Resale Price Maintenance is Just as Bad Online

Two recent UK cases have demonstrated once again that any form of resale price maintenance (RPM) in relation to online sales will be treated just as harshly as RPM through physical sales.

On 24 May 2016, the UK Competition and Markets Authority (CMA) announced that a commercial refrigerator supplier had agreed to pay a fine for infringing EU and UK competition law by imposing IMAP (internet minimum advertised price) restrictions. It had also threatened its dealers with sanctions if they advertised below that minimum price (see here). These are well-established illegal vertical restrictions amounting in effect to RPM.

Previously (26 April 2016), the CMA announced that a bathroom fittings supplier had agreed to pay a fine for online RPM (see here). In that case, Ultra Finishing Limited had tried to dress up RPM as recommended resale prices (RRPs) to its retailers. RRPs are legal, but cannot cross the line into RPM.

Ultra had crossed the line in relation to online sales by its retailers because it threatened them with penalties for not pricing at or above the ‘recommended’ price, including:

  • charging them higher prices for products;
  • withdrawing their rights to use Ultra’s images online; and
  • ceasing supply.

These cases again show that companies of any size in the EU need suitable competition law compliance programmes and training covering, amongst other things, online selling. The activities that are the subject of these cases are well-established competition law infringements and companies will not escape just because online selling was involved or because they are small.

Two UK Cases Show the Dangers of Pure Information Exchange Between Competitors

The mere exchange of confidential information between competitors can amount to an infringement of EU and UK competition law and lead to fines. Compliance programmes and training need to make this clear. Two recent UK CMA cases show the dangers.

The first example arose in a cartel concerning galvanised steel tanks. On 26 May 2016, the UK CMA published details of its preliminary findings in that case (see here). One allegation is that some suppliers exchanged competitively sensitive pricing information at (or shortly after) a meeting in July 2012. This seems to have been a one-off exchange, which is enough to give rise to an infringement even if the information is not acted on.

The previous day (25 May 2016), a much more high-profile industry (fashion models) was in focus (see here). In that case the CMA alleges that model agencies FM Models, Models 1, Premier, Storm and Viva agreed to exchange confidential, competitively sensitive information, including future pricing information. In some instances they also allegedly agreed on a common approach to pricing, but the main thrust of the case is pure information exchange.

The dangers of trade association membership are also made clear. The agencies’ trade association, the Association of Model Agents (AMA), allegedly played an important role by regularly and systematically circulating to its members emails, known as ‘AMA Alerts’, encouraging model agencies to reject the fees being offered by specific customers and to negotiate a higher fee. Basic competition compliance training would make clear the dangers of all of these activities.

Illegal Coordination Between Competitors Via an Online System

On 3 May 2016, the Lithuanian Supreme Administrative Court (LSAC) largely upheld fines originally imposed by the Lithuanian competition authority on travel agency users of an online booking system.

The authority had fined several agencies for concerted practices related to a common online travel reservation system. The operator of the reservation platform had sent the travel agents participating in the system an electronic message capping the rebates that could be granted for products sold via the system and had technically adapted the system so as to implement this cap. The authority found this to constitute an illegal information exchange.

The case ultimately went on appeal to the EU’s highest court (the European Court of Justice) which held that travel agents which knew the content of the message could be presumed to have participated in an illegal concerted practice, unless they had distanced themselves from the message, challenged its imposition or adduced other evidence to rebut the presumption, such as systematically granting higher rebates than those set under the cap.

The LSAC in its ruling was applying this judgment to the facts of the case. It dropped the charges against some agencies for lack of evidence that they that they were aware of the discount restrictions but upheld the fines against all of the other agencies (with some reductions).

The general compliance message is that users and administrators of these systems need to adapt their programmes to reflect the fact that competitors may all be active on the same system. The dissemination of any type of restriction, suggestion or recommendation in relation to pricing and other competitive issues, or indeed pure information exchange on competitive parameters, between competitors is dangerous under competition law in the EU.

Commission 1 – Hollywood 0; Limitations on Restricting Cross-Border Sales in the EU

In July 2015, the European Commission (EC) sent a Statement of Objections (SO; provisional analysis of competition concerns) to six major film studios and Sky UK concerning contractual restrictions in bilateral agreements with Sky UK. These agreements concern the licensing of films for broadcast on pay-TV and show once again the limited ability under competition law for companies to restrict cross-border sales in the EU.

U.S. film studios typically license audiovisual content, such as films, to a single pay-TV broadcaster in each EU member state (or combined for a few member states with a common language). The SO found that clauses requiring “geo-blocking” (access from outside the licensed territory) restrict Sky UK's ability to accept unsolicited requests for its pay-TV services from consumers located abroad (outside the UK and Ireland). Some agreements also contain clauses requiring studios to ensure that, in their licensing agreements with broadcasters other than Sky UK, these broadcasters are prevented from making their pay-TV services available in the UK and Ireland.

According to the EC, these clauses therefore grant “absolute territorial exclusivity” to Sky UK and/or other broadcasters, eliminate cross-border competition among pay-TV broadcasters, and partition the EU internal market along national borders.

Perhaps accepting the inevitable, one of the studios (Paramount Pictures) is seeking to settle with the EC. In April 2016, it submitted a proposal under which for five years it would not introduce bans on any licensed broadcaster accepting unsolicited requests from outside its licensed territory. It would also agree not to include in a territorial license clauses banning a licensee in another territory from responding to unsolicited requests from the first territory.

The EC has pushed on with this case despite a conflict with current copyright law. The EU Satellite and Cable Directive allows different copyright regimes in the various EU member states and grants copyright holders the right to license country-by-country. Broadcasters have to comply with that law, which in practice restricts their ability to make “passive” sales resulting from unsolicited cross-border requests. However, the EC is making separate moves on the copyright front and this antitrust case is seen as a straightforward application of antitrust law and a necessary part of breaking down national barriers in this business area and in online sales generally.

Additional European competition law news coverage can be found in our news section.

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