Resale Price Maintenance: Expected area of CCPC focus once it obtains fining powers
The Competition (Amendment) Bill is due to be enacted in the coming months and will significantly enhance the competition enforcement powers of the Irish competition regulator, the Competition and Consumer Protection Commission (the “CCPC”), including through the introduction of fining powers. There have been clear indications from recent Irish and international developments that resale price maintenance (“RPM”) will be an enforcement priority once the CCPC gets these further sanctioning powers.
Suppliers engaging with resellers in the Irish market should therefore be vigilant to pricing practices that may amount to illegal RPM and attract CCPC scrutiny including the possibility of large fines in future.
RPM – What is it?
RPM is competition law jargon for the practice between a supplier and a reseller (usually a retailer), whereby the supplier imposes fixed or minimum resale prices and thereby prevents the reseller from undercutting in competition with other resellers (of the same product or a competing product). Detecting unlawful RPM is not always clear-cut. In particular, the Samsung case described below shows how regulators may take the view that informal and subtle pressuring of retailers amounts to unlawful RPM, just as much as a clear contractual obligation to adhere to fixed resales prices as seen in the Coach House case described below. On the other hand, whilst RPM is generally illegal subject to limited efficiency exemptions, it should be noted that the imposition of maximum resale prices or recommended retail prices (“RRP”) is generally permissible from an Irish and EU competition law perspective.
CCPC Coach House Case
In April 2019, the CCPC opened an investigation into suspected anti-competitive practices by Chairs Limited, (trading as “Coach House” in Ireland). Coach House is a supplier of household furniture products in the UK and supplies these same products to resellers located in Ireland.
The CCPC’s investigation involved an assessment of whether there was conduct which could constitute RPM due to the manner in which Coach House’s selling prices were applied between March 2013 – August 2017 in the resale of Coach House’s household furniture products in Ireland. On 15 April 2021, Coach House entered into a commitment agreement with the CCPC not to engage in RPM conduct (which Coach House firmly denied throughout the investigation) and to:
- refrain from imposing or agreeing any terms and conditions that place obligations on its resellers to adhere to Coach House’s suggested minimum or fixed resale prices for household furniture products; and
- refrain from restricting the ability of resellers to independently determine the resale price of household furniture products.
On 14 May 2021, the High Court granted an order on the terms of the agreement between the CCPC and Coach House, which came into force on 29 June 2021, pursuant to section 14B(4) of the Competition Act 2002 (as amended). The terms of the agreement outlined above are now binding for 7 years on Coach House, a breach of which will result in contempt of court. The CCPC has stated that the commitments by Coach House has addressed its concerns, resulting in the closure of the investigation.
CCPC Publishes Guide on RPM
In July 2021, and in response to the Coach House case, the CCPC published a guide on RPM (the “Guide”, see here). The Guide is intended to provide information and guidance for suppliers and resellers and highlights the pitfalls of engaging in a serious infringement of competition law such as RPM. It also seeks to advise suppliers and resellers to review their practices around pricing and discounting policies to ensure that they do not risk entering into illegal agreements and to contact the CCPC immediately if its business is, or has been involved in, an unlawful RPM arrangement.
The Coach House case is specifically highlighted as an example of the CCPC’s enforcement procedure for RPM arrangements in the Guide, and the publication of the Guide itself indicates that RPM will most likely be a focus of the CCPC when it gets enhanced enforcement powers including fining powers later this year through the enactment of the Competition (Amendment) Bill, which will implement of the ECN+ Directive in Ireland.
EU Commission Publishes Draft Revised VBER And Vertical Guidelines
RPM rules are also currently subject to consultation at EU level. Please see our previous article in relation to recent Irish and EU Competition Law developments (here). Key recent developments include the extension by the CCPC on 30 October 2020 of its Declaration in respect of vertical agreements and concerted practices (Decision No. D/10/001) (the “Declaration”) until 1 December 2022. Following 1 December 2022, the CCPC will likely adopt a new Declaration that is expected to largely reflect a revised Vertical Block Exemption Regulation (the “Draft VBER”) and Draft Vertical Guidelines (the “Draft Guidelines”) currently being finalised at EU level.
On 9 July 2021, the EU Commission (the “Commission”) published its proposals for the Draft VBER and Draft Guidelines, due to replace the current regime, which expires on 31 May 2022. RPM remains a hard-core restriction under Article 4 the Draft VBER, so it is illegal unless the parties come within the limited efficiency defences. The Draft Guidelines merely repeat the three narrow examples of RPM efficiency defences which are listed in the current guidance as follows:
- encourage distributors to increase promotion efforts when launching a new product;
- coordinate a short-term low price campaign; and
- avoiding free-riding with regard to pre-sale services for complex products.
Improving clarity in relation to the treatment of these efficiency defences resulting from RPM are set be explored further during the VBER Impact Assessment Phase by the EU Commission in the coming months.
Although the Draft VBER itself does not provide any fundamental changes to RPM rules, the Draft Guidelines do however include the useful clarification that price monitoring software (which is increasingly used in e-commerce where both manufacturers and retailers often use specific price monitoring tools) is not to be considered as a price fixing practice that would be prohibited per se, although such software could encourage the execution of prohibited RPM practices amounting to indirect RPM. This issue was an important factor in the recent decision of the Dutch competition authority (the “ACM”), discussed below.
Recent Dutch Decision on RPM
The ACM recently fined Samsung Electronics Benelux B.V. (“Samsung”) over €39 million for coordinating the retail prices of Samsung television sets together with various retailers. This was the first time that the ACM has imposed a fine in relation to RPM.
The alleged coordination took place from January 2013 – December 2018, during which time, according to the ACM, Samsung monitored the online retail prices of retailers in an automated manner using so-called “web crawlers”. If Samsung saw prices that were lower than its desired market price, it contacted its retailers and urged them to increase their prices. WhatsApp messages and emails that ACM collected during dawn raids revealed that, in those interactions, Samsung often informed them that it had urged or would urge other retailers in a similar manner.
Samsung, for its part, maintained that it had merely given retailers advice, and did not pressurize nor create any incentives for retailers to adjust their prices. Furthermore, Samsung alleged that, besides the general announcements of recommended retail prices, it merely communicated recommended prices reactively and on an “ad-hoc” basis. Samsung claimed it always made clear that retailers were completely free to set their own prices, and that it never forced retailers to do so.
However, the ACM concluded that Samsung, as the one “pulling all the strings”, contacted individual retailers so frequently about their retail prices and about the planned prices of other retailers that this could only be considered to be systematic coordination between Samsung and its retailers. As such, the ACM believed that the conduct of Samsung went further than merely providing RRPs. Samsung had “unlawfully intervened directly in the competitive dynamics between retailers” and prevented retailers from being able to set their own retail prices independently.
In terms of upcoming developments, following its recent public consultation process, the EU Commission will continue to run its Impact Assessment Phase in relation to the current Draft VBER and Draft Vertical Guidelines with a view to having the new rules in place on 1 June 2022.
At the Irish level, the recent Coach House case and publication of the RPM Guide suggests that RPM will be an area of keen focus for the CCPC (in line with other NCA’s, such as the ACM) when it gets further sanctioning powers following enactment of the Competition (Amendment), Bill which is expected later this year.