Taking Counsel: Retailers, be aware!

  • 2008-11-19
  • By Zane Veidemane [Kronbergs & Cukste]
In October 2008 amendments to the Latvian Competition law became effective, imposing additional restrictions upon retailers in their relationship with suppliers. A specific notion of "dominant retailer" was introduced in the Competition law with the aim to prevent abuse of rights by the suppliers.
It is no secret that dominant companies have had for decades a special obligation not to exploit their market power to the detriment of their competitors and clients. Up until now, however, most of the retailers in Latvia did not meet the criteria to be categorized as "dominant" 's only companies with a market share of 40 percent or more were regarded as dominant according to Latvian Competition law.

Since October, a dominant retailer in Latvia is any retailer which has such a power of purchase, and such a power to subordinate the suppliers in the particular market, that the retailer in question is able to apply or impose unfair trading conditions on the supplier in question, thus preventing or distorting competition in the market. As the 40 percent market share threshold has been abolished a large number of retailers have become dominant within the meaning of Latvian Competition law. For example, the Competition Commission of the United Kingdom has come to a conclusion that even the retailers whose markets share is below 8 percent might meet the criteria of dominant retailer.

A retailer can abuse its dominant position in relation to a supplier in various situations. First, the abuse can take place when a retailer acts in the capacity of a client by purchasing goods from the supplier. Furthermore, a retailer can abuse its dominant position as a competitor of the supplier when selling private label goods that compete with the goods sold by the supplier. Finally, the retailer can also act as a service provider to the supplier (logistics, marketing etc.) and thus abuse its dominant position.

Article 13 of the Latvian Competition law lists a number of practices that will be deemed abusive if engaged in by a dominant retailer in relation to a supplier (producer or wholesaler): 1) imposition of unfair and unjustified conditions regarding the return of goods supplied, unless the goods are returned because of their deficiency or the supplier insisted on increased amount of the initial supply; 2) imposition of unfair and unjustified obligation to pay for the possibility to sell goods in the retailer's shop unless the goods in question are novel and not known to the ultimate consumers; 3) imposition of unfair and unjustified obligation to pay for the conclusion of the agreement, unless the requirement of payment is justified by the fact that agreement with the particular supplier is concluded for the first time and therefore particular assessment of the legal relationship is necessary; 4) imposition of an unfair and unjustified obligation to pay for the goods supplied to a newly opened shop; 5) imposition of unfair and unjustified excessively long terms of payment for the supplied goods; 6) imposition of unfair and unjustified sanctions for breach of the contractual relationship.

A retailer that is declared guilty of abuse of its dominant position for the first time will be liable to pay a penalty of up to 0.05 percent of the retailer's net turnover for the last financial year.  In case of a repeated abuse of the dominant position, a retailer may be imposed a penalty up to 0.2 percent of the retailer's net turnover for the last financial year. Furthermore, if the retailer fails to stop the repeated abusive activity upon the request of the Competition Council, the above mentioned penalty may be increased to 2 percent of the retailer's net turnover for the last financial year.

Last but not least, any person which has suffered damage as the result of a retailer abusing its dominant position can claim compensation of the damages. Please note that abuse of a dominant position may result in damages not only to the retailer, but also to the end consumers who may be forced to pay more for the goods.

Zane Veidemane is an associate at Kronbergs & Cukste.  Kronbergs & Cukste is the Latvian member of Baltic Legal Solutions, which includes Jurevicius, Balciunas & Bartkus of Lithuanian and Glikman & Partnerid of Estonia. Baltic Legal Solutions is a founder PMLG, a pan European network of law firms.