Who: The Competition and Markets Authority; Ultra Finishing Limited
When: 28 January 2016
Law stated as at: 10 March 2016
The Competition and Markets Authority (“CMA“) has issued separate statements of objections to bathroom fittings manufacturer Ultra Finishing Limited and an unrelated supplier of commercial refrigeration parts.
Both businesses are alleged to have engaged in resale price maintenance between 2012 and 2014 by introducing a minimum advertised price for internet sales of their products by distributors. In the opinion of the CMA, this ‘effectively limited the ability of retailers of their products to make online sales below a specified price level’ and was in contravention of the Chapter I prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union.
Resale price maintenance
The CMA opened its investigations into the suspected vertical price restraints in place between the two suppliers and their resellers back in August 2014. The statements of objections that have now been issued allege that the businesses in question have been restricting competition in their respective online sectors by requiring distributors to adhere to minimum online resale prices, thereby introducing what is effectively a ‘price floor’.
Resale price maintenance such as this is prohibited under UK and European competition law. Whilst the law generally permits suppliers to impose maximum or ‘recommended’ resale prices, fixed or minimum resale prices are prohibited on the grounds that they stifle competition among rival retailers. Online business should be free to determine their online sales prices in order to compete and attract customers who use the internet to shop around for the best deals.
In a press release issued by the CMA, the Director responsible for the cases against Ultra and Foster commented that:
“The internet has driven innovation in retail markets. Where ‘traditional’ businesses operating through bricks-and-mortar shops face intense price competition from online sales, suppliers may be tempted to respond by introducing practices, like minimum advertised prices, that restrict such competition.”
The CMA’s findings of anti-competitive behaviour are only provisional at this stage. A final decision as to whether competition laws have been infringed will be reached after the targeted businesses have had the opportunity to respond to the CMA’s statements of objections.
Why this matters:
The CMA – and its predecessors, the Office of Fair Trading and Competition Commission – has a history of targeting resale price maintenance, particularly where it relates to minimum advertised prices online. These two cases suggest that the CMA will continue to focus its attention on this type of behaviour.
The consequences of contravening applicable competition laws can be very severe. Amongst other substantial enforcement powers, the CMA has the authority to impose fines of up to 10% of an undertaking’s worldwide turnover for the previous business year.
Businesses operating in the UK and Europe, or that sell into those markets via resellers or distributors, should take heed of the restrictions on resale price maintenance. Minimum advertised prices are generally permitted under US antitrust laws, and these two cases highlight how careful companies (in particular those used to operating in the USA) need to be when it comes to their distribution strategies in Europe.