Lately, more and more violations of the ban on vertical price fixing have been prosecuted by the German Federal Cartel Office (FCO). As a recent case from August 2012 shows, the existence of a price maintenance system violating antitrust law can be proven even without any documentary evidence, so that a fine can be imposed on the company retaining the system. Since normally a lot of persons are involved in such a system, companies should not neglect the risk of its price fixing practice being detected by the antitrust authority, even if there are no written documents recording it.
Setting of fines in respect to the ban on vertical price fixing
In the recent years the FCO has been pursuing an extremely robust line on the prosecution of price maintenance systems violating antitrust law.
On 20 August 2012 the FCO imposed a fine to the amount of EUR 8, 2 million on TTS Tooltechnic Systems Deutschland GmbH for creating and retaining a price maintenance system. TTS is a distributor of high quality electronic tools exclusively intended for the specialized trade. The company markets its products throughout a selective distribution system. In connection to this system, TTS pressurized its resellers to keep strictly to the “Recommended Retail Price” (RRP). Otherwise the resellers had to expect a general deterioration of the contractual terms and conditions or even a termination of the distribution contract. These directions were communicated to the resellers only verbally in order to make exercising of illegal pressure difficult to prove. Nevertheless the FCO was able to prove the infringement of antitrust law by interrogations of resellers who had filed complaints with the FCO.
In relation to the price of the software package “Office Home & Student 2007” Microsoft sales agents entered into a resale price agreement with a certain retailer (fine to the amount of EUR 9 million).
Case “CIBA Vision”
The company CIBA Vision, a manufacturer of contact lenses, used to retain a special system to monitor its online traders in order to intervene for the case that the prices offered by the online traders fall below the RRP to a certain degree. In the event of such a shortfall the employees of CIBA Vision used to contact the online traders and tried to make them increase the product prices (fine to the amount of EUR 11, 5 million).
According to the FCO, manufacturers cannot refuse to deliver their products to certain resellers because the prices offered by the latter have fallen below the price recommended by the manufacturers, as such practice is considered to be on par with inappropriate price fixing (fine to the amount of EUR 4, 2 million).
In this case antitrust proceedings were initiated because of Garmin´s so called “Kickback Program”, which Garmin notified to the FCO only after having terminated it. According to the “Kickback Program”, independent online traders who used to sell Garmin´s products to outstandingly low prices had to be charged higher manufacturer´s prices. If the online traders increased their prices to the minimum level required by Garmin, they were granted a bonus (fine to the amount of EUR 2, 5 million).
Antitrust Law Compliance Guidelines
In 2010 proceedings were initiated against confectionary, pet food and coffee manufacturers as well as against grocery retailers as they were suspected to have entered into a collective customer pricing agreement. Against the background of these proceedings the head of the 11th Decision Division of the FCO presented a “preliminary assessment on the practices of brand manufacturers, wholesalers and retailers for the purpose of specifying certain cooperation obligations”. Taking into account the cases already mentioned above, the document sets out a number of guidelines for the legal assessment of price recommendations.
- The provision of a list with recommended prices, by circumstances also accompanied by a declaration on the company´s pricing policy, is not per se considered to be a price maintenance practice.
- On the other side, every approach for the purpose of discussing the retail pricing methods after the provision of such a list can be considered an indication for illegal practices.
- Every approach to pressurize or to promise or grant advantages to resellers can be considered a violation or an indication for a violation of the prohibition of restrictive practices as stated in Art. 21 Par. 2 of the German Act Against Restraints of Competition.
- Every direct or indirect, voluntary or involuntary agreement between a manufacturer and a trader setting fixed price terms for the future can be considered a violation of antitrust law.
- It is forbidden to threaten with disadvantages or to promise or grant advantages for the case that the trader ignores or (respectively) keeps to the RRP, any other recommended resale price or a certain price limit set by the manufacturer.
In view of this strict approach the guidelines effectively prohibit vertical price fixing on an ex-ante basis. In the wake of the harsh criticism expressed in the (legal) practice, the FCO set its own approach into perspective and considered imposing less strict directions. Nevertheless companies should consider these guidelines in their day to day practice.