|November 22, 2013|
Previously published on November 18, 2013
The topic of resale price maintenance, and the line between legitimate and illegitimate management of the pricing of products placed on the market, is one which will always challenge companies involved in distribution relationships. As this article demonstrates, any companies that think that competition authorities are no longer monitoring their solutions to such issues can think again, in Europe at least.
In the UK and Europe, any attempt by manufacturers or suppliers to control the prices at which downstream retailers sell their products are treated as serious infringements of applicable competition law -- whether Chapter 1 of the Competition Act 1998 (CA '98) in the UK, or Article 101(1) of the Treaty of the Functioning of the European Union (TFEU) at an EU level, both of which prohibit agreements which prevent, restrict or distort competition.
Controlling resale prices, whether directly or indirectly, is considered to be a hard-core infringement of competition law in the EU if it imposes a fixed or minimum resale price. A supplier may legitimately impose a maximum price, or recommend a resale price, provided the latter is not associated with incentives that effectively convert it into a fixed price.
Indirect resale price maintenance may arise in a number of guises in the EU. This includes the fixing of profit margins, imposing restrictions on discounts, and prohibiting the advertising of discounted prices. The increasing prevalence of online sales has had an impact on the types of pricing restrictions and tactics brought to the attention of the EU competition authorities. Price parity provisions, for example, utilized in connection with websites offering lowest price guarantees, have come under particular scrutiny around Europe. Additionally, suppliers achieving a chilling effect on prices through measures aimed at preventing online sales are attracting sustained attention.
In September 2013, the UK's Office of Fair Trading (OFT) issued statements of objection (SO) in two separate resale price maintenance cases. The first relates to the sale of sports bras and the second to mobility scooters. These are distinct products, sold in different ways, but both have allegedly been the subject of arrangements between suppliers and retailers aimed at artificially managing the prices that consumers pay.
The investigation into price fixing for sports bras was launched in April 2012. It focused on the conduct of a supplier of a range of sports bras. Between 2009 and 2011, the company allegedly entered into nine agreements with three major department store chains covering nationwide sales of multiple products within the range. The agreement apparently contained provisions which set a fixed or minimum resale price for the products, thereby resulting in prices being higher than they might otherwise have been.
The OFT's decision to issue a supplier of mobility scooters and a number of the retailers that sell its products followed a market study on the mobility aids sector which concluded in 2011.
The supplier and retailer customers are accused of being party to arrangements which prevented the retailers from advertising online prices at levels below the supplier’s recommended retail prices.
Given that both investigations are only at SO stage (i.e. provisional decision), it must be noted that the findings remain interim and should not give rise to an assumption that infringements of UK and/or EU competition law have occurred. For the cases to have progressed this far, however, there is a strong likelihood that this could be the ultimate conclusion. It will be a while before we know the final outcome of these investigations. In line with the procedural timetables, final decisions should not be expected before spring 2014.
Coincidentally, a second mobility scooter manufacturer was the unfortunate and recent recipient of a formal infringement decision which was published on October 31, 2013. This case was also triggered by intelligence gathered by the OFT during its market study. The OFT concluded that the company had prohibited both online sales, and the online advertising of prices. In doing so, it allegedly restricted price transparency and the variety of methods by which consumers could access the products, ultimately with the object of maintaining its preferred retail price points while limiting lost sales.
In addition to the supplier, seven retailers were also found to have infringed the Chapter 1 prohibition. Those retailers were held to have been party to the infringing agreements by virtue of having received circulars from supplier detailing the restrictions, and then allegedly acquiescing to those requests by not engaging in the restricted activities. Interestingly, even though some of the retailers did not comply with the requests at all times, this was not enough to absolve them of liability - instead, the OFT noted that an agreement can still exist even if one party realizes that it can "cheat" on the agreement and does so, or even if it does not subsequently implement that agreement.
While the sports bra case appears to be a textbook example of resale price maintenance between a supplier and retailer, the nature of the allegation in the mobility scooters case is more complex. The alleged misconduct is not the fixing of actual sales prices, but a limitation on the advertising of discounted prices over the Internet. The OFT has suggested that this impedes the ability of customers to obtain value for money, as well as obstructing innovative and efficient retailers from winning new customers.
The EU enforcement agencies’ focus on resale price maintenance issues, and the apparent enthusiasm with which these cases are now being investigated, are clear indicators that there is no room for complacency for anyone trading in the EU, when it comes to entering into agreements and arrangements with entities at other levels of the supply chain. In particular, any restrictions or obligations which dictate to whom parties can sell, where they can sell, or at what price, have to be given serious consideration. Indeed, retailers themselves have to be particularly careful when receiving instructions from their suppliers. If a supplier seeks to impose illegal pricing restrictions, and the retailer does not explicitly object, it runs the risk of being caught up in a regulatory investigation, with all of the attendant costs and risks. Ultimately, the potential costs of non-compliance far outweigh any benefits that might flow from having "successfully" managed the resale price in the first place. Suppliers and retailers in markets big and small have now been duly warned.