Czech Republic - change in legislation

22 April 2010

Miloslav Sinfeld, Zuzana Fantová

Abuse of market power by supermarket chains

Over the years, the market of agricultural products and groceries in the Czech Republic and other countries in Central Europe has become increasingly dominated by supermarket chains. Farmers and other producers of agricultural products and groceries complained that the supermarket chains abuse their market power to dictate excruciating conditions, especially the purchase prices. Last year, their lamentations were answered by the legislator who adopted a new act no. 395/2009 Coll., Act on the significant market power in the sale of agricultural products and groceries and on its abuse ("Act"), effective as of 1 February 2010. Similar law was adopted in Hungary with effect as of 1 January 2010.

In the Czech Republic, the competition law consist mainly of Act 143/2001 Coll., the Competition Protection Act ("Competition Act") that provides for the prohibition of the abuse of "dominant market power". Proponents of the new legislation against the supermarket chain purchasers argued that the Competition Act does not provide protection against those purchasers who do not enjoy the dominant market power but yet, have the sufficient market power to dictate unilaterally advantageous conditions to their suppliers. Therefore, the Act is based on the notion of a "significant market power" defined as the dependency of the supplier on the purchaser. Also, a purchaser with the yearly turnover over CZK 5 billion (approx. EUR 200 million) is considered to have significant market power unless proved otherwise.

Besides the general prohibition of the abuse of significant market power, the Act prohibits specific practices and sets out specific obligations of purchasers in relation to suppliers. These practices and obligations are very similar to those set out by the Hungarian law and relate for example to the invoicing, general business conditions, terms of sale or trading auctions. Most significantly, the purchasers are required to pay the purchase price not later than within 30 days after the delivery of the goods. The suppliers may also require having the general business conditions, where the manner of calculation of the purchase price is stipulated, in writing. The purchasers are limited in the possibility to sell goods cheaper than for the purchase price and in requesting additional payments from suppliers in connection with selling their goods if no actual service was provided to the supplier.

The control over compliance with the Act was confided to the Office for the protection of Competition ("Office") residing in Brno. The Office created a new department for the control of market power and announced in mid-February that it had initiated a sector-wide control of compliance with the Act. For a breach of the Act, the Office may impose fines of up to CZK 10 million (approx. EUR 400,000) or 10% of the net turnover achieved by the purchaser in the last year.