Resale price maintenance case studies
Lessons from the Competition and Markets Authority’s (CMA) resale price maintenance cases.
Background
In 2017 the CMA fined a supplier of domestic light fittings £2.7 million for breaking competition law by restricting resellers’ freedom to set their own prices online – a form of resale price maintenance (RPM). The CMA was made aware of this by complaints from resellers.
This latest case follows similar cases in 2016 where the CMA found that 2 businesses, one supplying commercial catering equipment and the other supplying bathroom fittings, similarly broke competition law by engaging in RPM – dictating the minimum prices at which resellers sold their products online.
RPM is where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a particular price. RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price. You can find out more about RPM by watching our short film.
Domestic light fittings RPM case – what happened?
A supplier of domestic light fittings broke competition law by dictating the minimum prices at which its resellers could sell its products online. The supplier set a maximum discount off the recommended resale price (RRP) that resellers were allowed to offer.
Hiding illegal online pricing policies
The supplier was aware of the legal risks of what it was asking resellers to do – it sought to hide the practice of RPM behind Internet Licence Agreements (ILAs). It also avoided communicating pricing instructions and policies via email or in writing. However this didn’t stop the CMA from investigating and concluding that there had been a breach of competition law. For example, in a recording of a meeting between the supplier and a reseller, the reseller asked:
“Isn’t it illegal to fix prices?”
The supplier replied: “It is illegal to fix prices. That’s why we won’t put anything in writing.”
In addition, a witness told the CMA:
The pricing policy was communicated to resellers at the time of signing or renewing the ILA. Although the […] pricing policy was not included in the ILA for obvious legal reasons, resellers signing the ILA understood that the […] pricing policy was a condition of the ILA. The ILAs acted as a veil.
On some occasions, restrictive pricing policies were discussed and agreed at industry events and trade shows.
Enforcement of online pricing policies
The supplier threatened to suspend the accounts of non-compliant resellers or take away image rights under the ILAs, to force the resellers to price at or above a specified price online. For example, a witness told the CMA:
I would give these companies 24 hours to increase their prices. If after 24 hours the price had not increased, their account would be put on ‘stop’. I recall that a significant number of accounts were put on stop.
What CMA action was taken?
The supplier was fined £2.7 million which included a 25% uplift because it had ignored a previous warning letter sent by the Office of Fair Trading (the CMA’s predecessor).
Commercial catering equipment and bathroom fittings RPM cases – What happened?
In May 2016, the CMA fined a supplier of commercial refrigeration equipment over £2 million and a bathroom fittings manufacturer over £780,000 for breaking competition law.
In the commercial catering equipment case, the supplier imposed a ‘minimum advertised price’ (MAP) policy that restricted the price at which retailers could advertise the supplier’s product online. It enforced this MAP policy by threatening to charge dealers higher cost prices for products, or stopping supply altogether, if they advertised below the minimum price. For example, an email from the supplier read:
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.
In the bathroom fittings case, the manufacturer threatened retailers with penalties for not pricing at or above a ‘recommended’ online price as set out in ‘online trading guidelines’. Enforcement threats included charging retailers higher prices for products, withdrawing rights to use the supplier’s images online or withholding supply of products. For example, an email from the manufacturer read:
[…] 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’.
We […] would appreciate it if someone contacts [‘Marketing Executive’]…to give him some assurances that you will have correct pricing by tomorrow evening.
How did these businesses break the law?
The CMA found that preventing retailers from advertising or selling products online below a certain price restricted their freedom to set the price for online sales and, therefore, amounted to illegal RPM in relation to online sales.
What are the lessons from these cases?
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Suppliers must not take any action that interferes with a retailer’s ability to set their own price of the supplier’s goods online or through other channels. Any attempt to do so is likely to be illegal.
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The principles of competition law apply to all sectors, including online retail – the CMA is keeping an active watch on potential RPM agreements in the online space and is prepared to take action against firms breaking the law.
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You cannot disguise RPM policies. Any agreement, be it verbal or in writing, is equally liable to CMA investigation and enforcement. You can’t get around the law by taking agreements ‘offline’.
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You cannot try to use apparently legitimate policies (for example, image licensing) to conceal RPM practices.
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If you receive a CMA warning letter it is very important that you take it seriously – in a future investigation, your failure to take action may be seen as an aggravating factor and could lead to an uplift in any fine.
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The consequences of breaking competition law can be severe: fines can be as much as 10% of a business’s global turnover.
What you can do
These cases show that it’s important for suppliers and retailers to review their practices around discounting and pricing policies so they don’t risk entering into illegal agreements. Some of the ways to do this are to:
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Create a culture of compliance – everyone in your business must understand what they need to do to stay on the right side of competition law.
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Read our 60-second summary on RPM and our open letter to suppliers and retailers – both give pointers to help businesses avoid falling foul of the law.
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If you have information on other companies in your industry that may have been involved in an anti-competitive arrangement, report it to us or call us on 020 3738 6000.
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If you think your business has been involved in RPM, you should notify the CMA as soon as possible – you may benefit from lenient treatment by being the first to come forward to the CMA.
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We also recommend that you seek independent, legal advice.
For more information on how businesses can comply with competition law, see our guidance on competing fairly in business which includes a series of short films and at-a-glance guides on different aspects of competition law.
Last updated 20 June 2017 + show all updates
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New light fittings RPM case study added.
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First published.