Re-sale price maintenance: Never say never?

Written on 10 May 2016

The European Commission is showing an increased interest in anti-competitive distribution practices, in particular in online and cross-border sales. Competition authorities across Europe have fined brand-name manufacturers for re-sale price maintenance (RPM). Unlike in US federal law, where RPM can often be justified under the rule of reason, the majority of EU competition authorities continue their crackdown on RPM. However, signs of change are emerging.

RPM as an enforcement priority

RPM is presumed anti-competitive in the EU. In theory, manufacturers or dealers can attempt to rebut this presumption but in practice no European competition authority or court is known to have considered the benefits of RPM to outweigh its anti-competitive effects.

Whilst the European Commission has not addressed RPM since it reformed the legal framework in 2010, national competition authorities of the Member States (NCAs) have investigated a significant number of RPM cases. Most cases concerned situations in which manufacturers communicated recommended retail prices (RRPs) and used pressure or incentives to enforce these.

A number of these cases led to significant fines; the German Federal Cartel Office fined food manufacturers and supermarkets a total of EUR 151.6 million for RPM, which was achieved through RRPs combined with pressure and incentives aimed at influencing sales prices. Similarly, the Austrian competition authority concluded a number of RPM cases with high fines. One investigation eventually led to fines of approximately EUR 30 million against supermarket chain SPAR.

Light at the end of the tunnel?

In April 2016, a German Court of Appeals in Celle ruled that an act of re-sale price maintenance did not constitute a breach of competition law where it did not have any noticeable effect. Dietary supplement maker Almased had offered retailers a one-time discount on one order of 12-90 cans, which was conditional on the retailer’s willingness to charge a minimum retail price. The court held that the one-time offer for such a limited quantity did not have any appreciable impact on competition.

The Dutch and Swedish competition authorities also seem to be more amenable to a more effects-based approach. Although neither NCA has accepted a full efficiency defence in an RPM case so far, both have recently refrained from investigating RPM cases:

In April 2015, the Dutch competition authority (ACM) published a paper setting out its strategy and enforcement priorities with respect to vertical restraints. Although condemning the negative and restrictive effects that RPM can have, it highlights that, under certain conditions, vertical restraints may also be pro-competitive and the efficiencies that can be derived from RPM may even outweigh the negative effects. Generally and in particular in the absence of market power, the ACM considers vertical agreements, including RPM, to be more-often-than-not beneficial to consumer welfare.[1]

The ACM’s paper includes case studies illustrating situations in which it would not consider enforcement priorities. One case is closely modelled on the Australian Tooltechnic case, in which the Australian competition authority (ACCC) did not object to RPM. In this case, the ACCC found that the use of RPM was compatible with competition law as the companies concerned only had low market shares (around 10%), sufficient inter-brand competition existed, and RPM was an acceptable way to address free riding.

The Swedish competition authority (SCA) adopted a reasoned priority decision not to pursue the investigation of a complaint regarding RPM in late
2014.[2] The case concerned the market for the manufacture and sale of sports nutrition. The SCA was informed by an anonymous source that 13:e Protein Import AB, a manufacturer of sports nutrition products under the brand “SELF Omninutrition”, had sent a minimum re-sale price list for protein powder products to its online retailers, asking them not to adopt prices below the prices on the price list.

The preliminary investigation indicated that 13:e Protein Import AB had a low market share, below 3%, in the upstream market for the manufacture of
protein powder products. Furthermore, the findings of the SCA suggested that both the upstream and downstream markets for protein powder products were highly fragmented, and that there were no indications that other market participants were engaged in re-sale price maintenance. Based on these facts,
the SCA concluded that the case did not merit prioritization.

The eye of the needle: moving to an effects-based approach?

The door for RPM is not firmly shut. EU law acknowledges the potential efficiencies of RPM which may – albeit rarely – suffice to rebut the presumption of illegality. Suppliers or distributors should only consider RPM where relevant market characteristics and efficiencies can be demonstrated. The Dutch and Swedish NCAs have discussed inter-brand competition and the lack of parallel restrictions. A German court recently relied on a lack of appreciable effects to dismiss a claim. Hence, there is some room for an effects-based assessment of RPM in European competition policy. A move to a full effects-based approach is not to be expected any time soon though, as the statutory framework is not up for renewal until 2022.