The Finnish Supreme Administrative Court (SAC) issued a decision on 29 December 2016 concerning Valio Oy’s (Valio) abuse of dominant market position. The SAC upheld EUR 70 million fine imposed on Valio by the Market Court for so-called predatory pricing on the market for fresh milk in Finland.
In December 2012, the Finnish Competition and Consumer Authority (FCCA) had proposed that the Market Court should impose a penalty payment of EUR 70 million on Valio for abuse of dominant position on the market for fresh milk in Finland. The Market Court issued its decision in June 2014 whereby it confirmed the FCCA’s proposal according to which Valio’s conduct amounted to a serious competition law infringement.
The SAC accorded with the Market Court decision that Valio had made a strategic decision to foreclose competition on the Finnish fresh milk market by engaging in predatory pricing. The SAC found that, during a time period of 30 months, Valio’s average wholesale prices for fresh milk were below the average variable costs. The documentary evidence further showed that Valio’s intention was to drive competition (and in particular its competitor, Arla) out of the market and then raise prices back to the level prevailing before Arla had entered the market.
In accordance with previous case law, the SAC compared the average variable and average total costs of Valio’s fresh milk and found that its prices were below the average variable costs after a price reduction implemented on 1 March 2010. It is set out in established case law that a dominant company’s conduct amounts to an abuse when it uses below cost pricing, as such conduct forces other competitors to compete unprofitably. The SAC further pointed out that conduct may also be abusive when a dominant company uses pricing that is above variable costs but below total costs if an intention to foreclose competition can be shown.
In its appeal to the SAC, Valio argued that both the FCCA and the Market Court had misunderstood its pricing and for that reason the European court case law should not be applied to the case at issue. However, the SAC found that Valio had not brought forward any such evidence that would have rendered the case law inapplicable to Valio’s pricing. According to the SAC, the FCCA decision rightly concerned the production and distribution of fresh milk and not the entire business of Valio.
In line with the Market Court decision, the SAC found that Valio had been aware that its pricing was harmful to the competitors. Documentary evidence (including e-mail correspondence of Valio’s top management) showed that Valio intended to continue pricing below costs until Arla’s raw milk imports from Sweden would have stopped and Valio would have gained a significant market share of 80 per cent. After a successful foreclosure, Valio would have raised prices back to the level prevailing before Arla had entered the market.
The SAC notes in its decision that Valio’s infringement is the most serious abuse of dominance case handled by the Finnish courts to date. The EUR 70 million penalty payment upheld by the SAC is the highest single fine ever confirmed in Finland for any competition law infringement.