CADE Condemned Unilever of Vertical Restrictions (Exclusivity Practices)
WHY IS THIS ABOUT?
This precedent addresses exclusivity agreements in distribution relationships.
HOW THE CASE BEGAN?
With a complaint presented by a competitor in 2006.
WHAT WAS INVESTIGATED?
If Nestle and Unilever (Kibon) prevented competitors from having access to the market of ice cream for immediate consumption in the cities of São Paulo and Rio de Janeiro.
WHAT WAS CADE’S UNDERSTANDING?
CADE’s Tribunal condemned Unilever (Kibon) (this decision is different from the preliminary opinion held by CADE’s investigative body/General-Superintendence). The Reporting Commissioner’s (João Paulo de Resende) vote was followed by all other Commissioners.
Four kinds of exclusivity agreements were identified: 1) exclusivity of sales; 2) exclusivity of merchandising; 3) minimal sales; 4) exclusivity of freezers for storage.
RELEVANT POINTS CONSIDERED BY THE REPORTING COMMISSIONER:
Points of sales (POS)/market power analysis:
- Affected POS are in a relevant number and are “significant” (“VIP” POS) to the market (different conclusion from GS).
- One-third (1/3) of POS “understand” that they can only sell Unilever (Kibon)’s products (even if this exclusivity was not explicitly in the agreements).
- “Cascading effect”: Unilever (Kibon), as the market’s leader, makes other players adopt the same exclusivity practices (Nestle admits that it also has this kind of exclusivity agreement, in response to the market’s leader).
- The potentiality of market foreclosure was identified in Unilever’s “market power”/dominant position.
Condemned practices – exclusivity of sales; exclusivity of merchandising; minimal sales (even if they are not explicitly in clauses in the agreements):
4) Unilever gives discounts and bonuses in exchange of exclusivity of sales/ of merchandising (important: the oral vote didn’t discuss minimal sales in this point).
5) Economic rationality not identified: Unilever’s discounts and bonuses, despite the increase of flow of consumers in the POS and representing a low percentage in the turnover of the POS, prevent competitors from having access to the POS.
6) The exclusivity practices analyzed don’t result in lower prices to the consumers.
Not-condemned practice – exclusivity of freezers use:
1) According do CADE, even with dominant position, it’s not anticompetitive to demand exclusivity in the use of freezers for storage: there are economic efficiencies (costs of installation and maintenance of the freezers, avoidance of free-riding).
3) The company must have a dominant position.
4) Exclusivity (even if not explicitly in the agreements) applied to “VIP POS” is sufficient to potentially foreclose the market and prevent competitors from accessing the market.
WHY NESTLE WAS NOT CONDEMNED?
Lack of dominant position, in this case.
HOW MUCH WAS UNILEVER’S FINE?
Unilever was condemned to pay R$ 29,4 million.