Source: Legal Industry Review, January 2024
Authors: Mgr. Jiří Mňuk, LL.M., Mgr. Michael Svoboda
At the beginning of 2024, the new rules under the Significant Market Power Act (Act No. 395/2009; the “SMPA”) become fully effective in the Czech Republic. The amendment implements the requirements of Directive 2019/633 into the SMPA and came into force on January 1, 2023. However, there was a transition period of one full year for the modification of contracts concluded before this date. As of January 1, 2024, the new rules must be reflected in all contracts.
Scope of the Significant Market Power Act
SMPA applies to all contracts between a buyer and a supplier in relation to sales of agricultural and food products, and acts as a complement to the general antitrust rules. The underlying assumption is that certain buyers in the food and agricultural sectors have significant economic and bargaining power which they can use to the disadvantage of suppliers. Such buyers, however, are generally not ‘dominant’ and their related conduct does not necessarily violate general antitrust rules.
Changes in Assessing Significant Market Power
The amendment brought significant changes to the previously applied SMPA regime. Until 2023, the question of whether a particular buyer had significant market power and therefore had to comply with the stricter rules depended only on its own turnover. In line with the Directive, this approach has now been amended. According to the new rules, not only the turnover of the buyer, but also the turnover of the supplier now plays a role.
This intends to take into account the relative market power of both parties to the respective contractual relationship. The SMPA sets out five turnover categories (from EUR 2 million to EUR 350 million). A supplier with a turnover exceeding EUR 350 million is never given protection. The turnover is calculated for the entire ‘single undertaking’. This means that a number of suppliers can no longer benefit from the SMPA protection, often because they are part of a large multinational corporation.
Contradiction in the Law and the Competition Authority’s Stance
To make things less straightforward, however, Section 3(2) was enacted during the Czech legislative process and seemingly undermines the foregoing two-sided turnover-based principle and in fact contradicts it. Specifically, Section 3(2) stipulates that any buyer with a turnover exceeding CZK 5 billion in the Czech Republic has significant market power. Interestingly, the Czech Competition Authority (which enforces the SMPA) issued an Explanatory Opinion (available HERE). In essence, the authority states that Section 3(2) – which does not in any way reflect the turnover of the supplier – should not apply in practice because it is contrary to the Directive and the SMPA’s meaning and purpose. Whether and how Section 3(2) of the SMPA will apply in practice may thus need to be decided by courts.
Obligations of Buyers and Suppliers
To find out which rules apply, both the buyer and supplier must inform each other about their turnovers. This must occur during the contract negotiations. If the buyer possesses relatively significant market power, stricter rules apply to the contract. For example, this requires a contract to be in writing. Invoices must be paid within 30 days, with certain exceptions. It also prohibits establishing terms that generally favor the buyer. Many of these limitations resemble those imposed by general antitrust rules on a dominant undertaking. They do not differ much from those applied under the SMPA prior to 2023.
