Spain: CNMC fines Royal Canine Society for abuse of dominant position
On May 17, 2022, the Spanish Competition Authority (“CNMC”) fined the Royal Canine Society of Spain (“RSCE”) nearly 143,000 euros for abuse of a dominant position in various markets related to purebred dogs, from 2011 to the present day, in violation of art. 2 of the Spanish competition law and art. 102 TFEU. The investigation was initiated by a complaint lodged by the National German Shepherd Club joined by three other RSCE competitors.
1. Context of the investigation and relevant market
The RSCE was the only entity with an official pedigree register of purebred dogs in Spain, also known as Libro de Orígenes Español (“LoE“), since the beginning of the 20th century. In 2001, the introduction of the Royal Decree-Law 558/2001, has liberalized the sector allowing any canine association which meets the requirements of the law to be recognized as an organization of breeders of purebred dogs and therefore to have its own genealogical register. Nevertheless, the Royal Decree-Law 558/2001 prescribed, in its art. 5, the principle of single registration, ie a purebred dog can only be registered in one pedigree register.
RSCE is the only Spanish member of the International Cynological Federation (“CFI”), a crucial detail. The FCI is the most important international association of the sector with 99 national organisations, only one member per country.
A key point to note is that for a purebred dog to be recognized as such in a foreign country, it is necessary to obtain an export pedigree certificate which can only be provided by the national pedigree organization. the FCI in each country. Even if the certificate is not mandatory by law, it is in practice since, according to the CNMC’s conclusions, the value of the dog is strongly influenced by its purebred status and there is no internationally appropriate equivalent.
2. The position of the CNMC on the alleged abusive behavior of the RSCE
The CNMC has defined three different relevant markets in this case (the RSCE holding a dominant position in each of them):
(i) National market for pedigree certification for purebred dogs (RSCE market share between 75% and 90%);
(ii) International market for pedigree certification for purebred dogs (RSCE market share between 90% and 100%); and
(iii) Canine judge audit services market (RSCE market share between 80% and 90%).
However, the CNMC also found that the behavior of the RSCE may have affected the downstream markets for the breeding and marketing of purebred dogs.
Furthermore, the CNMC is of the opinion that there are strong barriers to entry (for example, the fact that LOE was the only studbook in almost 90 years and RSCE being the Spanish member of the FCI with the significant impact it has on certificate export pedigree), leading to a very weak ability of RSCE’s competitors to threaten its dominant position in these markets.
Regarding the behavior of the RSCE, the CNMC has identified four themes of behavior which, based on the case law of the CJEU (for example, Michelin I and United Brands), could be abusive, namely:
- Require owners of purebred dogs who want an export certificate to withdraw from the other pedigree register and subsequently register with the LOE;
- Discriminate between those who used the LOE as their first register and those who had previously registered in other genealogical registers, both in terms of fees (three times higher for the latter) and in terms of history and dogs’ backgrounds (for example, deleting their previous rewards or even their ancestral data with an alleged impact on the valuation of the dogs);
- Prohibit and sanction canine judges – trained and licensed by the RSCE or by other member associations of the FCI – when they want to participate in competitors’ tests without the prior authorization of the RSCE;
- Create and use an exclusive organizational structure with external clubs which has fostered the dominant position of the RSCE. The CNMC concluded that they reinforced the dominant position of RSCE, which constituted an additional restriction on competition and therefore incompatible with the particular responsibility of RSCE, as an undertaking in a dominant position.
According to the CNMC’s decision, the main abuse was caused by the first behavior described above, related to the mandatory link that the RSCE established between the issuance of the FCI export pedigree certificate and the registration in the LOE. This is mainly due to the fact that the RSCE and the CNMC differ on the interpretation of art. 5 of Royal Decree-Law 558/2001:
a) RSCE alleges that under the principle of one-time registration, when an owner of a dog who is not registered with the LOE wishes an export pedigree certificate, he must withdraw from the pedigree register of this competitor to be registered with the LOE.
b) On the contrary, the CNMC declares that nothing in the law requires registration in the LOE to have an export pedigree certificate, since, according to the interpretation of the CNMC, art. 5 also prescribes mutual recognition between studbooks. In a nutshell, this means that the RSCE could issue the export pedigree certificate without requiring prior registration in LOE if authentic documents from other pedigree registers were presented.
To reach these conclusions, the CNMC also relied on the evidence provided by the complainant, who maintained that these behaviors had had a real impact on the markets concerned, among others: (i) slowing down the expansion of canine organizations with their pedigree registers and reduce the income of these associations, ii) increase its market share to the detriment of other canine organisations, iii) reduce the demand for pedigree certificates issued by its competitors, iv) hinder (or even cancel) the development activities of competing associations, and (v) reducing the number of judges available on the market.
Based on the above, the CNMC imposed a relatively high fine (7.5% of RSCE’s turnover). The RSCE could also be subject to private enforcement proceedings, given that potential damages were advanced in the decision. However, the RSCE has already done public its intention to appeal the decisionclaiming that they were only following the provisions of the law.
3. What awaits us? Possible impacts in other jurisdictions
The CNMC’s assessment implies that the behavior of the RSCE may have an impact on intra-EU trade and that there is an apparent high concentration of different national markets. This means that similar problems could exist in different national legal orders (for example, creating obstacles in downstream markets and reinforcing the quasi-monopoly position that the FCI associations seem to have).
Spain is not the first EU Member State where this situation has occurred. In 1978, the German Competition Authority (Bundeskartellamt), declared anticompetitive the rules of the FCI which authorized only one association per country to have an official pedigree register. Furthermore, in September 2020, a German court (see case VI–U (Kart) 4/20) declared that such associations cannot prohibit FCI judges from participating in events of other associations, as this prohibition was contrary to EU law.
In conclusion, the current decision, although not final, can be considered by FCI canine associations around the world as an opportunity to review their behavior and internal regulations in order to comply with competition rules.