European Union: E-Commerce In The EU: How And Why Manufacturers And Retailers Should Avoid Resale Price Restrictions

Last Updated: 13 September 2018
Article by Samuel R. Beighton

On 24 July 2018, the European Commission (the "Commission") announced that in four separate cases it had fined four manufacturers a total of more than €111 million for infringements of Article 101 of the Treaty of the Functioning of the European Union (TFEU) in relation to pricing restrictions imposed upon retailers.

This update considers the background to the cases, the Commission's concerns in relation to e-commerce in particular, and what this means for manufacturers and retailers.

Manufacturers' strategies to maintain pricing levels online

While the Commission's infringement decisions are yet to be published, the Commission's press release provides that, during a range of periods from 2011 to 2015, each of the four manufacturers independently placed pressure upon retailers to set higher prices online.

These practises affected a number of different Member States, and covered a range of different consumer electronics, including kitchen appliances, hair dryers, notebook computers, speakers, and headphones.

From its investigations, the Commission found that the manufacturers had deployed monitoring tools in order to track resale pricing within each of their distribution networks. With this data, each manufacturer was then able to individually target retailers that were offering lower prices online. In certain instances, manufacturers intervened in relation to price differentials of just €1.

In intervening, the manufacturer would contact the "lower price" retailer in question, and instruct them to increase their online prices to the manufacturer's desired levels. If the retailer refused, it faced threats or sanctions, with such sanctions including products being withheld from the retailer by the manufacturer.

The Commission found that these threats and sanctions had the aim of ensuring that the retailer changed its own commercial policy, and complied with the manufacturer's instructions in relation to resale pricing.

Resale price maintenance - a restriction of competition "by object"

A restriction of competition "by object" is a restriction that, by its very nature, can be regarded as "harmful to the proper functioning of normal competition".1

Where a "by object" restriction exists, there is no requirement for a competition authority (or third party) to prove that the restriction had any actual effect upon competition. This is on the basis that a "by object" restriction "reveals in itself a sufficient degree of harm to competition", such that is no need to prove any effect.2

Where a manufacturer requires its retailers to adhere to minimum or fixed resale prices determined by the manufacturer (so-called resale price maintenance, or "RPM"), this has consistently been held to constitute a restriction of competition "by object".3

As such, the use of RPM will generally infringe Article 101 TFEU, as well as the applicable national competition laws of EU Member States.

Specific concerns in relation to e-commerce

In discussing the four RPM cases, Margrethe Vestager, Commissioner for Competition, confirmed the seriousness of the infringements, explaining that the manufacturers had denied consumers the full benefits of e-commerce by preventing retailers from offering lower prices, and stopping consumers from comparing prices and shopping around for the best deals.4 This echoes concerns raised by national competition authorities in domestic cases investigating RPM, including in relation to online pricing.

In addition, the Commission found that the specific targeting of "lower price" retailers had a broader effect upon pricing online. This effect arose from the widespread use by retailers of price comparison websites, as well as pricing algorithms, to monitor competitors' pricing online - and to adjust their own pricing - in real time.5

For example, if a retailer reduced its prices online, a number of competitors would follow this price reduction; conversely, if a retailer increased its prices online, a number of competitors would also follow this price increase. Once the Commission's infringement decisions are published, it will be of interest to consider the extent to which the manufacturers were aware of this effect, and if so, how this has been addressed by the Commission in calculating the fines imposed.

While the manufacturers were fined a total of more than €111 million, notably in each case the manufacturer received specific reductions to its fine, on the basis that it admitted its pricing strategies infringed EU competition law, and cooperated with the Commission in the course of the investigation. In the absence of these reductions, the fines would have totalled approximately €190 million.

The Commission's renewed interest in RPM

The four cases mark the first fines imposed by the Commission in relation to infringements concerning RPM since 2003. For much of this intervening period, RPM cases have been pursued by national competition authorities in the EU, including the UK's Competition and Markets Authority.

However, with the Commission keen to ensure that consumers across the EU receive the full benefit of e-commerce (particularly in view of the Commission's focus upon bolstering the Digital Single Market across the EU), and with other possible pricing cases in the pipeline, the Commission is again prioritising enforcement action against RPM, especially where these practices affect pricing online.

What does this mean for manufacturers and retailers?

Given the Commission's increased scrutiny of pricing restrictions and e-commerce, and the continued focus of national competition authorities on RPM cases, manufacturers and retailers should ensure that any distribution arrangements leave retailers free to determine their resale prices independently, in accordance with Article 101 TFEU (and the national competition laws of relevant Member States).

Recommended resale prices and maximum resale prices

Importantly, the use of recommended resale pricing, and well as the application of maximum resale pricing, is generally permissible within the EU.

This is on the basis that where a manufacturer:

  • genuinely recommends resale prices to its retailers; or
  • applies genuine maximum resale prices to its retailers,

these pricing activities will not constitute a restriction of competition "by object", provided that these prices do not in reality constitute fixed or minimum resale prices (e.g. due to threats made by the manufacturer).

