Business Radar | CMS CAMERON MCKENNA NABARRO OLSWANG LLP

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Consumer Products Annual Report June 2012

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Dear Reader, We are delighted to present our CMS Consumer Products Report for 2012. On the following pages you will find several articles from many different countries in which CMS is present. We have tried to address recent developments and trends in the regulation of this sector. Each article has been prepared in anticipation of the requirements and interests of our clients. We hope that you will find this useful and relevant for your day to day business. Should you require further information on any of the articles featured in this report, please do not hesitate to contact the authors or your lawyer at CMS. Best regards Michael Bauer CMS EU law Office Chair of the CMS Consumer Products Sector Group E michael.bauer@cms-hs.com

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Cross Border Mergers: An alternative way to restructure UK and other European consumer product businesses 4 What’s not in it may not be on it: The new EU Food Labelling Regulation 6 Consumer Rights Directive: New Restrictions to On-Line trade 8 Brief update on recent Italian legislation concerning consumer protection 10 Deregulation of shop opening hours in Spain 12 Company directors and competition law 14 EU: Food supply chain under scrutiny, commerce in the crosshairs 16 Suppliers vs. retail chains: Amended Hungarian regulations for the distribution of food and other agricultural products, blacklisted market practices, potential effect for non-food products 20 New legal requirement to automatically enroll eligible workers into a pension scheme 22 3

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Cross Border Mergers An alternative way to restructure UK and other European consumer product businesses An increasing number of European consumer In each case, the assets and liabilities of the companies product businesses with group companies in being absorbed are transferred by law to the transferee, the UK and another European jurisdiction and the transferor(s) is dissolved without going into liquidation. The merger involves a Court process run in who wish to streamline their organisation parallel in the jurisdictions of the transferee and transferor and reduce costs are taking advantage of companies. a merger procedure in the UK which enables a UK company to merge with a company in Why are consumer product businesses choosing a different European Economic Area (“EEA”) to use this method? state. There are a number of reasons why European consumer The merger, under The Companies (Cross-Border Mergers) product corporate groups are considering this route when Regulations (the “Regulations”) is an alternative to an asset contemplating restructuring: or share transfer. Using the procedure under the Regulations, — No third party consents – except to the extent that the two different European companies can merge their Court requires shareholder or creditor approval, there is businesses. The Regulations apply to both public and generally no requirement to obtain third party consents private companies with limited liability and apply to to the transfer. All assets and liabilities transfer a merger between at least two companies from different automatically by law. EEA states. — Transferor automatically dissolved – under the Regulations there will be no need to liquidate the Pure mergers (as opposed to acquisitions), whilst very transferring company as the transferor is automatically common in Europe, have not historically taken place in the dissolved when the merger takes effect and all liabilities UK. However, the Regulations set out a clearer mechanism are transferred, avoiding costly and burdensome run off for the merger of companies across Europe where a UK issues. company is involved and provide an additional tool for — Tax relief – in the UK, re-organisation tax reliefs may consumer product companies looking at their options for also apply to cross-border mergers of UK companies restructuring. making them tax neutral. — Cost savings – the creation of a single corporate entity Forms of merger following a merger may help to generate business efficiencies. The Regulations provide for three types of merger: — Merger by absorption – where one (or more) companies Our experience in an EEA state or states are absorbed by a company in another EEA state. There have been an increasing number of cross-border — Merger by absorption of a wholly-owned subsidiary – mergers sanctioned by the English Courts and CMS has where an existing EEA company absorbs one or more extensive experience of advising on cross-border mergers. of its subsidiaries in a different EEA state or states. Due to the number of our European offices, we are well — Merger by formation of a new company – where a new placed to assist companies with the merger procedure. We company absorbs two or more companies in different have helped consumer product companies such as Fujifilm EEA states. merge its Belgian entity into its French parent company, 4 | Consumer Products Annual Report

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Nissan on the completion of the cross-border merger of its together with the potential for increased harmonisation Belgian and Dutch entities into a French company, Siemens of contractual terms, business principles and policies in Enterprise Communications on the absorption of a Spanish the single entity. company into a Dutch holding company and Alkor-Venilia on the cross-border merger of various subsidiaries into their If you would like to speak to us about cross-border mergers German parent company. please contact the following or your usual CMS contact. Given the depth of our knowledge and experience we have produced a guide to cross-border mergers across Europe. Helen Johnson The CMS Guide to Cross-Border Merger comprises a CMS London comprehensive overview of the legal and tax requirements E helen.johnson@cms-cmck.com and consequences of cross-border mergers in 17 countries highlighting: — the types of company that can participate in a cross-border merger; — the documents to be prepared, their material content and formal requirements; — internal responsibilities, competent authorities and consents (if any) required from other external parties involved; — essential timing and publication requirements; — major tax consequences; and — implementation of the applicable scheme of employee representation on supervisory boards, as well as other notification and consultation requirements vis-à-vis employee representation bodies. Additionally, to make the process of planning a cross- border merger transaction easier, we have produced an Online Planner which provides the opportunity to visualize selected timelines on screen and to harmonise timing for milestones according to the need of the specific project across Europe. Contact details The ability to be able to remove a corporate entity from a consumer products group by way of merger should result in a reduction in the administration costs associated with running these entities in different jurisdictions, 5

