Sued for SeK 38 million for restricting other snus manufacturers’ promotion – abuse of dominant position?

Snus manufacturers often provide specially designed snus coolers to the retailers at no cost to the retailer. When they do this, they enter into category management agreements with the retailers. In 2012 the leading snus manufacture Swedish Match made some adjustments to the agreement that they entered into with the retailers. This new agreement meant that the other snus manufacturers were restricted in the promotion of their products, but is it really legal?

From a regulatory perspective, the snus market is very special. Snus is regulated as food in Sweden, but it is not something that you eat; it is more like a chewing gum that you spit out. Snus is a tobacco product that consists of finely ground tobacco which has been treated with different flavours in order to achieve its characteristic taste. It is either sold in small bags or loose to be placed under the lip. Snus is a perishable that only stays fresh for a couple of months; as a result snus is often sold from specially designed coolers in stores in order to maintain the freshness of the product. These specially designed coolers are provided by the snus manufacturers at no cost to the retailers.

The fact that snus contains tobacco means that it is subject to Swedish tobacco legislation. This legislation strictly limits the promotion of such products, which is why many retailers are forced to place their snus coolers behind the counter and are not permitted to market these products other than to a very minor extent. Due to this strict legislation, consumers of snus have little opportunity to compare the different types and manufacturers of snus. It is estimated that a total of one million people in Sweden use snus on a daily basis.

At the moment there is an interesting case within competition law at the District Court of Stockholm; the case is likely to come to a main hearing in late autumn this year. The case concerns abuse of dominant position. The Swedish Competition Authority (SCA) has sued the leading snus manufacturer Swedish Match. The SCA has requested the court to order Swedish Match to pay SEK 38 million in administrative fines. Swedish Match consistently has very high market shares for snus and as a result, it also controls the market of these specially designed coolers. Other manufacturers of snus are dependent on the coolers that Swedish Match provides; otherwise they will encounter major problems when selling their products. When Swedish Match provides these coolers, they enter a category management agreement with the retailer. This agreement contains various terms regarding the provision of the snus products, including terms that regulate the promotion of products provided by other manufacturers.

In the spring of 2012 Swedish Match made some adjustments to the terms of its category management agreements; in particular they made a change in the regulation of small labels that are placed in the coolers to show the prices of the different manufacturers of snus. These labels are often the only way for the manufacturers to distinguish their products due to the strict regulation of tobacco product marketing. Before Swedish Match changed their terms, the other manufacturers were free to design their own labels but as a result of these new terms, the other manufacturers were restricted in this respect. Moreover the other manufacturers were forced to use a template provided by Swedish Match and there was no room to use their own designs.

The case raises the question of abuse of dominant position, which is illegal under EU and Swedish competition law. Is it really competition on merit? Does it harm consumers through reduced price competition? What makes it even more interesting is the fact that snus is banned in the EU, but Sweden has received a permanent exemption from this ban. In conclusion snus is subject to a strict regulation and it will be interesting to follow this case in the District Court.