Moreover, recommending resale prices, and applying maximum resale prices, can benefit from exemption under the Vertical Agreement Block Exemption Regulation6 (the "VABER") where that the parties' market shares do not exceed 30%, and the arrangement does not include any restrictions of competition "by object".7

In addition, in the event that the VABER is not applicable (e.g. the market share of one or more of the parties exceeds 30%), recommended and maximum resale prices may nevertheless be capable of benefitting from individual exemption under Article 101(3) TFEU.8

Use of fixed or minimum resale pricing to engage in RPM

However, where a manufacturer seeks to engage in RPM (i.e. by using fixed or minimum resale pricing), this will constitute a restriction of competition "by object", and will generally infringe Article 101 TFEU, and the national competition laws of relevant Member States.9

RPM may be achieved directly (i.e. via a contractual provision setting fixed or minimum resale prices), as well as indirectly, including in the absence of any formal written agreement.

From EU case law, and the decisional practice of national competition authorities in the EU, examples of indirect RPM include:

  • manufacturers setting a maximum discount that retailers may apply to a prescribed pricing level;
  • manufacturers providing incentives for retailers to adhere to a prescribed pricing level;
  • manufacturers requiring that retailers obtain the manufacturers' consent for retailers to revise their pricing, or to apply discounts;
  • manufacturers preventing retailers from engaging in promotional pricing, including advertising any discounts or price reductions offered;
  • manufacturers preventing retailers from advertising prices (including online) unless these accord with recommended resale prices; and
  • manufacturers threatening to withhold supplies, or to withdraw certain rights (including permissions to use the manufacturers' images in advertising), so as to ensure that retailers to adhere to a prescribed pricing level.

Compliance risks arising from RPM

The use of RPM exposes all of the parties to an infringing arrangement (i.e. the manufacturer, and the retailers) to material risks, including: (i) significant financial penalties of up to 10% of each party's group worldwide turnover; (ii) actions for damages from third parties suffering loss as a result of the infringement; (iii) the infringing arrangements being void and unenforceable; and (iv) incalculable harm to corporate reputation and brand values.

In addition, in the UK, individuals may be exposed to the risk of being disqualified from acting as a company director for a period of up to fifteen years in connection with infringements of EU and/or UK competition law arising from RPM.10

In view of these considerable risks, and the continuing scrutiny of competition authorities in the EU, it would be prudent for companies to take proactive steps to:

  • ensure that their distribution arrangements, including in relation to e-commerce and online sales, are fully compliant with applicable competition laws (as considered in our update in relation to selective distribution); and
  • more generally, maintain an effective culture of competition law compliance at all levels of their businesses.

Footnotes

1 C-373/14 P Toshiba v Commission EU:C:2016:26, paragraph 26.

2 See, for example, C-67/13 P Groupement des Cartes Bancaires v Commission, EU:C:2014:2204, paragraph 49.

3 See, for example, See Case 243/83 SA Binon & Cie v SA Agence et messageries de la presse, EU:C:1985:284, paragraph 44.

4 See, "Statement by Commissioner Vestager on Commission decision to impose fines on four consumer electronics manufacturers for fixing online resale prices".

5 The Commission observed in the context of its e-commerce sector inquiry that "53 % of the respondent retailers track the online prices of competitors, out of which 67 % use automatic software programmes for that purpose. Larger companies have a tendency to track online prices of competitors more than smaller ones. The majority of those retailers that use software to track prices subsequently adjust their own prices to those of their competitors (78 %)", see the Commission Staff Working Document accompanying the Final report on the E-commerce Sector Inquiry, paragraph 149.

6 Regulation 330/2010.

7 See, for example, the Commission's Guidelines on Vertical Restraints, paragraph 226: "the practice of recommending a resale price to a reseller or requiring the reseller to respect a maximum resale price is covered by the VABER when the market share of each of the parties to the agreement does not exceed the 30 % threshold, provided it does not amount to a minimum or fixed sale price as a result of pressure from, or incentives offered by, any of the parties".

8 An arrangement would be capable of benefitting from individual exemption where it satisfies the following four cumulative criteria: (i) the arrangement contributes to improving production or distribution, or promoting technical or economic progress; (ii) the arrangement allows consumers a fair share of the resulting benefit; (iii) the arrangement does not impose restrictions on the parties concerned that are not indispensable to attaining those objectives; and (iv) the arrangement does not afford the parties concerned the possibility of eliminating competition in respect of a substantial part of the products in question. Importantly, it is for the party seeking to rely upon an exemption to evidence that the four cumulative criteria are satisfied by the arrangement.

9 In very limited circumstances, it may be possible for a party to demonstrate that RPM is capable of benefitting from individual exemption under Article 101(3) TFEU. In this context, the Commission's Guidelines on Vertical Restraints provide high level examples of instance where consumers demonstrably benefit from manufacturers' use of RPM over a necessarily limited time period; the Commission suggests that RPM "may be helpful during the introductory period of expanding demand to induce distributors to better take into account the manufacturer's interest to promote the product. ...Similarly, fixed resale prices, and not just maximum resale prices, may be necessary to organise in a franchise system or similar distribution system applying a uniform distribution format a coordinated short term low price campaign (2 to 6 weeks in most cases) which will also benefit the consumers", see the Commission's Guidelines on Vertical Restraints, paragraph 225.

10 For completeness, individuals would not face criminal sanctions under the so-called Cartel Offence in the UK in respect of RPM that occurs at different levels of the supply chain (i.e. RPM agreed between a manufacturer and its appointed retailers).

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions