of which was already known at the time of adoption, without taking the UTP Directive into account in any way.

EU Member States Fill the Gap

The perceived inadequacy of EU antitrust law, and the absence of any other specific EU (non-­antitrust) regulatory framework, to tackle abuses of a strong––but non-dominant––position, has led to the introduction of a ban on the abuse of economic dependence in certain Member States. The laws that some Member States offer as protection for parties in a weaker commercial position do not require a dominant position on the market. Rather, the relevant inquiry assesses the position of the parties vis-à-vis one another, and seeks to establish whether there is relative dominance.

Some national legal systems have enlarged the scope of their antitrust laws beyond the scope of EU antitrust law to address practices falling outside the EU concept of abuse of a dominant position. For example, France, Germany, and Belgium have broadened the scope of their national antitrust laws by adding a provision that prohibits abuse of economic dependence to the existing prohibitions of restrictive agreements and abuse of a dominant position (which exist in parallel with those of Articles 101 and 102 TFEU). Such additional legislation is expressly allowed by EU legislation. Article 3(2) Council Regulation No 1/2003 on the implementation of the rules on competition in Articles 101 and 102 TFEU allows Member States to adopt and implement stricter national laws to prohibit or sanction firms’ unilateral behavior. Such legislation, however, is not necessarily introduced as part of Member States’ national antitrust laws; some Member States have adopted rules on abuses of economic dependence in other legislative areas, as part of B2B or sectoral legislation for retail trade or specific subsectors.

Belgium has instead introduced the prohibition of abuse of economic dependence specifically into its national antitrust law. As noted in the legislative proposal prior to adoption of the final law, and contrary to the legal system of many Member States (Germany, Austria, Cyprus, Spain, France, Greece, Hungary, Italy, Portugal, and Romania), Belgium did not yet have such a prohibition in place. In 2019, the Belgian legislator acted to remedy this to some extent, by introducing the abuse of economic dependence as an additional category of restrictive practices. The new Article IV.2/1 CEL entered into force on August 22, 2020 and prohibits the abuse of economic dependence by a firm if and to the extent that this affects competition in the relevant Belgian market or a substantial part thereof.

What Is an Abuse of Economic Dependence?

Although the precise conditions and interpretation may differ from country to country, the following conditions must generally be met for a practice to qualify as such an abuse: (1) a position of economic dependence must exist; (2) that position must be abused; and (3) this must have an effect on competition in the market, or in a substantial part of the market.

A Position of Economic Dependence. Under the new Belgian law, a firm is in a position of economic dependence when its relationship with one or more other firms is characterized by the absence of a reasonable, equivalent alternative, available within a reasonable period of time, on reasonable terms and at reasonable cost, and when this relationship allows the other firm or firms to impose demands or conditions that would not ordinarily be obtainable under normal market conditions. Three cumulative requirements can be derived from this definition. First, the dependent firm must not have a reasonable, equivalent alternative to the agreement (in terms of time, terms, and costs). Second, the stronger firm must be able to impose demands or conditions that cannot be obtained under normal market conditions. Third, there must be a causal link between the first two conditions.

A comparative legal analysis across Member States where abuse of economic dependence is prohibited has identified certain elements that are relevant for a finding of economic dependence:

a. the relative market power of the stronger firm;

b. the fact that the stronger firm represents a significant share of the weaker firm’s turnover, bearing in mind that the more important this share is, the greater the risk of dependence will be;

c. the technology or know-how held by the stronger firm;

d. the wide recognition of the stronger firm’s brand, scarcity of the products, the perishable nature of the products, or brand loyalty;

e. access to key resources or essential infrastructure;

f. fear of serious economic harm, retaliation, or the termination of the contractual relationship;

g. the regular granting to the firm of special conditions, such as discounts, which are not granted to other firms in a similar situation;

h. the firm’s deliberate choice or, on the contrary, its obligation to put itself in a position of economic dependence.

