In today’s competitive marketplace, businesses are under pressure to maximise their profits and protect their market position and brand. For manufacturers, a desire to control the price at which distributors or retailers sell on their products may seem attractive.
However, as two cases reported this week demonstrate, attempts to impose resale price maintenance (RPM) on your customers are a surefire way to catch the CMA’s attention.
What is RPM?
RPM is a type of anti-competitive agreement. An ‘upstream’ seller (e.g. a manufacturer or distributor) and a ‘downstream’ buyer (e.g. a distributor or a retailer) agree that the buyer will sell on the seller’s products at or above a certain price.
The agreements may be formed as a result of genuine collusion, or may result from the seller pressuring the buyer to accept their terms. Either way, RPM is a ‘hard-core’ competition law restriction which cannot be justified.
Ultra Finishing Limited and Foster Refrigerator
Last week, the CMA issued separate statements of objections to Ultra Finishing Limited (Ultra), a bathroom fittings supplier, and Foster Refrigerator (Foster), a division of ITW Ltd which deals in commercial refrigeration products.
Each business is alleged to have introduced a minimum advertised price for online sales of their products between 2012 and 2014, having the effect of preventing online retailers selling their products below the specified price. The CMA regards the agreements as RPM, and therefore as infringements of competition law.
The CMA’s official statement quoted its Acting Executive Director Ann Pope as saying:
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.
Retailers should be free to set their own sales prices online. This drives competition among rival retailers because they compete to attract consumers who are using the internet to shop around for the best deals.
This statement reflects not only the CMA’s dim view of RPM, but also the protection that competition authorities are keen to afford e-commerce.
The CMA will now give Ultra and Foster the opportunity to respond to the statements of objections. The CMA will then make a final decision on whether the agreements qualified as RPM. If so, each business can anticipate hefty fines of up to 10% of their annual worldwide group turnover.
The risk of falling foul of the rules against RPM can be particularly high for international businesses, as many other jurisdictions (particularly the US, where ITW is based) are much more relaxed about RPM than are the UK and other EU countries. It is vital that manufacturers and distributors doing business in the EU understand the limitations that apply when it comes to the pricing of their goods.
If you wish to discuss RPM with us, or have other queries about how competition law might affect you or your business, please feel free to get in touch with Charles Livingstone, Rod Lambert or your usual Brodies contact.
On February 8, 2016