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What’s not in it may not be on it The new EU Food Labelling Regulation Strawberry yoghurt without strawberries? belong to the past; in addition to energy value, information Pizza without cheese? “Yes, but …”, say EU concerning fat, saturates, carbohydrates, sugars, protein lawmakers. And this in future only if the and salt (“BIG 7”) must be provided in the future. The information must be expressed per 100ml or 100g; in product’s packaging does not feature addition, it is possible for information to be provided to ingredients that were in fact not used and consumers on the energy value per portion and / or per at the same time provides information consumption unit. concerning substitutes such as imitation cheese. The new Regulation of the European Presentation Parliament and of the Council on the provision The new rule concerning the font size of the mandatory of food information to consumers, which has particulars provides more legal certainty. Whereas it was been in force since December 2011, provides hitherto possible to debate when the requirement “clearly for this and much more. legible” in the currently applicable Food Labelling Regulation was met, it will be clear in the future that the The broader public became aware of the Regulation during so-called x-height of the font size must be at least 1.2mm; the legislative procedure because of the long-discussed, for smaller packages the largest surface of which has an but now not implemented, traffic-light labelling of area of less than 80cm, 0.9mm is sufficient. The other pre-packed food. There will be a lot of work for the food rules concerning presentation provide room for discussion, industry because of the Regulation. There is hardly any however: when is mandatory information “obscured” product packaging that may be used in the market in its or “interrupted” by other material? Does this apply to current form after the transition period. an overlapping seam flap? Does the requirement that mandatory information may not be interrupted mean that Whereas the current rules concerning trade names, all information must be presented on one visible side of manufacturer’s specifications, lists of ingredients and the packaging? This would contradict the provision of the information concerning amounts remain largely Regulation that the trade name, the net weight and, if unchanged, food producers should expect major changes applicable, the alcoholic strength (but in future no longer with regard to nutrition labelling, the graphic design the best before date!) must appear in the same field of of the mandatory information and the requirements vision. The requirement that the consumers’ view may not regarding the fairness of information practices. be distracted from the mandatory information comes as a surprise to any marketing expert. Does this mean that Mandatory Nutrition Information gimmicky elements on product packaging are passé because they might distract the consumers’ view from Previously, producers could choose whether to provide any the sometimes boring mandatory information? nutrition labelling – they no longer have this choice. The Regulation requires for the first time mandatory nutrition Fairness of Information Practices labelling for almost all food products; the only products exempted from this rule are those such as spices, herbs, The new rules concerning the fairness of information salt, additives, flavourings, enzymes and chewing gum. The practices will be far-reaching. Even if the principle previously well-known catchphrases “BIG 4” and “BIG 8” “information concerning food may not be misleading” 6 | Consumer Products Annual Report

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has been applicable for years and decades, the detailed To date, the Regulation does not have many proponents: rules contained in the Regulation emphasise important for consumer protection agencies, the Regulation does not requirements: specifically laid down, for instance, that it is go far enough; food businesses feel they are too restricted; not permissible to emphasise the fact that an ingredient and law scholars criticise the lack of clarity in the text of is not included when this is true for all of the comparable the Regulation and the, in some cases, obvious loopholes. food products. This form of misrepresentation, known to For all concerned, however, there remain three years to German lawyers as “advertising with self-evident facts”, become familiar with the Regulation and flesh out its applies to popular cases of “clean labelling” in which provisions. products are advertised as “without preservatives” or “without flavour enhancers”. Dr Heike Blank The Regulation is now explicitly supposed to prevent one CMS Cologne of the “outrages” in the area of food labelling in recent E heike.blank@cms-hs.com years: if the existence of an ingredient is suggested by the appearance, designation, image or even the type of presentation in the shop, this ingredient must be included in the food. Therefore, a picture of a piece of cheese may not be presented on the packaging of a pizza that is made with imitation cheese. At the same time, consumers must be actively educated: a mention of the substitute ingredient directly next to the product name in almost the same font size is required. Nevertheless, the text of the Regulation leaves many questions unanswered: may persipan (marzipan substitute made from apricot kernels) be “offered” next to marzipan on the supermarket shelf? Is there still “strawberry yoghurt” without strawberries – or is this then strawberry-flavoured yoghurt? What happens when the expected ingredient is only partly replaced? In most cases, the Regulation grants food companies transitional periods of three to five years to adjust to the new labelling requirements. For example, food products that have been produced and packaged in compliance with the previous rules within three years after the Regulation comes into force (thus until December 2014) may be marketed until the stocks are exhausted. If, however, businesses implement obligations arising from the Regulation prior to the end of the transitional period, the new law will apply without restrictions. 7

