The Competition and Markets Authority (CMA) recently opened the latest in a line of cases alleging resale price maintenance (RPM). It has issued a statement of objections alleging that Dar Lighting Limited (Dar) breached UK competition law by restricting the ability of retailers to discount the online retail prices of its domestic lighting products.
RPM occurs when a supplier of goods or services sets (or attempts to set) a fixed price at which, or a minimum price above which, distributors or retailers must sell the supplier's products. Manufacturers can recommend a retail price, but can neither prohibit retailers from selling (or indeed advertising) their products below it, nor punish them for doing so. This serious breach of competition law has been found across various different markets, and appears to have been enabled by the shift to online selling.
Dar is the second lighting company to be found to have breached competition law in this way, following a fine of £2.7m given to the National Lighting Company in June 2017.
Infringers made to face the music
This latest follows on from a spate of RPM cases brought by the CMA, particularly in the musical instrument sector
Korg was fined £1.5m for setting minimum prices for its electronic music equipment, which retailers were told not to sell below. Korg then monitored its resellers using price-monitoring software and threatened to (and sometimes did) punish non-compliant retailers by closing accounts, restricting access to products or withholding financial support. Roland took a similar approach to preventing discounts on its electronic drum kits and related items, using price-monitoring software and sanctioning those who sold or advertised below the specified minimum, and was fined £4m for its troubles. Both Korg's and Roland's fines included an uplift on the 'basic' fine, because senior management were involved and the CMA concluded that the unlawful conduct was intentional.
Those fines themselves came hot on the heels of a £4.5m fine imposed on Fender and a £3.7m penalty for Casio, each for imposing minimum online prices.
A hard sell for retailers
In none of these cases were any retailers fined, despite some retailers informing on others who were not complying with the policy (sometimes using price monitoring software themselves). This reflected the usual CMA practice of not fining retailers who participate in RPM arrangements, even though they are also participants in the anti-competitive agreement – and in the press release accompanying its Statement of Objections to Dar, the CMA expressly stated that it has exercised discretion under its rules to address an SO to only some of the allegedly infringing parties. This approach is often an unspoken acknowledgement that retailers may have limited market power relative to their suppliers, and so might find it difficult to resist or challenge RPM demands.
Retailers participating in RPM arrangements should not, however, convince themselves that they are immune from fines. In 2020 the CMA fined the retailer GAK over £275k for agreeing not to sell Yamaha’s digital pianos, digital keyboards and guitars online below a minimum price. GAK claimed that Yamaha (which received immunity from fines by 'blowing the whistle' to the CMA) was the instigator of the arrangement, but this did not persuade the CMA to forego a fine. Indeed, the CMA increased the fine because GAK had failed to heed a 2015 CMA advisory letter that had warned GAK about suspected RPM practices.
These cases prompted the CMA to publish an open letter to the entire music sector, specifically issuing warning letters to almost 70 firms: a stark warning to companies who may be implicated in RPM practices. However, other sectors could just as easily find themselves in the CMA's spotlight. The GAK case in particular illustrates that retailers participating in RPM cannot necessarily expect to escape fines in the future, as well as showing suppliers and retailers alike the advantages (in that case to Yamaha) of blowing the whistle on RPM arrangements before someone else does.
Moving online
The other key feature in the CMA's recent cases is the increased scrutiny of online retail markets. The CMA has launched its own in-house price monitoring tool aimed at detecting online price manipulation and collating considerably more data about online sales and prices. This could lead to CMA inquiries where the software identifies, for example, surprising correlations in price across retailers. In part this reflects the CMA's awareness of companies' use of digital platforms to implement anti-competitive practices, and may also reflect a diminished reliance by the CMA on whistleblowers. In September 2021 the CMA halved the leniency discount available for the first applicants to provide evidence of RPM that the CMA are already investigating – strengthening the incentive to obtain full immunity by blowing the whistle on arrangements before the CMA has got wind of them from its own intelligence-gathering exercises.
Both the EU and UK block exemptions for 'vertical agreements' (i.e. between firms at different levels of the supply chain) are due to expire and be replaced at the end of May 2022. The EU and UK each propose to make different changes to how competition law regulates online sales, but it is unlikely that the restrictions on RPM will be weakened significantly, if at all.
As the CMA turns more and more towards the online landscape, armed with new digital tools, suppliers and retailers alike should be re-examining their pricing practices and seeking advice on anything that might put them at risk.
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Senior Associate
