Who: Competition and Markets Authority (“CMA“)
Where: United Kingdom
When: 21 June 2016
Law stated as at: 5 August 2016
In the wake of two hefty fines issued by the CMA earlier this year, the CMA has published an open letter on resale price maintenance (“RPM“) (available here) with the aim of ensuring that distributors and retailers better understand the rules, what they should do if they think RPM might be going on and what the risks are.
What is Resale Price Maintenance?
RPM can arise online and offline, whenever a supplier and a retailer set a minimum price at which products can be advertised or sold to customers. This type of activity will almost always be regarded as an infringement of UK competition law because it amounts to vertical price fixing, i.e. those higher up the supply chain are fixing the prices at which goods can be sold by a retailer. This can result in artificially high prices and removes the retailer’s ability to offer customers the most competitive deal.
RPM might come about where a supplier and retailer explicitly agree that goods won’t be sold below a set price. Alternatively, RPM could be indirect, for example by a supplier:
- imposing restrictions on the discounts that a retailer can offer;
- restricting a retailer’s ability to advertise lower prices online, i.e. through the use of a minimum advertised price (“MAP“) policy (where this genuinely restricts the ability of a reseller to determine their own online sales prices); or
- threatening the retailer with penalties if they don’t offer goods for sale at or above a certain price, or promising incentives if the retailer charges customers at or above a “recommended” price.
It’s worth remembering, however, that suppliers are free to communicate recommended resale prices (“RRP“) to retailers, so long as no penalties or incentives are attached which restrict the extent to which those prices are truly “recommended”. Retailers are always entitled to set the price of products they sell.
In May 2016, the CMA issued a fine of over £2 million to a catering equipment company and over £780,000 to a bathroom fittings manufacturer.
- The catering company had imposed a MAP policy and threatened to charge retailers with higher prices, or stopping supply altogether, if they failed to comply. For example, the CMA pointed to the following statements, which had been emailed by the company to a retailer:“Whilst researching online pricing I can see a number of products which are listed below the minimum advertised price…
- “Unfortunately by not adhering to the policy and attached minimum advertised pricing we shall no longer be able to process any order received at standard discount terms.”
- The bathroom fittings company, on the other hand, threatened to impose penalties (such as higher prices for their goods, taking away rights to use images online and stopping supply altogether) for not pricing at or above “recommended” online prices set out in the company’s guidelines. The CMA took note of the following comments in an email sent to a retailer in this case:
- “…our online trading guidelines have come into effect today and it has been reported that your site is not compliant with them…if we can’t bring your site in line by close of business on 2/2/12 we will have to put your account on ‘stop’.“
The CMA is keep to make clear in its letter that companies who think that they (or others in their group) may be involved in an anti-competitive arrangement such as RPM can report this online (here). Businesses should take legal advice before doing so, but the CMA can be lenient on those who come forward.
In the above cases, the CMA reported that the suppliers’ fines were reduced by 20% because the suppliers admitted to breaking the law and fully co-operated with the CMA under a settlement agreement. The fines were also reduced by 5 to 10% as a result of them setting up a “comprehensive competition law compliance programme that included staff training“.
Why this matters:
The consequences of RPM can be serious, with the CMA able (and willing) to levy fines of up to 10% of a business’s worldwide turnover. Businesses should take this open letter as a warning the CMA is actively looking at the issue of RPM.
Indeed, RPM is seen by the CMA as an increasingly important issue due to the rapid development of online sales channels. The ease with which consumers can search for alternative retailers, or use comparison sites, means that competition on price in many industries is increasingly fierce. RPM, however, can prevent retailers from offering the most competitive prices.
Along with the open letter, the CMA has produced a whole selection of handy digestible guides. There is a 60 second one-pager (here), a short video (here), along with some further detail on the case studies (here). There are also some guidance notes for small businesses to help ensure they are staying on the right side of competition law (available here).