In Belgium, these elements are not included in the text of the law itself but only in the Explanatory Memorandum of the legislative proposal, which explains the intent and purpose of the proposed law. According to the Explanatory Memorandum, these elements must be assessed, case by case, in concrete terms, either separately or in conjunction and cannot always be given the same value. This leaves a broad margin of discretion for judges and may cause legal uncertainty for firms.

In essence, the test is whether the firm invoking protection has a reasonable equivalent alternative. The ability to switch is key in the assessment, and the substitutability of the alternative will be assessed on a case-by-case basis. It should be stressed that not any alternative will do. The alternative must be a reasonable equivalent alternative, available within a reasonable period of time, on reasonable terms and at reasonable cost. If there is an equivalent alternative, a position of economic dependence may still exist, if the conditions and costs associated with switching to that alternative are unreasonable.

The Belgian law was largely inspired by a similar French law. France had introduced the concept of abuse of economic dependence in 1986 and the prohibition of such abuses still exists today, in modified form. French law coined the term “abuse of economic dependence” (“abus de dépendance économique”) to describe the misuse of an imbalance in bargaining power. This concept is well illustrated by the 2008 Report on abuse of superior bargaining position prepared by the International Competition Network’s Task Force for Abuse of Superior Bargaining Position. Germany has also been a source of inspiration. In 1973, Germany was the first European country to prohibit the abuse of economic dependence, and it did so within the framework of antitrust law.

Belgium has learned lessons from the experience of these other countries, in particular France. One example is how the Belgian law adopted somewhat different criteria than the French law for the finding of economic dependence. Originally, the French prohibition required there to be no equivalent alternative, meaning that the economically dependent firm had to prove that it had no alternative but doing business with the stronger firm. Enforcement of the prohibition was particularly difficult under that standard. Current French law no longer defines the position of economic dependence as a commercial relationship in which one partner “does not have an equivalent alternative.” This suggests a softening in the criteria to be applied under French law. However, although this condition relating to the absence of an equivalent alternative has been formally removed from the text of the French law, it is apparently still considered a fundamental criterion for the establishment of the existence of “economic dependence.” The FCA and the Court of Appeal of Paris continue to use the requirement of the lack of an equivalent alternative in their assessments and decisions. This requirement in French law has prevented the FCA from establishing economic dependence in certain cases. Belgian law, on the other hand, requires the absence of a reasonable equivalent alternative, available within a reasonable period of time, on reasonable terms, and at reasonable cost. This should probably constitute a slightly lower threshold.

An Abuse. Under Belgian law a firm with relative market power vis-à-vis another firm does not automatically commit an infringement, which is analogous to the dominance analysis under Article 102 TFEU. Economic dependence as such is not prohibited––only the abuse by the stronger commercial partner of its position of power. The purpose of this prohibition is to combat abuse that seeks to take unwarranted advantage of a firm’s power over another firm in cases where there can be no question of the commercially dominant firm having a dominant position in the market.

Like the assessment of abuse of a dominant position in antitrust law, the abuse is assessed by comparing the situation resulting from the excessive conduct, or the situation which could arise in the future, with an appropriate baseline scenario. An appropriate baseline scenario would be, for example, the absence of the abuse in question, or another realistic scenario that takes account of established commercial practices. The benchmark for determining whether or not the conditions imposed on the dependent firm are abusive is whether those conditions could successfully be required under normal market conditions. Thus, the assessment consists of comparing the actual terms and conditions with those that would apply under normal market circumstances.

The Belgian legislator opted for a general and open standard prohibiting abuse, which is intended to maintain the law’s relevance in the face of socioeconomic changes that society will face over time. The law explicitly lists five practices that could be considered to be abusive:

a. the refusal of a sale, purchase, or of other transaction conditions;

b. the direct or indirect imposition of unfair purchase or sale prices or other unfair contractual conditions;

c. the restriction of production, sales, or technical development to the detriment of consumers;

d. the application of dissimilar conditions to economic partners for equivalent services, thereby placing them at a competitive disadvantage (discrimination);

e. the conclusion of contracts subject to the acceptance by the economic partners of additional services which, by their nature or according to commercial practice, have no connection with the subject of the contracts (abusive tying).

