Unilever judgment: a manufacturer can abuse its dominance through independent distributors. Burden of proof established by Intel.

The Italian Competition Authority (the “AGCM”) fined Unilever over €60 million for abusing its dominant position in the market for individually packaged ice creams. The distributors of these ice creams were required by Unilever to impose exclusivity clauses on their customers. Those customers (bars, cafes, swimming pools, sports clubs, etc.) were thus restricted from purchasing any ice creams other than those of Unilever. Unilever challenged the fine before the Italian court which in turn posed two preliminary questions to the European Court of Justice (“ECJ”). The ruling of the ECJ of 19 January 2023 provides food for thought for dominant producers.

Economic entity?

Unilever uses independent distributors to distribute its products. Unilever and its distributors are therefore not part of the same undertaking. The independent distributors imposed exclusivity clauses on their customers, albeit at the request of Unilever. The Italian court asked the ECJ under what circumstances formally independent undertakings could nevertheless be considered part of the same economic entity.

The ECJ interpreted that question in a way that the Italian court wanted to know whether the independent distributors’ conduct was, under Article 102 TFEU, imputable to a manufacturer (in this case Unilever). According to the ECJ, that is the case if “those conducts were not carried out independently by those distributors but are part of a policy unilaterally adopted by that manufacturer and implemented through the distributors“. In that case, the abusive (exclusionary) conduct was unilaterally determined by the dominant undertaking and (only) that undertaking can be considered to have committed the conduct. The distributors and distribution network should be seen merely as an instrument by which that exclusionary policy of the dominant manufacturer is implemented. Unlike the AGCM, the ECJ does not apply the economic unit doctrine. The companies are considered to be independent and do not belong to one and the same economic unit as the manufacturer, but under certain circumstances conduct by independent distributors can be attributed to a dominant manufacturer.

Burden of proof for competition authorities to establish abuse

One of the preliminary questions concerned the burden of proof on competition authorities in establishing abuse. The question can be summarized as follows: in the case of exclusivity clauses, is a competition authority required to prove that they have an exclusionary effect on equally efficient competitors? In addition, the Italian court asks how a competition authority should assess economic analyses provided by the dominant company (such as an as efficient competitor analysis).

In Hoffmann-La Roche, the ECJ found that exclusivity clauses comprise “by their very nature” an abuse of dominance, and that the same applies to loyalty rebates. Since the 2017 Intel judgment, it has become considerably more difficult for competition authorities to establish abuse in such cases. While it is true that the competition authority does not have to prove that the loyalty rebates in question actually produced anti-competitive effects, it does have to show “that the practice in question is actually capable of producing such effects“. If, during the proceedings, the undertaking concerned argues, and submits evidence to that effect, that its conduct was not capable of restricting competition or producing the alleged exclusionary effects, or that the conduct can be objectively justified, the competition authority must thoroughly examine those arguments and the evidence submitted. The existence of a strategy aimed at excluding equally efficient competitors may also play a role in that regard. In the Unilever judgment, the ECJ provides a clear summary of the burden of proof resting on competition authorities to establish exclusionary abuse and makes clear that the principles formulated in Intel also apply to exclusive purchasing obligations.

Judgment of the European Court of Justice of 19 January 2023, case C-680/20, Unilever v AGCM, ECLI:EU:C:2023:33