There is nothing new about fierce negotiations between manufacturers and retailers. But the current developments have made the situation even tougher. Manufacturers are facing inflation and significant cost increases for raw materials, energy and transportation and are calling for higher prices. Retailers see their margins under threat and are countering this. This constellation has now taken EDEKA and Coca-Cola to court, where the retailer accused the beverage manufacturer of excessive prices in violation of antitrust law and is demanding supply at lower prices.

The case is highly instructive because there is so far only limited legal precedent on the antitrust issue of pricing abuse.

This article summarizes the background and the ruling of the Hamburg Regional Court and provides key take-aways for the practice.

Background

Coca-Cola and EDEKA negotiated but were not able to come to an agreement on the delivery at the higher prices demanded by the manufacturer.

EDEKA then took the matter to the Hamburg Regional Court for preliminary legal protection and achieved a quick success. The court provisionally ordered the soft drinks manufacturer to continue supplying EDEKA at the previous prices for a further three weeks until the end of September. The court confirmed that the U.S. company had abused its dominant position. The very brief decision gave hardly any further justification for this conclusion.

The beverage manufacturer filed an appeal against this preliminary ruling. During the subsequent – partly heated – oral hearing, the court indicated that it was already having doubts about the continued existence of the preliminary injunction. In its ruling of September 29, 2022, it then also lifted the injunction. The 19-page ruling was published last week.

Decision of the Regional Court of Hamburg

According to the Hamburg Regional Court, several preconditions of a supply obligation by interim injunction are lacking.

Market dominance / Relative market position

The court first confirms a dominant position of the beverage manufacturer on the "market for carbonated sweet beverages" in Germany, referring to a corresponding practice of the Federal Cartel Office. At the hearing, Coca-Cola had attempted to stress the complexity of the question of market definition, which the petitioner's arguments did not do justice to in their view.

According to the ruling, the petitioner has plausibly demonstrated that the drinks manufacturer has a dominant position on this market. The court focuses on the high market shares of over 40%. According to Section 18 (4) of the German Act against Restraints of Competition (ARC), this gives rise to the presumption of market dominance. Coca-Cola ultimately failed to refute this, also because the distance to the next largest competitor, Pepsi, is significant.

Ultimately, the court denies a market dominant position because of the petitioner's imprecise request. The petition had referred to the entire conditions sheet, which was the subject of the 2022 annual negotiations between Coca-Cola and EDEKA. However, this included beverages outside the relevant market for carbonated sweet beverages and it was not for the court to sort that out, the court said.

The court also rejects a relative market dominance of the U.S. company and thus a claim under Section 20 ARC. EDEKA had argued in this respect with "must-have products" of the beverage manufacturer. However, a prerequisite for the application of the norm is a clear imbalance between the parties concerned. This was not the case here – due to EDEKA's strong position, there rather is a mutual dependency.

Price increase abuse

The ruling also denies abusively excessive prices. This is the core of the decision, which the court addresses in detail.

As to the legal standard, the court holds:

• According to Section 19 (2) No. 2 of the ARC, prices are abusive if they deviate from those that would result from effective competition. In order to determine this, the "competition-analogous" price (as-if price) must be determined and compared with the actual price. One conceivable way of determining the competition-analogous price is to look at prices on comparable markets.

• A safety margin is to be added to this comparative price in order to compensate for uncertainties (in accordance with Federal Court of Justice (FCJ), June 28, 2005, KVR 17/04 - Stadtwerke Mainz). These uncertainties would arise in the case of a thin basis for comparison, as is the case here, if prices of only one competitor are used.

• Finally, the actual price must "significantly" exceed the competitor-analogous price (the court relies in this respect on Düsseldorf Higher Regional Court, 6.4.2022, VI-U (Kart) 12/21, with further references to FCJ case law). Only in this way is it "shown with sufficient certainty [...] that the demanded price is unjustified and only enforceable due to the dominant position". In this context, the court emphasizes the suppliers' pricing leeway, which is also guaranteed by antitrust law.

Against the background of this legal standard, the court rejects EDEKA's arguments:

• EDEKA had argued that there had been a significant price increase compared with the beverage manufacturer's previous prices and that the price increases at the next largest competitor, Pepsi, were lower. The court rejects this. It was not (relative) changes that mattered, but the (absolute) result. The percentage increase compared to previous prices does not indicate whether the current price as such is anti-competitive price. The safety margin and significance threshold required by case law had also not been taken into account. Finally, according to the court, EDEKA's argument was too vague. Although EDEKA had mentioned Pepsi's percentage price increases, it had neither specified the absolute amounts nor made it credible that Pepsi would not also (further) increase its prices.

• EDEKA also referred to the market for beer and beer-based mixed drinks, where price increases had been lower. According to EDEKA, this constituted a suitable factual comparison market. The court disagrees, because the customer group was "clearly different". According to the court, the markets for "water and mixed water beverages" or "non-carbonated sweet beverages" would have been more suitable for comparison.

• The court concludes with an obiter dictum: Alternatively, and in the absence of reliable comparable markets, it would have been possible to take the manufacturer's pricing calculation as a basis. The court refers to the exchange of experience from the case law of the Federal Court of Justice, according to which, in the event of effective competition, companies set prices in such a way that they cover costs and generate the highest possible return, while at the same time preventing customers from migrating to competitors because prices are too high (FCJ, 15.5.2012, KVR 51/11 - Wasserpreise Calw). According to the court, this would have been one alternative way of determining the competition-analogous price. However, the court does not address the question how EDEKA would have been able to access corresponding data on Coca-Cola’s pricing calculation.

Grounds for injunction

The court also denied the grounds for an injunction: To supply obligations, particularly strict requirements apply. EDEKA's existence is neither endangered by a non-supply - especially since both parties understand the non-supply as only a temporary situation - nor is EDEKA’s damage caused by supplies at higher prices of proportion to the damage to Coca-Cola by a continued supply at lower prices. Such a "comparison of damages" would, moreover, require EDEKA to quantify the loss of profit caused by a non-delivery. However, the retailer had not done so.

Practical implications of the decision

The decision is instructive for the practice in several ways:

• Case practice on price increase abuse is rather scarce, so the court's comments are helpful concretizations of the antitrust framework. Most cases concern sectors with special factors such as state-backed monopolies or exclusivities, for example in the areas of gas and electricity supply, water supply, cable networks and pharmaceuticals.

• As far as the issue of market dominance is concerned, the court makes surprisingly clear statements, although this question in particular is often fraught with many uncertainties. The court’s approach might be due to the situation of interim legal protection.

• Proving pricing abuses is likely to remain difficult, especially in interim legal protection. The legal hurdles are high - antitrust law is not intended to allow general price controls. And in practice, a reliable determination of the "as-if" price is needed, for which prices on comparable markets in particular can serve. The court explores a number of approaches here that should be kept in mind – formation of a temporal comparative market, identification of comparative product markets or analysis of price calculation factors. In each case, according to the court, a very concrete substantiation is required and uncertainties must be compensated by safety margins. And it must be shown that the price demanded is significantly higher than the estimated competitive price so that it clearly exceeds the manufacturer's pricing leeway, which is also protected under antitrust law.

• In addition, there are strict procedural limits for issuing an order for compulsory delivery by way of expedited legal protection. In the case of large customers such as in this case, a threat to the company's existence is unlikely. And excessive damage justifying an injunction is also not straightforward to prove.

The final say in the matter has not yet been spoken. EDEKA has appealed the ruling of the Hamburg Regional Court.

Authored by Dr. Christoph Wünschmann, Dr. Marc Schweda and Dr. Lukas Rengier.