Resale price maintenance has become increasingly prevalent in the Australian market, raising concerns about a lack of understanding of this prohibition by manufacturers and suppliers.
Just last month, vehicle parts and accessories manufacturers, MSA 4x4 Accessories Pty Ltd and Offroad Animal Pty Ltd, each admitted to engaging in resale price maintenance conduct by directing resellers to not advertise or discount their products below a specified price. Each manufacturer entered into a court enforceable undertaking with the Australian Competition and Consumer Commission (ACCC) which required them to issue corrective notices to resellers, publish the notices on their websites and implement competition compliance programs.
These cases are some of several resale price maintenance cases pursued by the ACCC in recent months. Most notably, last December, the ACCC issued a record fine of $15 million to power tools manufacturer, Techtronic Industries Australia Pty Ltd, for prohibiting resellers from selling Milwaukee branded products below a fixed price over five years.
With a renewed focus on resale price maintenance compliance by the ACCC, it is important that businesses can identity and eliminate such conduct.
What is resale price maintenance?
Resale price maintenance occurs when a supplier dictates the price, or the minimum price, at which goods or services can be resold to consumers. It is prohibited under the Competition and Consumer Law Act 2010 (Cth) (Act) because it prevents resellers from competing freely on price, ultimately increasing prices for consumers.
A supplier will face penalties for engaging in resale price maintenance conduct regardless of its impact on competition in the market. This means that all suppliers should be cautious of resale price maintenance conduct not merely those with substantial market share or power.
The ACCC is intensifying its focus on resale price maintenance deterrence, which may lead to more punitive actions under the Act, including fines up to:
- for corporations, the greater of $10 million, 3 times the benefit obtained from resale price maintenance conduct, or 10% of turnover of the preceding 12 months
- for individuals, up to $500,000.
What does resale price maintenance look like in practice?
Resale price maintenance is defined by reference to specific practices as follows:
Resale price maintenance conduct |
Example |
|
A supplier refusing to supply goods or services unless the reseller agrees to resell at a minimum price |
A winery tells a bottle shop that it will only supply it with wine if the bottle shop sells the wine for no less than $20 per bottle |
|
Agreements or contracts stipulating the minimum prices for resale |
A winery has a supply contract with a bottle shop that stipulates the bottle shop must not discount its wine by more than 10% from the recommended retail price |
|
Inducing resellers to adhere to minimum prices through threats or incentives |
A winery advises the bottle shop that it may lose advertising allowances if it sells its wine for less than $20 per bottle |
|
Withholding supply due to non-compliance with pricing directives |
A winery withholds supply of wine to a bottle shop because the bottle shop will not agree to sell its wine for no less than the wholesale price of the wine plus 80% |
|
Withholding supply because a reseller further down the supply chain fails to comply with pricing directives |
A winery withholds supply of wine to a bottle shop because a restaurant, which is buying its wine from the bottle shop, is selling the wine below a minimum sale price specified by the winery to the bottle shop |
|
Making a price statement which is likely to be understood to be a minimum sale price |
A winery sends out a 'price list' for its wines which the bottle shop understands to be the minimum price at which the wines can be sold |
As evidenced above, identifying resale price maintenance conduct is
not always straight forward. It can include both written and oral
directives from suppliers to resellers, and the minimum resale
price could be expressed as a fixed price or set by reference to a
maximum discount or a formula such as cost price + 10%.
A point to consider is that it doesn't matter how it's done, if a supplier pressures a reseller to sell at a minimum price level, their conduct will be in breach of competition laws.
Recommended retail prices and other exemptions
The Act does not prohibit suppliers from suggesting 'recommended retail prices' to resellers. However, it must be clear that these prices are non-binding recommendations which do not restrict resellers from setting their own prices. To rely on this exemption, the Act requires a 'recommended retail price' to be preceded by the words 'recommended price' or a written statement to the following effect 'the price set out or referred to herein is a recommended price only and there is no obligation to comply with the recommendation'.
Other exemptions include:
- Maximum prices - Suppliers can set a maximum resale price.
- Loss leader pricing - Suppliers may withhold products if resellers use loss leader pricing. It should be noted that this is a very narrow exemption.
- Related body corporates - Resale price maintenance is permissible between related corporate entities.
Key takeaways
- Allow resellers to set their own prices and offer discounts.
- Provide recommended retail prices as suggestions only.
As the ACCC steps up its enforcement of resale price maintenance, businesses must ensure compliance to avoid significant penalties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.