Renewed Enforcement Action Interest in Europe in relation to Resale Price Maintenance

Resale price maintenance (or: RPM) refers to the practice of controlling or influencing the pricing of a reseller by either expressly of effectively setting fixed or lower limits to the resale price. In recent years, both the European Commission (the Commission) and national competition authorities (NCAs) have shown an increased interest in this kind of conduct and have on occasion issued substantial fines. Meanwhile, there are numerous ways in which RPM might be effectuated which may not always be clear to the participants to such arrangements.

The EU legal framework

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices that may affect trade between EU Member States (as well as EEA States) and that have as their object or effect the prevention, restriction or distortion of competition within the internal market. The prohibition applies to all agreements between unrelated undertakings that may have an appreciable effect on trade between Member States. Article 101(1) TFEU applies both to arrangements between market participants active on the same market - cartels and so-called horizontal agreements, ie, between actual or potential competitors – and/or active on markets at a different level of the supply chain - so-called vertical agreements, ie, between a supplier and its customers/distributors.

Even if an agreement does fall within Article 101(1) TFEU, the prohibition may be declared inapplicable under Article 101(3) TFEU if: (i) the agreement contributes to improving the production or distribution of goods or to promoting technical or economic progress; (ii) allows consumers a fair share of the resulting benefit; (iii) the restrictions on competition are essential for the attainment of these objectives; and (iv) the restrictions do not allow competition to be substantially eliminated.

The Commission has the power to enact regulations, known as block exemptions, which exempt certain categories of agreements from Article 101(1) TFEU if an agreement meets the conditions set out in the relevant block exemption. Block exemptions provide a degree of legal certainty. To avoid that companies need to self-assess the existence of anti-competitive effects for each vertical agreement, the Commission has enacted the Vertical Block Exemption Regulation (the VBER). The VBER provides a safe harbour to a vertical agreement provided (i) the parties’ respective market shares are less than 30%, and (ii) the agreement does not contain any so-called “hardcore” restrictions. For reference, outside of the VBER, hardcore restrictions are assumed to restrict competition and can be justified in exceptional circumstances only.

RPM is an example of a hardcore restriction. Obviously, RPM between companies belonging to the same group or between an agent and a principal (whereby the commercial risk is with the principal) are allowed. Indeed, agreements in such circumstances are considered to have been made within one and the same economic entity and are therefore excluded from the scope of application of Article 101(1) TFEU. As set out above, the application of Article 101(1) TFEU requires an agreement between at least two unrelated undertakings.

RPM is assumed to restrict competition but may, under circumstances, also lead to efficiencies, in particular where it is supplier-driven, which will need to be assessed under Article 101(3) TFEU (even though the Commission is very restrictive in recognising efficiencies in this context).

Different forms of RPM

In the case of contractual provisions or concerted practices that directly establish the resale price, the infringement is clear. However, RPM can also be achieved through indirect means. Examples of the latter are an agreement fixing the distributor’s margin, fixing the maximum level of discount the distributor may grant from a prescribed price level, making the grant of rebates or reimbursement of promotional costs by the supplier subject to the observance of a given price level, linking the prescribed resale price to the resale prices of competitors, etc. It is also not permitted to set a specific pricing model or price surcharges.

The setting of maximum sale prices and the issuing of non-binding price recommendations do not constitute hardcore restrictions of competition if they do not amount to a fixed or minimum sale price as a result of pressure (no stick) from, or incentives (no carrot) offered by, the supplier.[1]

Pressure may relate to threats, intimidation, warnings, penalties, delay or suspension of deliveries or even contract terminations in relation to observance of a given price level. Also, a “price maintenance measure” or the simple request regarding the profitability of a price can be mentioned in this context if it is made in connection with the resale price. The circumstances of the individual case are decisive; in particular the power relations between the supplier and the distributor (market position of the supplier, significance of the product, etc.) and the market situation itself. Even if the supplier leaves the distributor unclear about the background of contacting the distributor with a request, this may under certain circumstances be seen as an attempt to exert pressure.

Incentives in this context mean that price undercutting is prevented by the promise of benefits. This includes the granting of discounts, kick-back payments, advertising subsidies etc. An illicit incentive may also be assumed if the supplier raffles off a prize within the framework of an advertising campaign, provided that a certain resale price is maintained during the campaign period.

