Vj-147/1999/65
EURO-ELZETT LTD AND 27 BRAND WHOLESALERS
(Restrictive agreements)
EURO-Elzett Ltd, the producer and trader of mortise deadlocks concluded contracts with 27 authorised wholesalers under which the wholesalers would assure the brand loyalty and they would not deal with compatible products of other producers. This contract was completed with another one, containing a recommended minimal wholesale price and prohibiting the distribution of products at or below the purchasing price.
There are 12 other Hungarian undertakings on the market of mortise deadlocks where the EURO-Elzett has 58 per cent market share.
Following the investigation, launched by the Office of Economic Competition ex officio, the Competition Council examined: (1) whether the contracts, prohibiting the selling at purchasing price or below and the stipulation concerning the exclusive purchasing that prohibiting the wholesalers to distribute compatible products of other producers do not infringe the prohibition of Competition Act prohibiting the restriction of competition; (2) whether the restrictive conducts are the subject of a group exemption regulation or otherwise could they be individually exempted, and (3) whether the way of distribution of imported padlocks could be consider as misleading consumers since the products show "made in Italy" while the wrapping indicates "made in Hungary".
The Competition Council stated that EURO-Elzett had such a degree of market power that was sufficient to restrict the market conduct of wholesalers by the contracts, although the producer has not applied any sanction against them until the time of the investigation. The stipulation of the contracts that makes selective distribution obligatory does not exclude the possibility of contracts being block exempted but the regulation on exclusive purchasing agreement does not accept the restriction on resale prices therefore the group exemption is cannot be applied. Considering the possibility of individual exemption the Competition Council establishes that the resale price maintenance, linked with the market power of the producer, may result in such a negative effect as: (1) termination of intrabrand price competition, (2) increasing the threat of collusion among producers or wholesalers, (3) fixing the minimum profit rate for wholesalers. Upon these reasons the Competition Council refused the application of EURO-Elzett for individual exemption.
Considering the joint effect of the two contracts the Competition Council stated that the restriction is suitable to reduce interbrand competition and to deprive wholesalers of an important tool in the competition with the producer, which would lead to the significant distortion of competition on the relevant market. Therefore the restrictive paragraphs of the contracts were condemned by the Competition Council and it imposed a fine, amounting to HUF 5 million (20. 000 euro) on the EURO-Elzett.
As far as the distribution of imported padlocks are concerned the conduct of EURO-Elzett was not suitable for misleading consumers in the view of the Competition Council.
February 3, 2000. Budapest
dr. Györffy István sk. előadó
dr. Bodócsi András sk.
dr. Kállai Mária sk.
Ágoston Marika