Illegal coordination of prices for natural gas boiler services

The Maritime and Commercial High Court’s judgment of 12 June 2019

By assistant attorney Andreas Riis Madsen

The case in brief

With the decision, the Maritime and Commercial High Court upholds the Danish Competition Council’s decision of November 2016 and the Danish Competition Appeals Tribunal’s order of July 2017.

HMN Naturgas offers regular checks of natural gas boilers under service contracts. HMN Naturgas has no employees of its own to provide these services, but uses independent plumbers, so-called “service partners”. These service partners also provide services under their own contracts, where the customer contracts directly with them.

Several customers had complained of excessive spare part prices to HMN Naturgas, which had also discovered an abuse of spare parts in Eastern Denmark. In order to align prices, HMN Naturgas therefore agreed with its service partners that the payment received by them under HMN Naturgas’ service contracts was to increase in return for a cap on the profit margin on spare parts. Accordingly, the margin on spare parts payable by the consumers in addition to the service contract fee was limited to 25% compared to the previous margin of up to 75%. Along with the increase in HMN Naturgas’ payment to its service partners, HMN Naturgas’ service contract fee was also to increase, allowing the independent firms to increase their own fees. 

In the appeal case, HMN Naturgas submitted:

• that the increased service contract fee should not been seen in isolation;
• that the price charged to the customer should be seen as a whole to include both the service contract fee and the spare parts used;
• that the total price charged to consumers would not increase, but instead fall by 10%;
• that if the agreement was found contrary to section 6 of the Competition Act, then it was still necessary in order to ensure the beneficial effects for consumers, meaning that it was exempt under section 8 of the Act.

The Maritime and Commercial High Court’s judgment

The Court distinguished between the part of the agreement between HMN and the independent plumbers that amounted to a vertical agreement for HMN’s purchase of services from the plumbers and the horizontal part, whereby HMN and the plumbers agreed on terms as competitors. In this respect, the Court found that HMN Naturgas undertook to increase the service contract fees charged directly to customers, which represented a horizontal agreement. Both HMN Naturgas and the independent plumbers offered service contracts to their customers. The arrangement therefore represented an agreement between competitors.

The Court found that the agreement was intended to restrict competition, because the service contract fee - unlike the use of spare parts - is predictable and, as such, a critical competitive parameter that was weakened as a result of the agreement. The agreement on the reduced spare parts margin only applied to customers who had entered into a service contract directly with HMN Naturgas. The increase of the service contract fee affected all customers, whether they had entered into a service contract directly with HMN Naturgas or with the independent plumbers. 

In these circumstances, the Court found that the agreement should be regarded as two separate agreements. The agreement for an increase of the service contract fee was therefore considered to have as its purpose to restrict competition. No impact assessment was found necessary, including an assessment of the ultimate savings to the end customers that HMN Naturgas had used as an argument.

The Court also refused to exempt the agreement under section 8 of the Competition Act, since HMN Naturgas had not proved that the agreement was necessary for the customers to realise the alleged DKK 10 million savings. Further, the lower spare part prices were only to the advantage of HMN Naturgas’ own service contracts - not those offered by the independent plumbers.

HMN Naturgas has already announced in a press release that the judgment will be appealed to the High Court.