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Consumer Rights Directive New Restrictions to On-Line trade A new Consumer Rights Directive was adopted on October 2011 and was published in the European Union’s Official Journal on 22 November 2011. Incorporation measures have to be adopted by Member States before 13 December 2013 and shall apply as from 13 June 2014. Nathalie Petrignet, partner at CMS BFL (Paris) and Andreas Schwab, member of the European Parliament, reported on this Directive during the CMS Annual Conference. The Directive which applies to contracts concluded between consumers and traders strengthens consumers’ rights in all 27 member states. Article 3 of the Directive describes the scope of the new provisions. Contracts for the supply of water, gas and electricity and district by public providers to the extent that these commodities are provided on a contractual basis are covered by this Directive. However, it does not apply to some other contracts such as contracts for social services, gambling, financial services, etc. The Directive introduces some changes concerning off-premises and distance contracts. First of all, the right to make an informed choice is strengthened in order to eliminate hidden charges and costs on the Internet, and to increase price transparency. Article 3 of the Directive establishes a list of information that must be provided to the consumer before he decides to enter into a contract. Such information requirements are meant to ensure a greater protection for consumers – e.g. the total cost of the product including taxes, the reminder of the existence of a legal guarantee of conformity for goods and contact details of the trader. Article 8, which relates to distance contracts concluded by electronic means requires the button that is used to contract to be labeled in an easily legible manner only 8 | Consumer Products Annual Report with the words ‘order with duty of payment’ or a corresponding unambiguous formulation indicating that placing the order entails an obligation to make a payment to the trader. Thus, consumers will also be protected against “cost traps” on the Internet. Moreover, pre-ticked boxes on websites - such as those often seen to buy plane tickets – are banned across the European Union under Article 22 forbidding the use of “default options which the consumer is required to reject in order to avoid additional payment”. Regarding sales contracts in general, traders who operate telephone hotlines allowing the consumer to contact them in relation to the contract must not charge more than the basic telephone rate for telephone calls. Furthermore, traders are prohibited from charging consumers fees that exceed the cost borne by the trader for the use of certain means of payment. heating The right of withdrawal for distance and off-premises contracts is set out in Articles 9 to 16 of the Consumer Rights Directive. In the case of services contracts, the withdrawal period expires 14 calendar days from the conclusion of a contract – compared to the seven days legally prescribed by former EU law provisions. In the case of sales contracts, the withdrawal period expires 14 days from the day when the consumer acquires physical possession of the goods – rather than at the time of conclusion of the contract, which was the case under former EU directives. This period is extended to 12 months from the end of the initial period in the case where the trader has not clearly informed the consumer about the withdrawal right (Article 10). Article 16 mentions a few exceptions to the right of withdrawal such as the supply of goods which are liable to deteriorate or expire rapidly or the supply of a newspaper, periodical or magazine for example. The new Directive provides a model withdrawal form (Annex I. B.) which is valid throughout the territory of the European Union. Its use by the consumer remains optional.

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However, this withdrawal period does not concern digital At last, common rules for businesses will make it easier for content – such as video or music downloads – unless the them to trade all over Europe. Indeed, a single set of core download has not started. Indeed, member states shall not rules for distance and off-premises contracts in the EU provide for the right of withdrawal as regards the supply of creates a level playing field and reduces transaction costs digital content which is not supplied on a tangible medium for cross-border traders. if the performance has begun with the consumer’s prior express consent and his acknowledgement that he thereby loses his right of withdrawal (Article 16 m.). Concerning Nathalie Pétrignet digital content, the Directive offers a better protection CMS Paris for consumers. It requires the trader to provide clear and E nathalie.petrignet@cms-bfl.com precise information about the digital content – e.g. about the functionality and the relevant interoperability of the digital content. Article 13 specifies that once the withdrawal right has been exercised, the trader must reimburse all payments received by the consumer – including the costs of delivery – no later than 14 days from the day on which he is informed of the consumer’s decision to withdraw from the contract. This leads to a better refund. Moreover, under Article 14, the consumer must send back the products within 14 days unless the trader has offered to collect the goods himself. The consumer shall only bear the direct cost of returning the goods unless the trader has agreed to bear them or the trader failed to inform the consumer that the consumer has to bear them (cf. Article 14). As for the delivery of goods, Articles 18 and 20 of the Directive mention that unless the parties have agreed otherwise on the time of delivery, the trader must deliver the goods to the consumer without undue delay after, but no later than 30 days from the conclusion of the contract. The trader bears the risk of loss or damage to the goods until the consumer acquires the physical possession of the goods. More specific rules also apply to small businesses and craftsmen, such as plumbers. For example, the right of withdrawal cannot be exercised for urgent repairs and maintenance work. 9

