In our last issue, we reported on a crackdown on resale price maintenance by the competition authorities in China and Taiwan ( Competition World, October 2013, "Resale price maintenance: Crackdown in East Asia"). But it is not just in these emerging markets that competition authorities are taking action against resale price maintenance. Competition authorities in Europe are also taking the issue very seriously. The past few months have seen action by the UK's competition authority, the OFT (Office of Fair Trading), in two separate resale price maintenance cases, showing that - even in a relatively developed competition law system like the UK, where recent investigations have focused on sophisticated forms of anti-competitive practice such as indirect information exchanges and price parity arrangements – resale price maintenance is still considered a serious problem worth challenging. At the same time, two significant resale price maintenance cases are under investigation by the Italian Competition Authority.

What is resale price maintenance?

Resale price maintenance – sometimes also called vertical price-fixing – involves a supplier or manufacturer of a product specifying the price, or the minimum price, at which a downstream distributor or retailer of its products can resell those products. Resale price maintenance is regarded a serious infringement of competition law in most countries of the world (subject to exceptions in certain sectors, such as pharmaceuticals, where some limits on retail price competition are seen as desirable). The concern is that it limits competition at the retail level.

The mere recommendation of resale prices is generally allowed, but if the recommendation is underpinned by financial inducements or penalties, that will be treated as equivalent to a mandatory resale price.

The UK cases

In the space of a week, in late September 2013, the OFT issued two "statements of objections" – that is, provisional findings that there has been an infringement of the prohibition on anti-competitive agreements – in respect of resale price maintenance.

These statements indicate the seriousness with which the UK authorities take resale price maintenance – and, implicitly, the sense on the part of the UK authorities that this most basic and "hard core" of competition law infringements is still a salient feature of commercial practice in the UK.

In the two cases, different types of resale price maintenance were involved:

  • Minimum resale prices: The first case concerned sports bras and involved bilateral agreements between a manufacturer of sports bras and individual retail department stores reselling them. It is alleged that, in breach of the prohibition on anti-competitive agreements, these agreements set a fixed or minimum resale price on a brand of sports bras.4 The seriousness with which the OFT regards resale price maintenance was underlined in a statement from one of its senior directors, who equated it to straightforward price-fixing:

  • "The OFT takes allegations of price-fixing seriously. Resale price maintenance limits competition between retailers and can lead to consumers paying higher prices".

  • Ban on online sales: The second case, concerning "mobility scooters" for use by disabled people, relates to a more modern form of resale price maintenance, but with comparably adverse effects on competition. In August 2013, the OFT had issued a decision finding that a manufacturer of mobility scooters and some of its retailers had breached competition law by entering into agreements which prevented the retailers from selling the scooters concerned online or from advertising their prices online. A senior director at the OFT said that it was
"vitally important that consumers can use all the advantages of the internet to get a good price on this essential product and that innovative and efficient companies should not be prevented from winning new customers".5

Then, in late September, the OFT issued a Statement of Objections against another manufacturer of mobility scooters saying that it was in breach of competition law for preventing online retailers from advertising online prices below the manufacturer's recommended retail price.6 An OFT spokesman said:

"We want people to be able to use the internet to find and compare dealers' actual retail prices, saving them time and effort in searching for the best offer. ...If retailers are prevented from advertising their discounts online, consumers are significantly restricted from identifying and obtaining lower prices".

Concerns about limiting online sales were a feature of the discussions leading to the EU's new guidelines on restrictions in vertical agreements (i.e. in supply/distribution agreements) that were finally adopted in 2010. There is an appreciation that online retailers should not "free ride" on the pre-and after-sales service offerings of "bricks-and-mortar" retail outlets – reflected in the EU's willingness to allow some form of limitations on online advertising where this would prejudice legitimate exclusive distribution agreements, and to allow requirements on quality standards for the use of internet sites. However, the EU regime does not allow suppliers to require distributors to pay a higher price for products to be resold online than for products to be resold in bricks and mortar outlets, or limitations on the proportion of a distributor's overall sales that may be made over the internet.7

The Italian cases

In October 2013, the Italian Competition Authority launched an investigation against the Italian subsidiary of Power-One, a manufacturer of wind and solar inverters (which connect the power source to the utility grid), on the suspicion that Power-One operated a resale price maintenance system within its sales network.

The investigation was triggered by an anonymous complaint alleging that, in October 2012, Power-One had sent a letter to all its distributors and resellers alerting them that the distribution agreement in place provided that Power-One's price lists were binding minimum prices.8

A month later, the Italian Competition Authority launched a further investigation, based on the suspicion of resale price maintenance. In this case, the allegation is that the Italian sport nutrition company, Enervit, imposed minimum resale price maintenance on its network of retailers and wholesalers. Again – as with the UK's "mobility scooters" case – a key element of the resale price maintenance was a requirement that online distributors should not discount too heavily for internet sales.9

Practical implications

So concerns about resale price maintenance – where suppliers of a product seek to restrict retail price discounting on downstream markets – remain live in well-established markets such as the UK and Italy, as well as in emerging markets such as those in East Asia. To this traditional concern there has been added a new concern – that resale price maintenance should not be achieved by limiting the possibility of sales through internet outlets.

Footnotes

4 UK Office of Fair Trading, press release 64/13, "OFT issues Statement of Objections to sports bra supplier and three UK department stores", September 20, 2013.
5UK Office of Fair Trading press release 57/13, "OFT issues decision in mobility scooters case", August 5, 2013.
6 UK Office of Fair Trading, press release 66/13, "OFT issues statement of objections in mobility scooters sector", September 24, 2013.
7 European Commission Guidelines on Vertical Restraints, 2010/C 130/01, OJ 2010 C 130/1, paragraphs 52 to 54.
8 Italian Competition Authority, Case I766 Inverter solari ed Eolici, decision to launch an investigation, October 22, 2013.
9 Italian Competition Authority, Case I718 Enervit, decision to launch an investigation, November 20, 2013.

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