2014 brings a new legal regime for so-called “individual restrictive trade practices”. Decree-Law n.° 166/2013 of 27 December will enter in force on the 25th of February and introduces a set of important modifications to the current regime, both at substantive level and sanctioning level.
The current regime – Decree-Law n.° 370/93 – has been in force for 20 years and there was consensus around the need to rethink it. The optimal way ahead was, however, subject to debate considering, on the one hand, that the vast majority of the prohibitions established in the decree-law had seldom been enforced (except for below-cost selling); on the other hand, that a reinforced prohibition of below-cost selling (envisaged by some stakeholders) would be likely to have a negative impact on the general level of prices at retail level (as shown by the recent experiences of other jurisdictions) and, lastly, the fact that the legislation concerned aims at protecting values such as the loyalty and transparency of commercial relationships, which - in a market economy where principles of free (undistorted) competition prevail - would advise that the legislative intervention be carefully drawn and directed at those sectors or the economy/ type of players in need of it (rather than applying generally across all sectors/players).
The final outcome was a legislation that maintains to a large extent the statu quo ante (without prejudice for relevant modifications on the regime for below-cost selling and for abusive business practices, the latter now comprising a set of rules specifically applicable to the agro-food sector) and a significant increase in the level of sanctions applicable.
Main modifications at substantive level
Formally, the group of misdemeanours covered by the law remains unaltered: discriminatory prices and selling conditions; transparency in pricing and sales conditions; prohibition of below-cost selling, refusal to sell goods or to render services; abusive business practices. However, in substantive terms significant modifications are introduced in their specific scope and reach, in particular in respect of below-cost selling and abusive business practices1.
Regarding below-cost selling, the intent of the legislator was to clarify the regime and to facilitate the interpretation of the law and its control/ supervision. To that effect, some of its main concepts where redefined, in particular in what concerns the notion of effective purchase price; also, it is now expressly stated that discounts given in a certain product are taken into account in the calculation of its sale price. The wording of the law is however still open to dubious interpretations and to uncertainties in its practical implementation.
An example of this can be seen in the solution found for discounts t“hat consist in the granting of a right of compensation in a subsequent purchase of equivalent goods or of goods of a different nature”, in other words, deferred discounts such as “card-deferred discounts” or “voucher-deferred discounts”, both of which are a common practice in retail trade. Some of these discounts have now become relevant for the assessment of below-cost selling, i.e, they will be considered in the calculation of the product’s sale price. However, the wording used in this regard is ambiguous and open to different interpretations as to the exact scope of the discounts covered and the calculations to be undertaken as the decree-law merely states, to this effect, the following:“ (..) discounts (..) granted in each product, shall be attributed to the quantities sold for that same product and supplier in the last 30 days”.
Another novelty with particular relevance for below-cost selling (though applicable equally across all Decree-Law 166/2013) concerns the specific rules regarding acceptance, reclamation and correction of invoices, which establish very short deadlines for those operations: reclamation must occur within 25 days from invoice receipt (failing which it is considered as accepted); correction of contested invoices must be undertaken by the supplier within 20 days from reclamation. Also, modifications included in corrected invoices issued after the referred deadlines are no longer relevant for the assessment of a below-cost selling practice.
Lastly, it is no longer possible for one undertaking to – legally – engage in below-cost selling in response to a price charged by another undertaking in the same area of activity and which is in a situation of effective (direct) competition with the first undertaking (the respective legal exception having been eliminated).