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Brief update on recent Italian legislation concerning consumer protection The Italian Government led by the former In this respect, the AGCM may open a procedure, with EU Commissioner Mario Monti has recently the power to ask the professionals to file brief defenses, issued a law (L. 27 / 2012 dated March 24, 2012) documents and to provide any required clarification as to the ratio of the contested terms. Failure to comply with which includes some important rules for the AGCM’s request may be sanctioned with a fine up to consumers’ protection. EUR 20.000,00; in addition, if the information provided or the documents filed by the professional are untrue or A first rule refers to the so called “unfair terms” contained deceitful, a fine up to EUR 40.000,00 can be imposed. in contracts between professionals and consumers. Under Italian Civil Code (Article 1341), unfair terms are those This power is intended to have a great impact, providing: as the finding of the unfair nature of terms unilaterally (i) limitations of liability; arranged by professionals shall be published on the (ii) rights to withdraw from the agreement; institutional website of the AGCM, on the professional’s (iii) rights to suspend the performance of the agreement; webiste and made public by any other means. (iv) rights to penalties in case of non compliance of the other contracting parties; However, professionals willing to use some terms – which (v) limitations to raise objections; could be considered unfair – in their commercial (vi) limitations to freely enter into contracts with third relationship with consumers may consult the AGCM in parties, non-compete clauses; advance. The Authority may therefore provide the (vii) implicit renewal or renewal of the agreement; concerned professionals with a preventive opinion as to the (viii) arbitration clauses; validity of contractual clauses. Such preventive assessment (ix) jurisdiction clauses. is binding for the future: therefore, a clause which the AGCM has formerly assessed as “fair”, shall not hereafter If such unfair terms are included in a contract drafted by be considered unfair anymore by the AGCM itself. only one contractual party (the professional), such clauses Consumers may, in any case, still challenge the validity of must be specifically approved by the consumer by means unfair terms before the court. of a double signature, as per the above mentioned Article 1341 of the Italian Civil Code. The consequences of Before exercising the granted power to assess terms, non-compliance with this provision are to be established on the AGCM shall enter into agreements with the relevant a ‘case-to-case’ basis. However, in general terms, it can professional unions. be said that such non-compliance does not invalidate the entire agreement but it may well result in the A second important rule relates to the already existing unenforceability of some of its clauses. legislation on class action. According to the new law, the Competition Authority The previous legislation required that the consumers’ rights (Autorità Garante della Concorrenza ed il Mercato), upon jeopardized by professionals had to be “identical”. Since a consumer’s or consumers’ association notice or even ex the “identity” of the consumers’ rights very often does officio, shall declare null and void those terms included in not occur, most of the class actions, presented so far, have contracts between a professional and a consumer, whenever been rejected. The new rule has replaced the concept of the contracts are unilaterally arranged by the former. “identity” with the idea of “homogeneity”, meaning this 10 | Consumer Products Annual Report

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that consumers being in similar, even non-identical situation, may now be members of the same class action; it will therefore be possible to have recourse to a class action to protect similar (and non-identical) contractual rights of a plurality of consumers damaged by professionals. A further rule, making easier the former method for the recognition of the quantum due to the claimants, provides that if the claim for compensation for damages is recognized, but the court only determines the criteria for the compensation for damages without awarding a specific amount, parties may try to reach a settlement agreement within a 90-day term; in such a case, the settlement agreement is certificated by the court. In default, upon request of even one member of the class, the court determines the amounts due to all claimants with an order immediately enforceable. Paola Ghezzi CMS Rome E paola.ghezzi@cms-aacs.com 11

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Deregulation of shop opening hours in Spain As is the case in many of its neighbouring regard to opening on public holidays and the total countries, in Spain the regulation of shop deregulation of retail opening hours. opening hours and allowing shops to open on In particular, the Community of Madrid, which is purported public holidays has been subject to intense to be the most liberal of all, has recently overhauled its debate. retail laws by approving total freedom with regard to opening hours and days of the week, which has come into In recent years, this issue has been the cause of a continued force this Spring (in addition to having labelled significant confrontation between small independent traders and areas of the city centre and periphery, such as exhibition retail giants (particularly large supermarket chains, grounds and airport zones, “tourism interest areas”). As although not exclusively). Whilst small and medium scale a result of such reform, the debate on deregulation of retailer associations insist that excessive deregulation will opening hours has snowballed in cities such as Bilbao, inevitably be to the detriment of small workforces and will Barcelona and Palma de Mallorca. erode job security, large retail chains point to greater flexibility and improved customer service. The debate on the benefits or detriments of the system has reached the National Competition Commission itself which, Due to the Spanish State’s particular federalised structure, in its recent Report on manufacturer-distributor relations known as the “State of Autonomies”, the regulation of in the food sector [in Spanish], clearly advocates full retail hours is divided between the state government and freedom of opening hours on the premise that this would the Autonomous Communities (“AC”). favour competition among enterprises and would quell opportunities for colluding between retailers, thus Spanish Act 1 / 2004 on Opening Hours for Retail increasing consumer choice and creating a positive Establishments sets a minimum threshold of 72 hours per knock-on effect for productivity, employment and prices1. week across business days, and eight Sundays or public holidays per year, which Autonomous Communities may From an employment point of view, the new regulation not reduce, but may increase. Moreover, the Act establishes will have no bearing on labour obligations stipulated in total freedom of opening hours for the areas defined by employment contracts, the Spanish Workers’ Statute or Autonomous Communities as “hosting large numbers of the collective bargaining agreement applicable to a given tourists”, which has effectively freed opening hours for all company. establishments in key coastal areas, and for those with a sales floor under 300 m2. The ACs may amend and limit Consequently, if the company in question were to proceed this special opening hours scheme, but may not restrict to Sunday opening throughout the year, it shall take into it for establishments under 150m 2 . consideration that the following rights remain in force for the employee: With the exception of the Autonomous Communities of — The maximum annual working hours permitted shall Madrid, Ceuta, Murcia and the Canary Islands, the majority not be amended due to the number of days on which has adhered to the minimum established by law. Effectively, the establishment is open to the public. due to pressure from trade unions and retailer associations, — Minimum daily and weekly rest periods established by autonomous regulations have been rather restrictive with law shall be respected, wherein (i) a period of twelve 12 | Consumer Products Annual Report

