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In Short
- Setting a minimum resale price for your distributors is illegal under New Zealand s Commerce Act 1986.
- You are permitted to set maximum resale prices, which can help keep consumer prices competitive.
- Providing RRPs is acceptable, but they must remain non-binding suggestions without any enforcement.
Tips for Businesses
Ensure your pricing policies comply with New Zealand law by avoiding the enforcement of minimum resale prices. Clearly communicate any RRPs as optional to your distributors. Regularly review your distribution agreements and practices to maintain compliance and foster positive relationships with your distributors.
Manufacturers and suppliers often consider whether they can control the prices at which their distributors sell products. This practice, known as resale price maintenance (RPM), is highly regulated in New Zealand. This article explores the legality of setting minimum or maximum prices for distributors and the potential implications for businesses.
Understanding Resale Price Maintenance
Resale price maintenance refers to any practice by which a supplier attempts to control or influence the price at which a reseller sells their products. This can take various forms, including:
- setting a minimum price below which distributors cannot sell (minimum RPM);
- setting a maximum price above which distributors cannot sell (maximum RPM); or
- recommending retail prices (RRPs).
Each of these practices has different legal implications and levels of risk under NZ competition law.
The Legal Framework in NZ
The primary legislation governing competition law is the Commerce Act 1986. This Act aims to promote competition in markets for the long-term benefit of consumers. Additionally, the Act makes it illegal for a supplier to specify a minimum price for the resale of goods.
Minimum Resale Price Maintenance
Setting a minimum resale price is explicitly prohibited under NZ law. This means that suppliers cannot:
- require distributors to sell at or above a specified price;
- withhold supply from distributors who sell below a certain price; or
- offer incentives to distributors to maintain higher prices.
Engaging in such practices can lead to significant penalties.
Maximum Resale Price Maintenance
The Commerce Act does not prohibit setting maximum resale prices. In fact, the setting of maximum resale prices can actually benefit consumers by keeping prices down.
Recommended Retail Price
Providing recommended retail prices (RRPs) to distributors is generally permissible, provided they are genuinely just recommendations. You must be cautious not to cross the line into enforcing these recommendations, as this could be construed as minimum RPM.
When using RRPs you should:
- clearly state that the prices are recommendations only;
- avoid placing any pressure or incentives on distributors to follow the RRPs; and
- refrain from penalising distributors who deviate from the RRPs.
Promotions
Businesses are entitled to agree to promotional plans with resellers and support resellers by offering rebates and/or discounts, as long as the reseller maintains the independence to set the ultimate retail price of the goods.
Best Practices for Businesses
Given the legal complexities surrounding RPM, you should consider the following best practices:
- refrain from setting or enforcing minimum resale prices for your distributors;
- if providing RRPs, ensure they are clearly communicated as non-binding recommendations;
- keep clear records of all pricing discussions with distributors to demonstrate compliance with the law; and
- ensure that sales and marketing teams understand the legal restrictions on RPM.
Given the nuances of competition law, it is advisable to consult with a legal professional when developing distribution agreements and pricing policies.
Key Takeaways
While the desire to maintain price consistency across distribution channels is understandable, NZ law places significant restrictions on a supplier's ability to control resale prices. Minimum RPM is prohibited, and even RRPs must be handled with caution.
You must navigate these rules carefully to avoid potential legal issues and significant penalties. By understanding the legal framework, implementing best practices and seeking professional advice when needed, you can develop effective distribution strategies that comply with competition law while still achieving their business objectives.
If you are a supplier, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 447 119 or visit our membership page.
Frequently Asked Questions
What are the penalties for engaging in resale price maintenance (RPM)?
If you engage in RPM, you may face significant penalties under the Commerce Act 1986. The Commerce Commission can take enforcement action, which may result in fines of up to $10 million, three times the commercial gain from the breach, or 10% of the company's turnover, whichever is greater. Individuals involved may also face personal liability.
Can I stop my distributors from advertising my products below a certain price?
No, restricting the advertised price of your products could be considered an attempt to enforce a minimum resale price, which is illegal. While you can provide RRPs, you must not pressure or penalise distributors who choose to advertise or sell at lower prices. If you have concerns about price erosion, consider alternative strategies such as offering different product bundles or exclusive deals.
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.
