On 13 March 2017, the Commission for the Protection of Competition of the Republic of Serbia (“Commission“) fined Victoriaoil and Vital, two out of four players on the market of oil products in Serbia, a total of approx. EUR 258,000, for entering into an anticompetitive horizontal agreement concerning refined consumable sunflower oil. The decision is remarkable for its use of regression economic analysis. But not everything in the garden is rosy – the decision has already received criticism on the account of the modest fine on the infringing undertakings.
The facts of the case
On 4 September 2014, Victoriaoil and Vital concluded a cooperation agreement pursuant to which Victoriaoil agreed to produce and package refined consumable sunflower oil 1 liter bottles for Vital, to be sold under “Vital” brand name. Vital outsourced production to Victoriaoil because a part of its production plant was under an overhaul, so Vital was allegedly unable to meet the demand for its refined consumable sunflower oil. The Commission was alerted of the “intimate business relationship” between the two close competitors in the context of a procedure in which it was asked to grant individual exemption to another cooperation agreement between the same parties (Serbia still has a pre-notification system that existed in the EU until 2003).
The Commission found that the agreement had the effect of restricting inter-brand competition between Vital’s “Vital” brand, and Victoriaoil’s “Iskon” brand. According to the Commission’s findings, the fact that Victoriaoil was effectively producing both brands resulted in a limitation of output, as Vital had altogether ceased production of refined consumable sunflower oil, while its related party “Sunce” had halved its production. In addition, the agreement led to identical price increases of “Vital” and “Iskon” 1 liter refined consumable sunflower bottles. The collusive outcome was a result of a high degree of commonality of costs between Victoriaoil and Vital, and a framework which facilitated the exchange of commercially sensitive information between these two parties.
The Commission found that the outsourcing agreement would not have qualified for an individual exemption even if one had been applied for, because it did not satisfy the proportionality test – according to the Commission, Vital had alternative, less restrictive, means of producing refined consumable sunflower oil. Indeed, the Commission found that Vital’s related undertaking Sunce had sufficient capacity to absorb its own, as well as Vital’s, production. Furthermore, the disputed outsourcing agreement did not improve the quality or variety of refined consumable sunflower oil products offered on the Serbian market. In light of the foregoing, the Commission found that the agreement infringed Article 10 of the Competition Act, which prohibits agreements and concerted practices whose object or effect is to restrict, distort or limit competition on the market.
The Commission missed a golden opportunity to shed some light on the object/effect dichotomy. In a laconic, four-line paragraph, the Commission merely stated that the agreement did not contain “hard-core” restrictions of competition. It then went on to conduct a detailed appraisal of the effects of the agreement on the relevant market. This resulted in a finding that the agreement not only perpetuated a framework that facilitated the exchange of commercially sensitive information between the Parties, but that such exchange had actually taken place. According to the Commission, the exchange of information allowed Victoriaoil to predict Vital’s future business strategy. Under the T-Mobile mobile test laid down by the European Court of Justice (“ECJ“) in 2008, the exchange of information between competitors “is tainted with an anti-competitive object if the exchange is capable [emphasis added] of removing uncertainties concerning the intended conduct of the participating undertakings”. Against this backdrop, it would have been interesting if the decision had been a bit more detailed as to why the Commission did not consider the agreement to constitute a by-object restriction.
Regression economic analysis
One of the Commission’s main goals in the last couple of years has been to up its economic expertise. To that end, it has hired a number of specialists, almost doubling its staff, and has actively trained with more experienced competition authorities. As a result, the Commission has developed a keener sense of economics which is now reflected in the quality of its decision as well as its choice of cases.
For instance, the Victoriaoil/Vital decision employs regression economic analysis to assess the counterfactual, i.e. the situation that would have existed on the Serbian market for refined consumable sunflower oil in the absence of the disputed outsourcing agreement (“but-for test”).
The Commission’s definition of the relevant market is solid. The authority found that refined consumable sunflower oil was different from other vegetable oils, vegetable fats, and animal fats in its characteristics, price, and intended use. While the Commission did not stray too far away from the tried-and-tested EU case-law, it did not satisfy itself by merely replicating the reasoning of the European Commission in similar cases. Instead, the Serbian authority conducted a demand-side and supply-side substitutability test encompassing various kinds of oils and fats on the local market, which lead it to confirm its initial position on the issue of the relevant market.
Commission’s approach to sub-contracting agreements
According to the European Commission’s Guidelines on Vertical Restraints and the Commission’s notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85(1) of the EEC Treaty (“Notice“), Article 101 TFEU does not, under certain conditions, apply to sub-contracting agreements, i.e. agreements whereby a contractor entrusts another undertaking – the sub-contractor- with manufacture of goods, supply of services or performance of work under the contractor’s instructions. Serbian competition law, on the other hand, is silent on sub-contracting agreements. The question of how, and under what conditions, the Commission would apply Article 10 of the Competition Act to sub-contracting agreements has so far remained open. In the Victoriaoil/Vital decision, however, the Commission clarified that sub-contracting agreements, in the context of competition law, are agreements where the contractor provides technology and equipment to the sub-contractor which is necessary to enable him to manufacture the goods, supply the services or carry out the work constituting the purpose of the agreement. The agreement between Victoriaoil and Vital was not, according to the Commission, a subcontracting agreement because it did not involve a transfer of technology and the production was not carried out under Vital’s instructions.