Latest decision
Other FCO activity
Comment


In February 2015 the Federal Cartel Office (FCO) fined a mattress manufacturer €3.38 million for illicit resale price maintenance. The case confirms that the FCO is pursuing infringements of the prohibition of resale price maintenance vigorously and that companies are well advised to consider carefully their interaction with dealers regarding resale prices.

Latest decision

According to the FCO's press release, sales representatives of the fined company had emphasised several times to dealers, both orally and in writing, that:

  • the recommended retail prices were fixed prices (for at least some specified products);
  • there was no room for rebates; and
  • the products were to be treated as price bound.

The sales representations also made it clear that no price comparison, rebate promise or similar should be made in the advertisements. Some dealers complained to the manufacturer that competitors were undercutting the recommended retail prices. The manufacturer contacted the respective dealers and ensured that they advertised the right prices.

Following complaints by several market players, the FCO conducted dawn raids at certain companies and imposed heavy fines (including the €3.38 million fine in the February 2015 decision and a €8.2 million fine on another company in August 2014).

Other FCO activity

For the FCO, resale price maintenance constitutes a serious threat to competition in the market economy across all sectors. The FCO has an impressive record of cases in which it has tracked down and punished cases of resale price maintenance. Based on publicly available data, since 2007 the FCO has imposed fines totalling at least €66 million. In most cases, only the companies were fined, but in at least three instances the acting individuals were also held responsible.

The FCO often imposes hefty fines of up to several million euros, particularly if dealers are put under pressure to accept the recommended retail prices as binding. The FCO thereby considers almost all means that set an incentive for or put pressure on dealers not to undercut a certain price level as prohibited. Illicit means used to enforce resale price maintenance include:

  • special discounts or kickback provisions for adherence to recommended prices;
  • threat of refusal or delay in supply or contract termination; and
  • legal action or similar in case of non-compliance with prices set by the manufacturer.

Recent FCO case law provides ample examples in this regard:

  • In 2014 the FCO fined another mattress manufacturer €8.2 million. This manufacturer had agreed to the minimum resale price with dealers for strategic products. Dealers which sold these products at a price below the minimum agreed price were threatened, among other things, with exclusion from Google AdWords or eBay, under eBay's brand protection programme against the unauthorised usage of manufacturers' data. The manufacturer also threatened the dealers with a delay in supply or instigation of legal action.
  • In 2013 the FCO fined a cosmetic products manufacturer and several of its managers €6.5 million (the exact amount of the individual fines for the managers was not revealed). Company sales representatives had regularly checked dealers' retail prices and when a dealer undercut the recommended prices, the manufacturer threatened to refuse to supply its products. In addition, the manufacturer introduced a selective distribution system and made participation subject to strict adherence to recommended retail prices. Following several complaints, in 2009 the FCO conducted a dawn raid at the company and imposed the large fine.
  • In 2011 the FCO objected to the practice of a model railway manufacturer setting maximum rebates. According to the FCO, this indirectly led to fixed minimum prices. On receiving the FCO's notice as to the illegality of its behaviour, the manufacturer clarified to the dealers in writing that they were free to set their resale prices and the FCO subsequently closed the case.
  • In 2010 the FCO fined a manufacturer of navigation equipment and one employee €2.5 million (the exact amount of the individual fine for the employee was not revealed). The manufacturer had set up a kickback programme, under which dealers which offered the products for low resale prices online were charged higher manufacturing prices. When the dealers raised their prices to a minimum level set by the manufacturer, the manufacturer granted retroactive rebates.
  • In another case the general manager of a sports shoe manufacturer stated in an interview with a trade newspaper that the company was willing to take action if dealers failed to "comply with the recommended retail prices". Following this interview, the FCO requested that clarification be sent by the manufacturer to all dealers, informing them of the legal situation and that the recommended retail prices were non-binding.

Comment

The FCO regularly receives complaints from dealers about pressure from manufacturers regarding the level of resale prices. Manufacturers should therefore clarify in their contracts and discussions with dealers that recommended retail prices are always non-binding, and should refrain from applying any sort of pressure or incentives in order to enforce resale price maintenance. Non-compliance with the prohibition of resale price maintenance constitutes a serious risk in Germany and, contrary to EU law, acting individuals can also be punished with fines.

For further information on this topic please contact Christoff Soltau at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email (christoff.soltau@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.