Breaking barriers: EU issues record fine as it takes on cross-border trade restrictions (again)

In May 2024, the European Commission fined the global snacks company Mondelēz EUR 337.5 million in a decision that marks the highest fine for illegal restrictions on parallel trade to-date. Commissioner Vestager cited the importance of the EU single market – particularly in the context of the cost-of-living crisis – signalling that parallel trade restrictions (also referred to as territorial supply constraints) are back in the spotlight.

In a previous blog post (now updated to include the most recent developments), we described the EC’s fining spree in this space during 2018-2019, with five decisions in eight months, including against AB InBev, which was fined EUR 200 million. Four years on, the Mondelēz case is notable not only for its record fine, but because of the broader political context in the EU and the EC’s remarks that more cases like this are in the pipeline.

Companies with sales in multiple EU Member States should keep a close eye on these developments. Expect continuing enforcement against restrictions on resellers who want to trade across borders within the EU. The risk does not solely lie in the provisions of distribution contracts, but also in unilateral behaviour on the part of the manufacturer when there is a risk of dominance (generally >40% market shares).

The Mondelēz case

The EC found that Mondelēz infringed EU antitrust rules in a number of ways:

  1. contractually limiting the territories in which wholesale customers (traders/brokers) could resell products;
  2. contractually requiring a customer to apply higher prices for exports compared to domestic sales;
  3. contractually preventing exclusive distributors active in certain EU Member States from replying to sale requests from customers located in other EU Member States without prior permission from Mondelēz (i.e. restricting passive sales);
  4. refusing to supply a broker in Germany to prevent the resale of chocolate tablet products in Austria, Belgium, Bulgaria and Romania where prices were higher; and
  5. ceasing the supply of chocolate tablet products in the Netherlands to prevent them from being imported into Belgium, where Mondelēz was selling these products at higher prices.

The first three infringements set out above resulted from anti-competitive agreements or concerted practices with customers, which infringed Article 101 TFEU. The latter two infringements resulted purely from the unilateral conduct by Mondelēz, which the EC qualified as abuses of a dominant market position under Article 102 TFEU.

The EC concluded that Mondelēz’s practices prevented retailers from being able to source products freely in EU Member States with lower prices and in this way caused a partitioning of the EU internal market. The EC claims the conduct led to pricing differences between EU Member States of between 10% and 40%, and sometimes even more.

When the EC launched its formal investigation into Mondelēz in 2021, it said it was also looking at possible restrictions on the languages used on packaging. This concern was dropped during the investigation. Packaging was also relevant in AB InBev, in which one of the abuses related to AB InBev changing the packaging of some products supplied to retailers and wholesalers in the Netherlands to make these products harder to sell in Belgium. 

Another notable aspect of the Mondelēz case is the level of the fine. Mondelēz sets a new record for this type of infringements at EUR 337.5 million – more than EUR 100 million larger than AB InBev’s previous record fine of EUR 200 million. When explaining the fine, Commissioner Vestager highlighted that the case was not novel. The fact that Mondelēz should have known that its conduct infringed EU competition rules was treated as an aggravating factor. This sends a clear message: the EC expects businesses to know these rules and it is treating parallel trade restrictions seriously.

Beyond Mondelēz: the broader political context 

Despite the active enforcement, resellers across the EU are still complaining about the prevalence of parallel trade restrictions. In 2020, the EC calculated that European consumers would pay EUR 14 billion less for products if they could benefit from lower sourcing prices in other EU Member States. In the summer of 2023, the EC asked interested parties for ideas on how to tackle the problem, but then things went quiet...

…Until recently. There is now a broader call for (ex-ante) action against parallel trade restrictions at the political level in the EU. Notably, on 24 May 2024 a call for action was initiated at an EU Competitiveness Council meeting by eight EU Member States, encouraging the EC to:

  1. prohibit unfair practices that result in discrimination against traders on the basis of location; and
  2. investigate the extent to which manufacturers use differentiated languages on labels and packaging to justify why the same products cannot be sold in all EU Member States, including examining opportunities and risks related to digital labelling.

In relation to this call for action, Commissioner Vestager noted that the EC has more antirust cases in the pipeline. However, competition rules focus on ex-post enforcement in individual cases (often following complaints). In addition, they can only be applied if a company is in a dominant position or has entered into anticompetitive agreements or concerted practices. The call for action goes beyond this by calling for measures that would impose rules on the unilateral conduct of non-dominant businesses, echoing sentiments expressed in Enrico Letta’s single market report. One important feature is that in the past the EC has relied on implied consent by resellers to conclude that seemingly unilateral action amounted in fact to concerted action.

What can you do to manage risk?

In light of these developments, we set out a few practical steps for your business to consider:

  • Review agreements: Review your supply, distribution and/or licensing agreements to ensure that they do not contain problematic restrictions. Also understand what happens in practice.
  • Review pricing and product labelling policies: Check your policies to ensure that they do not artificially seek to maintain price differences between EU Member States.
  • Conduct compliance training: Ensure that the relevant businesses are trained in order to understand, identify and address issues, in both formal and informal settings.
  • Internal documents: Ensure that all practices limiting cross-border trade have a well-documented and proper rationale.