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hours must elapse between the end of one work day and the beginning of the next, and (ii) employees shall be entitled to minimum weekly time off of one and a half days uninterrupted. — The option of working on Sundays shall be covered by the employment contract or, in the absence thereof, by collective agreement with the workers’ representatives. In light of the above, retailers who do wish to open every Sunday throughout the year must take into account the stated provisions, and must have at their disposal a sufficient workforce to meet such commitments. That said, the recent labour reform 3 / 2012, which came into force on 12 February 2012, greatly eases a company’s ability to change the working conditions of its employees in line with its own needs. However small retailers are not going down without a fight. Altercations and protests have already taken place among retailer associations and trade unions in an attempt to halt these changes which now, seem inevitable. Carlos Peña CMS Madrid E carlos.pena@cms-asl.com 1 Autonomous competition authorities have already ruled in this respect in a survey carried out by the Competition Council Promotion Working Group [in Spanish], indicating that restricting retail opening hours entails “an unfounded restriction of competition put in place in order to favour certain retail formats, yet with no advantage to consumers”. It also includes clear stances in favour of deregulation by competition authorities in communities that have traditionally been more reticent, such as Catalonia or Galicia. 13

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Company directors and competition law The OFT has recently introduced new that breach makes him unfit to be involved in the guidance on what directors are expected to management of the company. A director may now be know about competition law, and how the considered “unfit” where he contributed to the breach, had reasonable grounds to suspect the breach but took no OFT will assess the extent of an individual steps to prevent it, or where he did not know but ought director’s responsibility for competition law to have known that the conduct in question constituted infringements. a breach. You are the Commercial Director of a toy manufacturer. This approach and the new guidance set a high standard You have a successful new product and are keen to for directors. The OFT does not expect directors to have maximise Christmas sales. You ask your sales manager to detailed competition law expertise. However, it does expect increase high street retail distribution during this key all directors, whether executive or non-executive, to be period. Arrangements are concluded with three new major committed to competition law compliance and to have an retailers. The sales manager has kept you updated on the understanding of the most serious forms of infringement terms agreed including a commitment from two retailers of competition law (such as price fixing, bid rigging, market not to sell your new product below GBP 12.99. You have sharing, limiting production, sharing commercially sensitive signed off the new arrangements but you have been busy information, resale price maintenance) and in particular, and not paid close attention. that directors ought to have sufficient understanding of the principles of competition law to be able to recognise Are you aware that this situation, in which your sales risks and to realise when to make further enquiries or manager has negotiated anti-competitive resale price seek legal advice. maintenance agreements, could result in you being disqualified from being a director? Possibly not, but you Determining the appropriate level of knowledge for should be. Recent OFT competition law guidance indicates a director, and the steps a director is expected to take that this is the risk that results from directors failing to to detect and prevent infringements, will depend on monitor closely the activities within their business where a number of factors including: they lead to a competition law infringement. In June 2011, — The director’s specific role: executive directors are the OFT introduced new guidance on what directors are expected to have better knowledge of the day-to-day expected to know about competition law, and how the affairs of the company than non-executive directors. OFT will assess the extent of an individual director’s Some areas of business will be more exposed to the responsibility for competition law infringements. risk of competition law infringements than others and those directors are expected to take greater steps to The guidance forms part of the OFT’s ongoing initiative to prevent, detect and bring to an end infringements of help companies achieve competition law compliance, and competition law. For example, a director responsible also follows changes to the OFT’s approach on competition for sales and marketing will be expected to have disqualification orders (CDOs). A CDO, which disqualifies a developed understanding of the competition law a director from being involved in the management of risks that may arise from entering into contracts with a company for up to 15 years, can be granted by a court customers and establishing distribution arrangements. where it is satisfied that a breach of competition law has — The size of the company: directors in small companies occurred and the director’s behaviour in connection with have a more intimate knowledge of their company’s 14 | Consumer Products Annual Report

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day-to-day activities and therefore are more likely to be aware of actual or potential infringements. Directors in larger companies may not have such an intimate knowledge, but are expected to take steps to ensure that there are appropriate systems in place to prevent, detect and bring to an end infringements of competition law. — Direct and indirect responsibility: where a director has direct management responsibility, the OFT considers the director ought to have greater awareness of the activities of his personnel and any anti-competitive behaviour within his business area. Whilst many companies now have compliance programmes in place, companies should ensure that all directors are regularly trained on competition law with particular focus on the specific risks which may arise in their area of responsibility. This may involve the provision of dedicated training. Directors themselves are advised to review internal procedures and reporting lines to ensure they are fully aware of the activities of their teams and to identify any areas of risk. Turning a blind eye, failing to keep informed or claiming lack of knowledge is no defence. Caroline Hobson CMS London E caroline.hobson@cms-cmck.com 15

