UK: OFT Finds Another Vertical Pricing Fixing Infringement

The OFT announced on 31 March 2003 that it had taken a decision against the luxury porcelain and stoneware figurine producer Lladró Comercial requiring Lladró to stop fixing UK retail prices anti-competitively. This follows an apparent concentration of OFT resources into the investigation of direct and indirect forms of resale price maintenance. Manufacturers, wholesalers and retailers therefore need to be extra vigilant to ensure that their supply agreements are competition compliant.

OFT Press Release

Lladró, based in Valencia, Spain, entered into written agreements with 155 UK retailers for the direct supply of luxury ornamental figurines. According to the OFT's press release, Lladró entered into agreements with the retailers that:

• prevented retailers from selling Lladró figurines below Lladró's recommended retail price without first giving Lladró the opportunity to purchase the products back from the retailer at cost price; and
• prevented retailers from advertising any discount or price reduction in relation to Lladró figurines.

The OFT considered that Lladró had pursued an intentional anti-competitive strategy intended to prevent retailers from offering discounts from its recommended retail prices. The OFT did not impose any fines as it appeared to accept Lladró's claim that the wording of a comfort letter issued in 2000 by the European Commission in respect of the agreements may have suggested that the agreements would not infringe the Competition Act 1998.

Vertical Price Fixing

The decision follows hot on the heels of the two Hasbro decisions, both dealing with vertical resale price maintenance. Those decisions resulted in the largest ever fine (£22 .65 million) so far under the Competition Act against an individual company. There are also a number of other OFT investigations that appear to focus on the same issue.

The OFT is interested not only in clear contractual provisions which restrict the buyer's resale price, but also in arrangements which indirectly have the effect of restricting resale prices.

Compliance therefore needs to concentrate not only on the written contractual arrangements, but also critically on the conversations between buyers and account managers. Discussions about, and comments on resale prices, especially when combined with common sale prices by distributors/retailers may be enough for the OFT to find an infringement. Indeed, much of the evidence used to ground a fine against Littlewoods and Argos was based on the internal records of Hasbro (the manufacturer) about its discussions with those two retailers. Buyers and account managers therefore need to be a real target for any serious compliance programme.

It should also be noted that the government has informally indicated that they may soon remove the current exclusion from the Chapter I prohibition for vertical supply agreements which do not involve price fixing. Such a move would probably coincide with the implementation of the changes to the Competition Act bringing it in line with the EC Commission's modernisation proposals for the enforcement of Articles 81 and 82 EC Treaty which will come into effect in May 2004. Going forward, the OFT may therefore pursue vertical supply agreements even where they do not involve resale price maintenance. The likely removal of the exclusion for vertical supply agreements must therefore be borne in mind when entering new supply arrangements and in considering the compatibility of existing contracts which may continue beyond May 2004.

Please contact one of the authors listed if you would like us to review any of your purchasing, supply, distribution agreements or trading practices for compliance with the UK Competition Act 1998.

Article by Jonathan Scott, Elizabeth McKnight, Dorothy Livingston, Susan Black, Stephen Wisking and James Quinney

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