07 Jul 2017

Frikom, Leading Ice-cream Manufacturer, Under the Loupe of Serbia’s Commission for Protection of Competition for the Second Time

On 29 May 2017, the Serbian Competition Commission initiated ex officio proceedings for the alleged abuse of dominance against Frikom, the largest producer of frozen food in Serbia. The day following the initiation of proceedings, a dawn raid at Frikom’s business premises was carried out.

Frikom’s abuse of dominance history

This is not the first time the Serbian National Competition Authority (NCA) initiated a proceeding against Frikom.

In 2012, the NCA found that Frikom abused its dominance in the wholesale market of industrial ice-cream by engaging in vertical price-fixing, imposing exclusivity on retailers (either through explicit exclusivity clauses or through rebate schemes) and offering discriminatory payments terms to customers.
Although, the NCA considered Frikom’s practices as restrictive by object, it further assessed their competition restrictive effects. Once again a difference between restrictions ‘by object’ and ‘by effect’ was ignored. Consequently, a fine in the amount of EUR2.7 million was imposed on Frikom.

Commission’s continued focus on Frikom

This time, the NCA suspects Frikom abused its dominance in the ice-cream retail market by implementing additional incentives and/monetary payments to retailers. As per the Commission’s assertion, such incentives are implemented by Frikom in order to disable or terminate the sale of competitors’ products and represent a sort of compensation to retailers for termination of competitors’ contracts.

However, a legal assessment of so-called loyalty rebates is not always straightforward, as they can be both pro and anticompetitive. While the NCA focuses once again on Frikom’s contracts with small retailers (e.g. local retail chains, corner shops and kiosks) a thorough economic analysis will certainly be crucial in the present case.

What can we expect this time?

Frikom is once again accused of imposing exclusivity rebates and exclusivity clauses on its retailers. This could be an excellent opportunity for the NCA to finally make a clear distinction between restrictions by-object and by-effect and increase legal certainty for all market participants with regards to interpretation of competition rules. The evidence collected during dawn raid at the Frikom’s premises could further contribute to the quality of final Commission’s assessment.

Also, it should be noted that the Guidelines prescribe the repetition of infringement as one of aggravating circumstances, while the homogeneous repeated infringement is treated as particularly aggravating circumstance. Bearing in mind that Frikom was already fined by the NCA for the abuse of dominance, this new investigation puts the company in jeopardy of facing a lot higher fine due to a repeated infringement.

Finally, given that Frikom’s parent company, conglomerate Agrokor, faces liquidity issues and is unable to meet all payment obligations, the possible rescue measure could be the sale of Frikom. But Fricom’s competition history along with the recent NCA’s investigation could be a red flag in any potential transaction. Therefore, it remains to be seen what the NCA will decide this time and how it will affect Frikom’s destiny.

This article was previously published by Thomson Reuters/Practical Law and available on our website with the permission of the publisher.

Contributors: Marija Papić and Miluša OkiljevićGecić Law