The most significant modifications – in substantive terms – occur in respect of “Abusive business practices”, where a significant broadening of the practices covered is undertaken. The (newly) prohibited practices concern either (i) the business relationship between two undertakings (regardless of their position as supplier or as buyer, their dimension and their area of activity) or (ii) the behavior of a purchaser in its relationship with certain agro-food suppliers (micro and small enterprises, producer’s organisations and cooperatives). The provisions added give rise to some perplexity insofar as they prohibit certain business practices – such as those with result in a retroactive modification of a supply agreement or in the obtaining of compensation for ongoing or finalised promotions as well as, in the agro-food sector, the purchaser’s refusal or the return of goods on the grounds of lower quality or delay in delivery without demonstration of the supplier’s responsibility – in absolute terms, i.e., regardless of whether or not the result corresponds to the interest of the parties or of whether or not it was expressly or tacitly agreed between them. This is an unsatisfactory result, both for its marked intrusion in the content of private economic relationships and for the interference in the parties’ freedom of contract. Also, in legal terms, submitting the refusal or return of goods to the requirement of demonstration of responsibility by the supplier is a doubtful solution, considering its contradiction with basic principles of civil law in terms of fulfilment of obligations and contractual liability.
The scope of “abusive practices” was further broadened with the inclusion of a new set of negotiation practices that are now prohibited to the extent that they constitute no “imposition” (eg: imposing that an undertaking shall not (re) sell to another undertaking at a lower price; unilaterally imposing a promotion or payments as compensation for a promotion as well as, in the agro-food sector, the imposition of direct or indirect payment (discounts) for practices such as (i) non-achievement of sales expectations; (ii) introduction or re-introduction of products; (iii) compensation for costs with a complaint by the customer or to cover any waste of the supplier’s products, except if the purchaser demonstrates that it was due to negligence, flaw or contractual breach by the supplier. However, the option to anchor the illegality of a behaviour (with the associated severe consequences) in an unknown undetermined concept – that of “imposition” – for which the decree-law offers no definition generates a non-negligible degree of uncertainty for the undertakings affected. This is exacerbated by the inherently dynamic (and fierce) nature of commercial negotiations and by the opportunities for abusive use of the notion of imposition (by those who may benefit from it).
Sanctions
The decree-law significantly increases the level of fines applicable. For fines imposed upon a legal person differentiated thresholds are created depending on whether the breach was committed by a micro, small, medium or large undertaking (according to the thresholds established in Recommendation n.º 2003/361/EC of the European Commission). Thus, large undertakings will now be subject to fines ranging from €5.000 to €2.500.000 for the most severe misdemeanours (which include, amongst other, below-cost selling and abusive restrictive practices) and from € 2.500 e €500.000 for less serious misdemeanours.
Surveillance, investigation and decisional powers exclusively committed to ASAE
The Portuguese Authority for Economic and Food Safety (“ASAE”), up until now charged only with control/inspective powers will cumulate the latter with prosecution and decisional powers of misdemeanours in the area of individual restrictive trade practices. The ASAE is further empowered to (i) impose interim measures (suspension of the execution of a practice deemed restrictive) and to (ii) determine the imposition of a periodic penalty payment (€2.000-€50.000/day, up to a maximum of 30 days and €1.500.000) for each day of breach of the interim measure imposed.
Scope of application
Last but not least, a new provision dealing expressly with the issue of scope of application of the decree-law proposes a new (more complex) solution according to which the new regime shall apply to “undertakings established in the national territory” (without specifying however what is the specific scope of the notion “undertaking” or “establishment”); conversely, it does not apply to (i) services of general economic interest, (ii) the purchase/sale of goods and the provision of services subject to sector-specific regulation; and (iii) the purchase/sale of goods and the provision of services with non-EEA origin or destination.
Final comment
The entering in force of the new regime shall impose upon the affected undertakings a significant effort of analysis and evaluation of their commercial practices in order to assure their compatibility with the new rules. Such analysis is particularly challenging in this case, as the new decree-law fails to fulfill some of its purposes in particular, that of enhanced clarity in the legal text and easier interpretation and implementation. Indeed, the new regime is, in some points, unnecessarily complex and, in others, excessively ambiguous, and, against this background, an increase in the litigation around its interpretation and implementation can be anticipated.
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1 Other modifications, which are less-structural though of potential relevance: in the prohibition of discriminatory prices and sales conditions, an exception for practices that comply with competition law; in the provision referring to disclosure of sales conditions, an exception for information covered by business secret; in the prohibition of refusal to sell goods or to provide services, an extension if the exemptions (causes for justification).