Low enforcement risk in relation to RPM traditionally

In practice, public enforcement in this context has been relatively limited as the focus in the context of Article 101 TFEU was - and arguably still is albeit to a lesser extent – on cartels. Cartels are generally considered to be more harmful than RPM and, more importantly, are – or were[2] - easier to detect because of immunity/leniency programs which typically apply to cartels only - ie, not to RPM unless in the context of a so-called hub-and-spoke cartel.[3] In addition, the VBER has had an effect of “privatising” enforcement, which has led to less attention for the topic at the level of the competition authorities.

Indeed, the enforcement of the prohibition of RPM mainly came from the national courts and tribunals as clauses in breach of competition law - including clauses containing RPM - are null and void (and therefore unenforceable).

However, recently, competition authorities in Europe are increasingly showing an interest in investigating vertical restrictions such as territorial restrictions in online sales and RPM.

Examples of recent enforcement action by the Commission and the NCAs of Germany and the Netherlands

EU. On 17 December 2018, the Commission announced that it had fined Guess € 40m for anticompetitive agreements to block cross-border sales. The Commission found, inter alia, that Guess’ distribution agreements restricted authorised retailers from independently deciding on the retail price at which they sell Guess products.

On 24 July 2018, the Commission announced that it had imposed fines on four consumer electronics manufacturers for fixing online resale prices. The fines amounted to over € 111m in total. The Commission alleges that each of Asus, Denon & Marantz, Philips, and Pioneer engaged in RPM by restricting the ability of their online retailers to set their own retail prices for certain consumer electronics products (eg, kitchen appliances, notebooks and hi-fi products). In the Commission’s view, the manufacturers intervened particularly in relation to online retailers. If those retailers did not follow the prices requested by the manufacturers, they faced threats or sanctions such as the blocking of supplies. The Commission considered in this context that online retailers often use pricing algorithms which automatically adapt retail prices to those of competitors. As a result, the pricing restrictions imposed on online retailers typically had a broader impact on overall online prices for the respective consumer electronics products. Furthermore, the use of monitoring tools allowed the manufacturers to effectively track resale price setting in the distribution network and to intervene swiftly in case of price decreases.

Germany. The German Federal Cartel Office (the BKartA) has been particularly active in relation to RPM, imposing substantial fines. For example, in 2017, the BKartA imposed fines on the clothing manufacturer Wellensteyn and on the trading company Peek & Cloppenburg (fines of approx. € 10.9m in total), as well as on five furniture manufacturers (fines totalling approx. € 4.4m). In 2016, the BKartA imposed a fine on LEGO of € 130,000 in connection with RPM. Moreover, the BKartA imposed fines of approx. € 27m in total on three mattress manufacturers in 2015. Finally, fines of around € 260m in total were imposed between 2014 and 2016 on 27 manufacturers of beer, confectionery, coffee, pet food, baby food and cosmetics and grocery dealers.

The Netherlands. On 27 December 2018, the Dutch Competition Authority (the ACM) announced that it had launched an investigation into price-fixing agreements between consumer-goods manufacturers and retailers, including online retailers. The ACM indicated that it suspects that certain consumer-goods manufacturers concluded minimum price agreements with retailers for their products. As part of the investigation, the ACM has apparently conducted dawn raids with respect to various companies. Although not much detail is known to date regarding the sector involved or on why the investigation has been started, the launch of the investigation in and of itself appears to mark a change in the ACM’s thinking about RPM and enforcement priorities.

Conclusion

In light of the potential pitfalls and renewed enforcement activities of the Commission and the NCAs, companies involved in multi-party distribution systems should be especially careful about the conduct with their business partners when it comes to the question of RPM. RPM is assumed to restrict competition but may under circumstances, in particular where it is supplier-driven, also lead to efficiencies, which are to be assessed under Article 101(3) TFEU (even though the Commission is very restrictive in recognizing efficiencies in this context).


[1] However, also genuine maximum or recommended prices may have anticompetitive effects when not exempted under the VBER. Maximum prices for instance may have the effect that distributors automatically set their prices at the highest level resulting in de facto fixed prices.
[2] The attractiveness for cartelists to apply for leniency has arguably declined in recent years due to the increased risk of follow-on damage claims (inter alia as a result of the EU Damages Directive). 
[3] A cartel in which, eg, suppliers (the spokes) coordinate their behaviour through their common customer (the hub) and/or vice versa.

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