However, it follows from the fact that the five practices are given as an example of a broader general clause that the list is not exhaustive.

In the press release announcing this legislative reform, the Belgian Minister of Economic Affairs explicitly referenced abuses in the e-commerce context, including by online platforms. In this context, the European Union already provides some protection against online platform practices. More precisely, the European Union promotes fairness and transparency for business users of online intermediation services through its Regulation (EU) 2019/1150. The EU regulation, which has been directly applicable in all EU Member States’ domestic law since July 12, 2020, aims to ensure the fair and transparent treatment of business users by online platforms. It gives business users more options for redress, and it is intended to create a more predictable and innovation-­friendly regulatory environment for online platforms within the European Union. Furthermore, on December 15, 2020, the European Commission published its proposal for a Digital Markets Act (DMA) aiming to promote fair and contestable markets in the digital sector. The DMA proposal suggests prohibiting large gatekeepers in the digital economy from engaging in a number of practices deemed unfair (e.g., self-preferencing in ranking) and imposes certain affirmative obligations (e.g., measures to promote interoperability or data access).

The press release issued by the Minister at the time of adoption of the Belgian law lists a number of examples of possible abuses of economic dependence: (1) the manipulation of product rankings by online platforms, (2) the prohibition of online sales imposed by a producer on its distributors, (3) excessively short delivery times imposed on firms that distribute their products via online platforms, (4) territorial supply restrictions imposed by a supplier that prevents retailers from obtaining supplies from wholesalers located in another Member State or elsewhere abroad, and (5) car dealers being pressured by manufacturers in relation to their sales targets, quality standards, variable margins, and unforeseen investments.

Likely to Affect Competition. Under Belgian law, the third requirement for violation of the law is that the abuse affects or is likely to affect competition in the Belgian market or in a substantial part thereof. More precisely, and on the basis of factual and legal elements and with a sufficient degree of probability, the abuse must be capable of having a direct or indirect, actual or potential, effect on competition in the market. In this way, the law attempts to strike a balance between restricting parties’ freedom to conduct business as they wish, on the one hand, and promoting beneficial competition that is exercised in accordance with good faith and fairness, on the other hand. As the Explanatory Memorandum states, abuses of economic dependence can adversely affect not only the weaker firms but also the operation or structure of the markets.

The requirement that competition in a national market must be affected distinguishes the Belgian rules from similar rules in other countries, such as France, which have no such requirement.

Which Firms Can Use This Tool?

The Belgian prohibition is generally applicable and protects any economically dependent firm, regardless of its size or annual turnover. Although it was mainly intended to protect small- and medium-sized firms, the text does not rule out the possibility that larger firms may be victims of an abuse of economic dependence and may invoke the prohibition. This is not the case in Germany, where Article 20(1) of the Act Against Restraints of Competition prohibits the abuse of relative market power only in a vertical relationship with small- and medium-sized firms. The law in Germany does not, therefore, protect larger firms.

A more general scope for the prohibition can be justified by the fact that a position of strength is not always linked to the size of the firm. Certain small, niche firms may be in a position to abuse their commercial power. A large retailer may be in a position of economic dependence vis-à-vis a smaller IT supplier. This is particularly the case in digital markets, where relative dependencies may also arise for large firms vis-à-vis, for example, gatekeeper platforms.

Since the law addresses relative market power, a firm may find itself in a position of economic dependence in one scenario while enjoying a strong position in another. The legislative proposal for the Belgian law gave an example of a large retailer that may be in a strong position to impose unfair commercial conditions on some of its suppliers whose products they distribute, while being in a position of economic dependence with its suppliers of logistics or IT equipment.

