Trade discounts and unfair competition

Discounts granted by suppliers of goods are often used in business as a way of making settlements between contractors. The main purpose of granting discounts is to increase the sales volume which allows to reduce costs.

In practice (see report of the President of the Office of Competition and Consumer Protection “Commercial Discounts”) the most common forms of discounts are:

  • discounts that are a negotiated price reduction from the supplier’s price list,
  • discounts for the achieved results /sales
  • discounts related to the promotion,
  • discounts related to the logistics, discounts for faster payments.

Agreeing discounts between contract partners is in principle allowed as long as it is within the freedom of contracts and it does not violate the law. In this context, the provisions of the Act on combating Unfair Competition are of particular importance and in the case of the food industry in which the discount policy is an important element of economic relations, i.e. the Act on Counteracting the Unfair Use of Contractual Advantage in Trade in Agricultural and Food Products.

Discounts as “slotting fees”

The so-called retrospective discounts i.e. after sale discounts required from suppliers by large retail chains which in many cases are considered by courts as fees prohibited within the meaning of Art. 15 (1)(4) of the Act on combating Unfair Competition are problematic.

An act of unfair competition is hindering  other entrepreneurs from accessing the market by charging fees other than retail margin for accepting goods for sale.

Jurisprudence on the so-called slotting or listing fees in the light of the law of combating unfair competition is extremely rich and shows that the courts analyse in detail the conditions on which price discounts are dependent. The scope of arrangements made when concluding the contract is important as well as whether the supplier had a real influence on its content. If the discount depends on the fulfilment of certain services by the byer, it is important whether the subject of these benefits has been precisely defined and whether these benefits are equivalent to the amount of the discount granted, whether they have actually been performed and whether they have any value and effect the supplier’s profit.

Importantly, the burden of prohibited fees may be even hidden, e.g. if the amount of the margin, taking into account the discount, significantly differs from the margins charged in similar circumstances, when these margins are relatively uniform, and when the price reduction mechanism adopted by the parties does not define the terms of performance of the discount or leaves them for a unilateral decision of the buyer (as in the Supreme Court decision of 30 April 2021, file ref. I CSK 20/21).

If the counterparty commits an act of unfair competition consisting in collecting prohibited fees, the supplier is entitled to claims specified in Art. 18 of the Act on Combating Unfair Competition. Therefore, he may demand such actions to be discontinued, their effects removed, compensation be paid or the unjustifiably obtained benefits be issued to him.

Discounts and the contractual advantage

Demand by the byer, who most often is a commercial chain, for certain discounts may also be qualified as a practice unfairly using the contractual advantage.

This is the case in particular when it comes to:

  • unjustified reduction of payment for the delivery of agricultural or food products after their acceptance by the buyer in full or in the agreed part,
  • demand by the buyer for the payment not related to the sale of products,
  • payment requests for the storage and offering for sale of supplier’s products,
  • requesting payment for advertising, marketing or activities related to arranging the premises where the products are sold.

The Act on contractual advantages gives the President of the Office of Competition and Consumer Protection the right to initiate explanatory proceedings and impose a fine on an entity that commits a fraudulent practice in the amount of up to 3% of the turnover achieved in the financial year preceding the year in which this penalty is imposed.