On 30 September, the Competition Council of Latvia (the CC) fined SIA Knauf and Norgips sp. z o. o. (Poland), a parent company of SIA Norgips that is also a part of a Knauf Group, for abusing their market power by creating and implementing anti-competitive loyalty rebates system. A fine was imposed on both companies at the amount of EUR 1 621 398.38.
The CC opened a formal case investigation after commencing sector inquiry into the market of plasterboard manufacturing and distribution in 2013. During the inquiry, the CC obtained information on alleged abuse of market power by dominant plasterboard manufacturer and distributor in Latvia SIA Knauf and SIA Norgips.
During the case investigation, the CC concluded that SIA Knauf and SIA Norgips had created and at least from 2009 to 2014 implemented anti-competitive loyalty rebate system to their clients which are the largest Latvian retailers of building materials. The system laid down conditions of receiving individualized, retroactive loyalty rebates. For at least five years these anti-competitive conditions motivated retailers to purchase plasterboard together with other building materials primarily and at the maximum possible capacity from the Knauf Group companies.
The CC points that discount systems themselves are not anti-competitive if economically justified and based on economies of scale and scope. While in this case loyalty rebate system was designed as a reward in case retailers refrained for purchasing plasterboard and other building materials from alternative sources. This way, SIA Knauf and SIA Norgips in fact established exclusive dealing conditions with the largest Latvian retailers of building materials.
Thus, anti-competitive loyalty rebate system applied by SIA Knauf and SIA Norgips restricted retailers’ choice and access to other suppliers of plasterboard in Latvia. Furthermore, both companies created high entry barriers in Latvian market for its competitors, and hindered the competition development in the market as a whole. Meanwhile, SIA Knauf and SIA Norgips were able to protect and to hold their position and dominance in the market.
Mr. Jānis Račko, the Council Member of the CC, says: “Dominant position is not a violation in itself. Although, company possessing a dominant position has a special responsibility not harm the competition though its price and discount policy. Abuse of market power is considered to be a severe competition law infringement taking into account distortion of competitive environment in the market, limited possibilities of other undertakings to operate in market and consumers to receive goods and services produced in fair and equal competition conditions.”
The CC for the first time analyzed whether loyalty rebate systems designed and implemented by a dominant undertaking constituted a competition law infringement. In the case investigation, the CC followed the practice of the European Court of Justice which has repeatedly emphasized – if contracts concluded by the dominant company provides or unilaterally applies rebates that are decent on whether all or part of the purchase is made from the dominant undertaking, the dominant undertaking violates prohibition of abuse of dominance.
Legal obligations to cease application of anti-competitive loyalty rebates was imposed on SIA Knauf and SIA Norgips. Although the decision of the CC can be appealed in court, legal obligation must be fulfilled immediately after receipt of the decision.
For the abuse of dominant position, a fine on SIA Knauf was imposed in the amount of EUR 965 548.18, while Norgips sp. z o. o. – the mother company of SIA Norgips – was imposed with a fine in the amount of EUR 655 850.20.
SIA Knauf is part of the Knauf Group, which is one of the leading manufacturers of building materials in the world. The owner of SIA Knauf is Knauf International GmbH – an undertaking established in Germany. SIA Knauf is the only plasterboard manufacturer both in Latvia and Baltics.
Since 2004, SIA Norgips is also part of the Knauf Group and distributes plasterboard produced in factories owned by the Knauf Group. This June, SIA Norgips was excluded from the Commercial Register of Latvia and added to Norgips sp. z o. o., which is owned by Knauf sp. z o. o – an undertaking established in Poland that is also furthermore owned by Knauf International GmbH.
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