The Belgian prohibition on the abuse of economic dependence covers all B2B relationships, in every economic sector. However, although its scope is broad in principle, there were some sectors that were particularly front of mind when the prohibition was introduced. As mentioned above, the problems arising from the imbalance between parties in a vertical relationship are regularly illustrated by the distribution sector. Major distributors are generally believed to be in a position of strength, enabling them to exert significant pressure on most of their suppliers. Consequently, these suppliers are often considered to be economically dependent on these customers and forced to accept conditions to which they would never have been subject were there no imbalance of power.

Enforcement

National Competition Authority. The Belgian national legal system has broadened the scope of its antitrust law. Therefore, the Belgian Competition Authority (BCA) is the body entrusted with the task of sanctioning abuses of economic dependence. The procedure it follows in the context of investigations into possible abuses of economic dependence will be identical to that followed in antitrust cases. This means that the BCA can open an investigation ex officio, following a complaint from a firm or an individual, or at the request of the Minister of Economic Affairs or an economic regulator. The BCA may use various means to investigate the case and gather evidence (requests for information, hearings, searches, etc.). Firms that do not comply with the rules can incur fines of up to 2 percent of their annual Belgian turnover. In addition, firms can incur periodic penalty payments that do not exceed 2 percent of their daily Belgian turnover. Moreover, interim measures can be taken.

National Courts. The Belgian national courts are also entrusted with the task of sanctioning abuses of economic dependence. Any interested person, the competent minister, or a professional authority or association can bring an action for injunctive relief before a business court––in other words, an action aimed at establishing that an infringement of the competition rules is taking place and at securing an order that it be ceased. An action for injunctive relief may be brought and heard in accordance with the rules on summary proceedings. Furthermore, any natural or legal person who has suffered damage as the result of an abuse of economic dependence can bring an action for damages before the competent court. In practice, actions for damages in antitrust cases in Belgium are not frequent and are always follow-on actions. Any such actions are greatly facilitated by a finding of infringement by the BCA. The infringement will then be deemed to be established irrefutably for the purposes of the action for damages, according to Article XVII.82 CEL. It falls then to the plaintiff to prove the damage and the causal link between the infringement and that damage.

It should be noted that the prohibition of abuse of economic dependence was successfully invoked in Belgium barely two months after its entry into force, as a judge imposed a cease-and-desist order and periodic penalty payment for a refusal to supply. But one should be prudent in drawing conclusions from this isolated case. The facts were very specific and the judge accepted the existence of an abuse of economic dependence without checking whether competition was affected. It hence constitutes an improper application of the law.

Dead Letter?

The attempts by an increasing number of EU Member States to fill a gap left by existing national laws and EU antitrust law on prohibiting abuses of economic dependence has not been very successful so far. Although various Member States have introduced a prohibition on abuses such as those described, effective enforcement has been rare in practice.

There are several explanations for this. First, the conditions for application of the rules to a particular case are often difficult to establish, as the experience in France has shown. Second, victims may remain dependent on the commercial partner in question for further business, and so may refrain from taking a matter to court for fear of retaliation.

The latter may be addressed by a powerful, agile administrative body empowered to launch ex officio investigations, to actively protect the confidentiality of complainants, and to credibly exercise its power to impose sanctions and mediate between the parties involved. As an illustration, the UTP Directive addressed the fear factor in the context of effective enforcement of its restrictions by requiring Member States to enable enforcement authorities to act either on their own initiative or on the basis of complaints by affected parties, complaints by whistle-blowers, or anonymous complaints.

Conclusion

At the EU level, no law has so far proven to be adequate to cope with abusive practices that stronger firms might engage in against their weaker commercial party in the absence of a dominant position. The UTP Directive may somewhat change this equation, but its scope is limited to a particular industry sector and a limited number of relationships. Certain Member States have felt compelled to introduce specific legislation to deal with such practices at the national level, with Belgium a recent example. The prohibition on the abuse of economic dependence could be a valuable tool in antitrust law to act against practices that harm consumer welfare but would otherwise be left unpunished by Article 102 TFEU or its national equivalents.