On 17 May 2016 the Competition and Markets Authority (CMA) published an infringement decision imposing a £786,668 fine on bathroom fittings supplier Ultra for engaging in resale price maintenance (RPM) in respect of online sales. Having issued recommended retail prices for online sales of its products, Ultra actively monitored resellers' websites for compliance and threatened retailers who did not advertise prices at or above the recommended prices with penalties such as charging them higher wholesale prices, withdrawing their right to use Ultra's images online or ceasing supply.
The fine is the latest in a series of cases illustrating the CMA's focus on online sales restrictions and RPM. In two earlier cases involving mobility scooters, manufacturers Roma and Pride and a number of their retailers were held in breach of the competition rules by entering into agreements under which their online retailers in the UK were prevented from advertising online prices below the recommended retail price for certain models.
The CMA is currently also investigating a company in the commercial catering equipment sector in respect of similar arrangements.
1. Focus on RPM and IMAP
RPM and the practice of imposing internet minimum advertised prices (IMAP), which the CMA treats as a form of RPM, is clearly high on the CMA's agenda. According to the CMA, RPM is one of the most complained about practices and these complaints are increasingly related to online practices. Focus on competition issues in the context of online markets is one of the CMA's current strategic objectives.
The CMA seems to have particular concerns over practices that restrict retailers from advertising their actual selling prices online. According to the CMA in its Ultra decision, "in the context of online 'click-to-buy' sales, the price advertised online is normally the price paid by the customer, i.e. the sales price". The CMA is pursuing these cases regardless of the size of the parties or the industry concerned, as such restrictions prevent consumers from identifying and obtaining discounted prices by shopping online. This undermines the benefit of the wide reach, transparency and enhanced search function of the internet, thereby limiting the possibilities offered by e-commerce, both for retailers and consumers.
2. RPM in other jurisdictions
The number of enforcement cases involving RPM has also been growing in other Member States. At EU level, it has been several years since the EU Commission adopted an infringement decision relating to vertical restraints, but its current sector inquiry into e-commerce can be expected to re-focus its attention on vertical restraints in particular in the online sphere.
In January 2016 the German Federal Cartel Office (FCO) imposed a fine on Danish toy manufacturer Lego for RPM in respect of certain targeted products. In October 2015 fines of €15.5 million were imposed on mattress manufacturer Tempur for forcing its retailers to charge the recommended retail prices.
In Austria the Supreme Court increased a fine of €3 million imposed by the Cartel Court on grocery retailer Spar to €30 million in November 2015 in order to increase its deterrent effect. Spar was found guilty of fixing retail prices with its suppliers of dairy products, by requesting that its suppliers take steps to ensure that other retailers observe certain prices identified by Spar. Earlier this year Hewlett Packard was fined in Austria for agreeing to set product prices with retailers both in stores and online.
Watch manufacturer Swatch and four of its distributors were fined €500,000 in Poland in December 2015 for agreeing on minimum retail prices for a range of watches, both in stores and online. Swatch had been monitoring retail prices and imposed sanctions on retailers who sold below agreed prices.
Suppliers and retailers should therefore take great care not to engage in conduct that qualifies as RPM as it is clearly a priority for many competition authorities.
3. RPM – competition law issues
RPM is one of the main vertical restrictions that qualify as a hardcore restriction and therefore as a restriction by object, under EU competition law and many national competition law regimes. The main competition concerns with RPM are that it may facilitate collusion between suppliers by enhancing transparency, reduce price competition between resellers and result in higher prices for consumers.
There may be limited circumstances where RPM can be justified and will benefit from an exemption, for example where it is used in order to prevent free-riding, to allow for the introduction of new products or to support short term price campaigns. These arguments will however not be accepted lightly and the EU Commission's guidelines on vertical restraints make it clear that the parties will have to "convincingly demonstrate" that the RPM agreement will benefit consumers.
In the CMA's bathroom fittings case, Ultra submitted that the rationale for the arrangements was to protect the value of the product brands and to address issues of poor service provided by online resellers and poor quality websites. The CMA concluded that "these objectives were, at most, subsidiary to the objective of protecting resellers' margins by reducing price competition from resellers making sales online" and that "maintaining a prestigious image is not a legitimate aim for restricting competition".
Recommended retail prices (RRP) and maximum resale prices will generally be permitted provided they do not amount to a minimum or fixed resale price as a result of pressures or incentives offered by any of the parties. In the bathroom fittings case, Ultra claimed that its trading guidelines were simply recommended prices, but the CMA concluded that the recommended online price was not simply a recommendation but that it fixed a minimum resale price in respect of online sales for the products in question. Ultra's trading guidelines were supported by measures to identify non-complying resellers, combined with actual or threatened sanctions. The EU Commission's guidelines on vertical restraints also flag the risk that a recommended or maximum price will work as a focal point for the resellers and might be followed by most or all of them, and that this risk will be higher the stronger the market position of the supplier is. Recommended and maximum resale prices, although potentially permitted under competition law, will therefore nevertheless need to be considered very carefully.
4. Fines and potential damages claims
Ultra entered into a settlement agreement with the CMA under which it admitted to have engaged in RPM in respect of online sales of some of its branded products. In return it received a 20% discount on the original fine in order to reflect the resource savings generated by its admissions and by its cooperation with the CMA's investigation.
During the course of the CMA investigation, Ultra also agreed to introduce a competition law compliance programme which consists of tailored compliance training for all its employees and includes a detailed procedure to identify, assess and mitigate the risk of infringement. The programme is supported by the Ultra Board and will be reviewed on an annual basis. In light of this serious commitment to compliance the CMA applied a further 5% discount to the original fine.
The case is a good example of the importance for companies to have an effective compliance programme in place. This is even more so under the current climate of increased risk of private damages claims. In the Pride mobility scooters case no fines were imposed as the parties did benefit from the 'immunity from fines for small agreements' exception under the Competition Act 1998 because their combined turnover was below £20 million. However, on the basis of the CMA's infringement decision, the National Pensioners Convention has now launched the first opt-out class action under UK competition law, seeking compensation from the manufacturer for consumers who were overcharged as a result of the practice. The claim has been estimated at £7.7 million (based on a £200 refund for an estimated 34,000 customers).