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EU: Food supply chain under scrutiny, commerce in the crosshairs The food supply chain keeps Brussels busy – To further pursue the matter Günter Verheugen, then The European Parliament has called on the Commissioner for Industry, set up a “High Level Group” Commission to propose robust regulation composed of representatives of different Commission service groups, member states, as well as stakeholders and adjustments to competition law to from the agro-food industry, producers, retailers and tackle problems in the distribution chain. consumers to work out recommendations to policy makers Parliamentarians in particular flagged the at the Community. On the basis of the High Level Group’s concentration of buyer power and potentially results the Commission provided at in the end of 2009 unfair trading practices as a serious concern. the communication for “A better functioning food supply Antonio Tajani, EU-Commissioner for Industry chain” and presented different policy initiatives. seems to prefer self-regulation but has made The job to implement these initiatives was assigned, again, clear that he expects stakeholders in the to a working group, this time called the High Level Forum. so-called “High Level Forum” to agree on Membership of the Forum was opened to all member a proposal for action to solve the problems states and a larger number of stakeholders (though the in the relationship between suppliers and maximum number of members of the group is 45). buyers by the end of June. The Commission Beside Commission officials and representatives from the national administrations in particular the European has further announced that a communication associations of producers and retailers play a strong role concerning unfair business-to-business in the Forum. Major players from the consumer products practices will be introduced in the second sector such as Danone, Nestlé and Unilever as well half of 2012. Meanwhile the Commission’s large retailers such as Ahold, Metro and Lidl have also competition watchdogs have set up a special sent representatives. task force for the food sector. Work of the B2B-platform and proposal for Principles of Good Practice Rapid increase in consumer food prices in the second half of 2007 alarmed the European Union. As a reaction the The High Level Forum has set up different platforms, European Commission conducted a market monitoring corresponding to priorities described in the Commission exercise on food prices in the Single Market and communication. Arguably the most interesting and also the investigated the functioning of the food supply chain. most challenging topics are dealt with by the platform in The results were published in a 2008 interim-report on charge of questions related to the envisaged promotion “Food prices in Europe” which suggested making efforts of sustainable business-to-business (B2B) relationships in to improve the functioning of the food supply chain. The the food chain (so-called “B2B platform”). The group’s objective was described as nothing less than to promote mandate has been defined to assess unfair contractual “fair earnings of agricultural producers, competitive practices, identify best practices and propose Community prices and improved competitiveness of the food action when necessary. processing industry as well as greater choice, better affordability and higher quality of food products for Discussions in the framework of the B2B platform quickly European consumers”. focused on finding a solution to the problem of possible 16 | Consumer Products Annual Report

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misuses of bargaining power. Naturally the positions of European Parliament resolution of 19 January 2012 the different stakeholders in the group have been quite conflicting. Apparently EU-Parliamentarians were not too impressed by the progress reached so far in the policy making process: The Commission nevertheless indicated that non-regulatory on 19 January the Parliament adopted a “resolution on the instruments could be suitable to remedy the problem of imbalances of the food supply chain”. unfair practices. Stakeholders were invited to engage in a dialogue and present a solution for addressing unfair While the resolution stresses that Parliament would support practices in a consensual and effective way. As a result of the “good work” of the High Level Forum, it nevertheless this stakeholders dialogue, a group of members of the B2B urges the Commission to propose “robust EU legislation”. platform representing producers (e.g. the Association des The resolution further calls strongly on the Commission Industries de Marque / European Brands Association – AIM) to bring forward a clear definition of abusive and unfair and retailers (e.g. EuroCommerce) published, in November practices. In this context the resolution non-exhaustively lists 2011, a proposal for (voluntary) rules to govern vertical 32 practices which have been brought to the attention of relationships in the food supply chain. This proposal contains Parliamentarians and which could give rise to concerns. That a list of unfair practices which mentions in particular: list clearly shows who is in the crosshairs of the Parliament: — Unilateral termination of a commercial relationship only buyers’ (i.e. retailers) practices are mentioned. without notice or without an objectively justified reason; Issues eyed by the Parliamentarians include: — Imposition of unjustified or disproportionate — Fees for access to supermarket shelves (listing fees, contractual sanctions or application of contractual entry fees, shelf space pricing etc.); sanctions in a non-transparent manner; — Certain conditions which allegedly are increasingly — Retroactive unilateral changes of prices; forced upon suppliers (contribution for private label, — Inappropriate contractual allocation of risks; margin recovery, payments for promotions etc); and — Disproportionate upfront access payments; — Retroactive changes to contracts as well as payment — Threats of disruption of business to obtain advantages delays. from the other party. The resolution highlights in particular the issue of First reactions on the proposal have been quite positive; payment deadlines. It stresses that producers of perishable however, at this stage the proposed principles should be goods with short shelf-lives face major cash flow considered work in progress. The B2B platform is now difficulties because of extensive payment deadlines. expected (and has promised) to agree on a formal position for enforcement options by the end of June at the latest. While resolutions of the European Parliament have no It is reported nevertheless that producers and retailers are binding character, a strong message was sent out with pulling no punches in the internal discussions in the core this one. Parliamentarians have made very clear that they group to push their position through. Mr Tajani, who is expect the Commission to deliver a proposal soon and overseeing the exercise, has made clear, however, that he they will certainly put any proposal to the acid test. will definitely move forward in July. That would mean that the Commission will come up with a proposal of its own Retailers so far do not appear too worried too much. They if stakeholders fail to deliver a joint position in time. refer to the good working relationship they have with the 17

