Why we fined Casio £3.7 million for breaking competition law
Lessons from the CMA’s investigation into Casio's use of illegal resale price maintenance (RPM).
Background
When online resellers have the freedom to price items independently this leads to healthy competition - rivals strive to offer the best deal for customers and people can shop around for a better deal.
However, if a supplier dictates to its resellers a specific minimum price that they are not allowed to drop below, or tries to stop them from selling at a reduced price, rival resellers are blocked from competing on price and customers lose out. This practice is known as Resale Price Maintenance (RPM) and is illegal.
We recently fined Casio £3.7 million for breaking the law for restricting its resellers online prices in this way.
What Casio did
Between February 2013 and April 2018, Casio set minimum prices for online resellers of its digital pianos and keyboards. It policed the minimum pricing policy by monitoring its resellers to make sure they didn’t drop below this price. If resellers weren’t complying, Casio threatened sanctions such as withholding products which would mean the reseller in question could not fulfil orders.
On one occasion, the evidence shows that Casio called a reseller and told them to put their price up before emailing other resellers asking them “to follow in the same spirit”.
The fear of sanctions from Casio was a clear deterrent for resellers not to drop their prices. In one exchange, a reseller specifically referred to this and asked for Casio’s blessing to set their own prices, saying:
can you please urgently give us your assurance that we can now compete in the market place, particularly at this time of the year, without:
a. The threat of having our trading terms being changed for the marketing support column price to the standard trade column price and
b. Casio conveniently running out of stock in response to any orders we place.
Casio used price monitoring software to monitor online prices in real time, tracking prices to make sure resellers were selling at or above the price they specified. Casio’s monitoring was also helped by resellers themselves reporting on one another and letting Casio know when other resellers were dropping their price.
Price monitoring software, when used correctly, should benefit competition by encouraging firms to undercut rivals. In this instance the software was misused as a tool for Casio to help keep resellers’ prices artificially high.
How Casio broke the law
RPM is illegal because it cheats people out of a fair deal. It involves a supplier enforcing a minimum price, and therefore restricting the possibility of discounts– rather than allowing resellers to compete for custom.
What action we took
We fined Casio £3.7 million for breaking the law. The size of the fine was partly because the illegal behaviour went on for a long time – over 5 years. We also increased the fine because senior management were involved.
This fine includes a reduction as Casio fully cooperated with our investigation, and as a result has put in place competition law compliance programmes to make sure they don’t break the law again.
What the lessons are
There are a number of lessons that businesses can learn from this case, including understanding that:
-
Suppliers must not take any action that interferes with a reseller’s ability to independently set their own price. Any attempt to do so is illegal.
-
The consequences of breaking competition law can be severe: fines can be as much as 10% of a business’s global turnover.
-
Price monitoring software should only be used as part of healthy competition, and not as a way of keeping prices artificially high by enforcing RPM.
-
Anti-competitive agreements aren’t always in writing so you can’t get around the law by taking conversations ‘offline’. In this case, Casio tried to avoid writing down what they were doing as they knew it was illegal. Informal agreements and ‘gentleman’s agreements’ can still fall foul of the law – any agreement, be it verbal or in writing, can be investigated by the CMA and enforcement action can be taken as a result.
-
As a reseller you can also be subject to investigation for breaking the law if you are found to have co-operated with a minimum pricing policy. If a supplier tries to make you comply with a minimum pricing policy you should refuse, point them to our guidance and report them to us. Resellers may also face enforcement action such as fines if they have gone along with the supplier’s resale price policy.
What you can do
This case shows that it’s important for suppliers and resellers to review their pricing practices so they don’t risk entering into illegal agreements. Some of the ways to do this are to:
-
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.
-
Read our 60-second summary on RPM and watch our video – both give pointers to help businesses avoid falling foul of the law.
-
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.
-
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.
-
If you think you may be at risk of breaking the law we always recommend that you seek independent, legal advice.