Companies beware! New prohibition in Belgium on the abuse of economic dependence
On 21 March 2019, the Federal Belgian Parliament adopted an Act amending the Code of Economic Law (“CEL”) regarding abuses of economic dependence, prohibited terms and unfair market practices in B2B relationships. The Act extends the powers of the Belgian Competition Authority (“BCA”) to situations where there is an anticompetitive abuse by an undertaking, even if that undertaking does not have a dominant position. The Act also offers businesses rights comparable to those of consumers by allowing them to defend themselves against other companies’ unfair, aggressive or misleading practices. The article below focuses on the new prohibition on the abuse of economic dependence.
Departure from EU competition law
Following the example of different other EU Member States, such as France, the Belgian legislator has, after a long legislative ‘journey’, adopted an act that could significantly affect competition law’s application in Belgium. In the past, restrictive practices prohibited by the Belgian competition rules (like the EU rules) were limited to anticompetitive agreements and abuses of a dominant position. With this new law, the Belgian legislator is introducing a third type of restrictive practice, namely the abuse of economic dependence, which is currently not present in EU competition law.
Position of submissiveness
For an undertaking to infringe the new prohibition, the “victim-undertaking” must have a position of economic dependence.
The new Article I.6, 4° CEL defines economic dependence as “an undertaking’s position of submissiveness towards one or more other undertakings that is characterised by the absence of a reasonable equivalent alternative, available within a reasonable period of time, and under reasonable conditions and costs, allowing this or each of these undertakings to impose obligations or conditions that cannot be obtained under normal market circumstances.”
The Act does not contain further indications on how such a position of economic dependence should be assessed. For undertakings and practitioners, it therefore remains to be seen which factors will be used in case law to find an economic dependence situation. Elements that might be relevant in this regard could possibly include: the relative market power of an undertaking, the share of the other undertaking in one’s own turnover, the technology or know-how held by an undertaking, the strong reputation of a brand or the scarcity of a product, the purchasing loyalty of consumers, and the access to essential resources or infrastructure by the economically-dependent undertaking.
The finding of a position of economic dependence will, however, just like the finding of a dominant position, be determined on a case-by-case basis.
Abusive behaviour
The mere fact that an undertaking is in a position of economic dependence is not sufficient to find that the undertaking, from which it is dependent, has infringed the new prohibition of competition law. There must also be some type of abusive behaviour. Indeed, the new Article IV.2/1 CEL states “it is prohibited for one or more undertakings to abuse a position of economic dependence in which one or more undertakings is/are economically-dependent on it or on them, where competition is likely to be affected on the Belgian market concerned or a substantial part of it.
The following may be considered as an abusive practice:
1. refusing a sale, a purchase or other transaction terms;
2. directly or indirectly imposing unfair purchase or sales prices or other unfair contract terms;
3. limiting production, markets or technical development to the detriment of users;
4. applying dissimilar conditions to equivalent obligations towards economic partners, thereby putting them at a disadvantage in competition;
5. making the conclusion of contracts dependent on the acceptance by the economic partners of additional obligations that, by their nature or according to commercial usage, have no connection with the subject matter of such contracts.”
It should be noted that the list of abusive practices in the context of economic dependence corresponds almost identically (with the exception of the addition of 1°) to the existing list in Article IV.2 of abusive practices in the context of a dominant position. Future case law will therefore have to make clear whether the interpretation of this new provision will follow the existing case law on the abuse of a dominant position.
Second, it is important to remark that an actual effect on competition is not required since a potential effect on competition is sufficient.
Fines of up to 2% of annual turnover
The fines provided for this new type of restrictive practice differ from the fines for the existing infringements of anticompetitive agreements and abuse of dominance. While for the latter two a fine can be imposed of up to 10% of the undertaking’s previous year’s turnover (at the group level), the maximum fine for abuse of economic dependence is substantially lower. The fine for abuse of economic dependence is capped at 2% of the previous year’s turnover of the undertaking (at the group level) or association of undertakings. Importantly, the 2% fine cap for abuse of economic dependence will be calculated on the Belgian turnover, while in the future (after the entry into force of another new Act) the 10% fine cap for anticompetitive agreements and abuses of dominance, will be calculated on the worldwide turnover.
Interesting times ahead
Undertakings still have some time to prepare for the application of the prohibition on abuse of economic dependence. This new prohibition only enters into force one year after the publication of the new Act in the Belgian Official Gazette. For the moment, no such publication has happened.
As the prohibition on abuse of economic dependence is completely new in Belgian competition law, it remains to be seen how this provision will be applied in practice and enforced by the BCA and Belgian courts. The BCA has already indicated that it needs more financial means if it is to investigate additional infringements of the abuse of economic dependence without reducing its activities regarding the existing competition law provisions (not only cartels and abuse of dominance, but also of course merger control). However, although the prohibition of abuse of economic dependence is included in Book IV of the CEL, it is not only within the BCA’s competence. Undertakings that are economically-dependent and that are subject to restrictive practices by their trading partner will be able to bring an action before the judicial courts in the context of private enforcement (as is also the case for cartels and abuses of dominance). A party prejudiced by such an infringement may therefore choose to file a complaint with the BCA on the one hand, or to follow the path of private enforcement by bringing an action before a judicial court. The future will have to show how, and how intensely, the new prohibition will be publicly and privately enforced.
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