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Commission service groups in this matter and appear in this area. That seems to have changed in January 2012 convinced that Mr Tajani is no trigger happy cowboy. when the Directorate General for Competition (DG Comp) However, there can be no doubt that it is the big players formed a new Internal Task Force Food. The task force is in the retail market who are in the crosshairs of headed by Philippe Chauve, a very experienced Commission Parliamentarians. It is unlikely that the Commission will official and former Deputy Head of Unit in the Energy ignore this when proposing action to the law makers. and Environment Unit, and has been assigned five case handlers. Commission officials said the formation of the DG Markt Communication on unfair practices task force was in response to the growing workload in in business-to-business relationships the sector. Another service group of the European Commission is in Against the background of the strong political will the game. The Internal Market and Services Directorate demonstrated by the formation of the Task Force Food it General (DG Market) had monitored the retail markets in can be assumed that DG Comp will pick up an antitrust general (not limited to the food markets) in the Union and case in this area sooner or later. On the other hand there published a report in 2010. This Retail Markets Monitoring are no signs that Mr Almunia’s men are inclined to get Report inter alia identifies the existence of unfair practices involved in a half-baked case just to please the public: and describes law enforcement problems as well as the formation of the Task Force has been communicated problems stemming from the diversity of national laws rather hesitantly (there has been no press release so far). applicable to such practices. The European Parliament It could well be that the members of the Task Force asked the Commission in response to the report to identify will first work on their knowhow by supporting national the scope and scale of the problem and propose solutions. competition authorities and on merger cases. DG Market was therefore instructed to produce a communication mapping the legal situation in the member states and present possible options for action in the Dr Björn Herbers context of the Internal Market policies where necessary. CMS Brussels E bjoern.herbers@cms-hs.com While the work of DG Market is complementary to the High Level Forum’s action, they are waiting for the results of the B2B platform to feed them into their communication. In any event the publication of the communication is scheduled for the second half of 2012. If the Commission proposes Community action in the communication, which is rather likely, this will trigger the consultation process. Lobbyist on all sides will then have to sharpen their pencils (again). ECN subgroup Food & Retail and DG Competition Task Force Food The food sector has not only been in the focus of EU lawmakers and administration but has also attracted the attention of the national competition authorities in different countries in the last years. Besides numerous proceedings concerning breaches of competition law which are led by competition watchdogs against individual companies, several countries have conducted market monitoring exercises or have even initiated deep going sector inquieries (in particular Finland, France, Germany, Italy) to shed light on the market structures. To exchange experiences in this field the authorities formed a sub group on Food & Retail in the European Competition Network (ECN). A comprehensive description of the activities of the members has been published in a report on May 23 (available on the European Commission’s website). Until recently it appeared that the European Commission considered competition law issues in the food market best placed with the national competition authorities and ignored calls from the European Parliament to take action 18 | Consumer Products Annual Report

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Suppliers vs. retail chains Amended Hungarian regulations for the distribution of food and other agricultural products, blacklisted market practices, potential effect for non-food products After lengthy negotiations and debates, — imposing a payment deadline exceeding 30 days from a new Hungarian act on the prohibition of the delivery of the products; unfair practices against suppliers of food — imposing an exclusive supply-obligation without proportionate compensation. and agricultural products (the “Act”) has come into force. In line with the governmental All contractual clauses contrary to the prohibitions set out objectives, it primarily aims to establish in the Act are null and void. If the violation of the Act is a commercially balanced relationship between established, the Authority may impose a fine up to retailers and suppliers. Although the Act’s HUF 500 million (approx. EUR 1.8 million) (maximum 10% scope is limited to food and other agricultural of the last year’s turnover) and up to HUF 2 billion (approx. EUR 7.2 million) for “recidivists”. In addition, a “blacklist” products, retail chains tend to use the same with the names of the retailers infringing the prohibitions general terms in the relation to all of their set out in the Act is published on the website of the suppliers, means that the provisions of the Authority. However, in order to avoid the sanctions, it Act also affects the relations with suppliers is possible to undertake obligations to comply with the of non-food sectors. A new administrative provisions of the Act, where the execution of the authority has been appointed to control the obligations shall be controlled by the Authority (in case of non-compliance a fine may be imposed). implementation of the Act (the “Authority”). After a couple of months of interim period, the Authority The Act generally prohibits unfair distribution practices started to actively enforce the requirements set out in against suppliers and also specifies the practices considered the Act. The Authority reviewed 26 general terms and to be unfair, such as (in particular): conditions submitted and produced a summarizing — imposing conditions resulting in a disproportionate document sumarizing its general comments and allocation of risks between retailers and suppliers; observations. Further, seven big retail chains such as Lidl — imposing the obligatory take-back of products (save and Tesco were fined in the total amount exceeding for defective performance); HUF 780 million (approx. EUR 2.8 million). — charging costs ∙ to the supplier serving solely the business interest Reflecting the first year’s experience, the Act was amended of the retailer (e.g. operational costs); early this year. Inter alia, amendments: ∙ for services not ordered by the supplier; — provided the possibility for selling below the purchase ∙ for services in relation to the sale of products to price for certain, limited cases (e.g. selling out or selling consumers not resulting in any additional service products close to their expiry date); for the supplier; — prohibited the application of fixed rebates and certain ∙ for entering their products within the range of progressive rebates; products sold by the respective retailer and for — introduce some further obligations relating to the continuous distribution of the products; invoicing. ∙ for the position (on the shelves for sale) of the products in the retailers’ shops not resulting in any The same Legislative trends as those in Hungary are to be additional service for the supplier; noted in other CEE jurisdictions as well. 20 | Consumer Products Annual Report

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Despite the fact that this is a hot topic in Poland, the exact content, the adoption and the entry into force of the planned act (according to the press, quite similar to the Hungarian Act) is yet uncertain. In December 2010, the Romanian Parliament amended the law on the commerce of food products. Amongst the the most important amendments was the elimination (except for certain products) of fixed payment terms alleged to be blocking the parties’ cash flow. In Ukraine the suppliers (producers) and the retailers (as well as wholesalers) are prohibited from entering into any agreements whereby any financial obligations, other than those of sale and purchase of the products, are imposed on the parties. Further, for these specific products, the payment deadline may not exceed seven banking days. To sum up the above, we can clearly say that, although the current legal framework may differ in relation to the supplier-retailer relationship, very similar trends are to be noted in the other CEE jurisdictions. All these recently adopted and amended laws raise a great number of legal questions and uncertainties; in addition, they lead to a very significant change both the suppliers’ and the retailers’ commercial and business attitude. Nóra Jekkel CMS Budapest E nora.jekkel@cms-cmck.com 21

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New legal requirement to automatically enroll eligible workers into a pension scheme Nearly half of the population in the UK who the “staging date”). The first staging dates will be in should be saving for retirement are failing October 2012 with the dates being phased through to 2016. to do so adequately. The Government has The staging date allocated to an employer will depend introduced legislation which requires all upon the number of people in the employer’s Pay As You employers, starting from October 2012, to Earn (PAYE) scheme. The largest employers (all those with automatically enrol what is likely to be most more than 250 people in their PAYE scheme) are staged in of their workers into a pension scheme which line with their size from October 2012 to February 2014. satisfies minimum requirements and to pay employer contributions. The Government plans to consult on the staging dates for medium-size employers (with 50 – 249 people in their PAYE scheme), small employers (with 1 – 49 people in their Preparation is vital as this change has HR, PAYE scheme) and new employers setting up business from pensions, finance and payroll implications. 1 April 2012 to 30 September 2017. It is currently proposed that medium-size employers will have staging dates Who? between 1 April 2014 and 1 April 2015, small employers will have staging dates between 1 June 2015 and 1 April The legislation introduces varying degrees of employer 2017, and new employers will have staging dates between duties depending on the type of worker. 1 May 2017 and 1 February 2018. The Government is expected to publish a consultation document on these The centrepiece of the proposals is the requirement to proposals later in 2012. automatically enrol certain workers, known as eligible jobholders, into a pension scheme that meets specific Employers are afforded some flexibility with staging conditions. Eligible jobholders are workers who (i) earn dates and may choose a different staging date, as long more than the minimum earnings threshold (currently as it is earlier than their originally allocated date. proposed to be GBP 8,105); (ii) are aged between 22 and state pension age; and (iii) work in the UK. Any UK What? worker between 16 and 74 who earns above GBP 5,564 (in today’s terms) will also have the right to join such Employers are required to automatically enrol eligible a scheme. jobholders into a qualifying pension scheme, provide the required information to these individuals and the Pensions It will be necessary for employers to carry out an Regulator and pay employer contributions. assessment of their workforce to determine what category an individual worker falls within and whether When choosing a pension scheme, employers should a particular worker is classed as an ‘eligible jobholder’. consider whether to use an existing scheme (if so, it must comply with minimum requirements) or whether they want When? to set up a new scheme. If the employer decides to use an existing scheme, the minimum requirements for compliance Employers will each be allocated a specific date by which differ depending on whether a scheme is a defined the required changes have to be in place (this is known as contribution or a defined benefit scheme. 22 | Consumer Products Annual Report

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If the employer opts to set up a new scheme, it should corrective action). If neither of these sanctions are effective, consider whether to use a trust-based or contract-based the Regulator is able to take corrective action which scheme; each of which may have different advantages can be in the form of penalty notices for non-compliance depending on the needs of the employer. Another option for of up to GBP 50,000. There are also potential criminal employers is to use National Employers Saving Trust (NEST) sanctions; officers of the employer company could receive which is a low cost multi-employer defined contribution a prison sentence for wilful failure to comply with the scheme which meets the qualifying scheme requirements. requirements. This legislative change is likely to have significant cost Conclusion implications for employers. This is because (from October 2018) all employers will be required to contribute at least Starting in October 2012, there will be a greater burden 3% of earnings with the worker paying the rest of the on employers to ensure that their workers are enrolled into required contributions so that the minimum amount of a suitable pension scheme and to make minimum employer total contributions will be 8%. However, the contribution contributions. The sanctions for failing to comply with requirements are being phased in over a period of time these requirements are potentially severe and employers from the staging date onwards. should begin considering the steps they need to take to ensure they are ready for auto-enrolment. Given the current economic climate, it is possible that eligible jobholders may decide to opt-out of the pension scheme (although they will still have to be re-enrolled at Emma Frost around three-yearly intervals). Therefore, a system needs CMS London to be in place both to implement the opt-out and also to E emma.frost@cms-cmck.com re-enrol the worker at a later date. Failure to auto-enrol Employers must comply with the requirements and must be careful not to provide inducements to workers to opt-out, take any action which will mean the scheme ceases to be a qualifying scheme without providing an alternative, or take any action whereby the jobholder ceases to be an active member of a qualifying scheme without putting them into a suitable alternative scheme. The Pensions Regulator has a range of new powers to enforce compliance with the new requirements. Initially the Regulator will try to correct behaviours by discussing any breaches with the employer to remedy these. If this fails to work, the Regulator will issue the employer with a Compliance Notice (a formal requirement to take 23

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