On 24 July 2018, the European Commission imposed fines of more than EUR 111 million on four consumer electronics manufacturers (Asus, Denon & Marantz, Philips and Pioneer) for engaging in illegal resale price maintenance (RPM) practices.
The European Commission found that the manufacturers had required online retailers to comply with various fixed or minimum resale prices for common consumer electronic products sold in various EU member states. They had threatened or sanctioned retailers that failed to comply with the fixed/minimum resale prices (e.g. by blocking off supplies), and had also adopted monitoring tools to track resale prices in their distribution network to detect non-compliance.
The European Commission noted that such conduct restricted effective price competition among the online retailers. In particular, the practices had a broader impact on overall online prices because many retailers utilised pricing algorithms to adjust their prices in response to their competitors' online prices. Commissioner Margrethe Vestager highlighted that "the online commerce market is growing rapidly…[and] as a result of the actions taken by these four companies, millions of European consumers faced higher prices for kitchen appliances, hair dryers, notebook computers, headphones and many other products".
RPM practices have received close competition law scrutiny, not only in the EU, but also in other jurisdictions. The next sections briefly explore how RPM practices are treated in Hong Kong and China.
Resale Price Maintenance in Hong Kong
Section 6 of the Hong Kong Competition Ordinance prohibits undertakings from entering into agreements that have the object or effect of restricting competition in Hong Kong, which include RPM practices. Nonetheless, these agreements can be exempted from the prohibition if they satisfy the conditions set out in Section 1 Schedule 1 of the Competition Ordinance (e.g. the agreement enhances overall economic efficiency).
The Hong Kong Competition Commission (HKCC) has taken a strict view of fixed and minimum RPM. The practice of enforcing such fixed or minimum resale prices may constitute a Serious Anti-competitive Conduct. In some cases, the mere existence of an RPM agreement is also sufficient to establish an infringement, without the HKCC having to establish that this practice had the effect of harming competition.
While recommended or maximum resale prices are generally treated less strictly than fixed or minimum RPM, potential competition concerns could also arise. For example, competition could be restricted if the recommended/maximum resale prices acted as a focal point for prices (e.g. downstream sellers independently decide to generally sell at the recommended/maximum price).
For further details on RPM under Hong Kong Competition Law, please see our previous update here.
Resale Price Maintenance in China
Article 14 of China's Anti-Monopoly Law (AML) generally prohibits agreements that fix or set minimum resale prices of products to third parties. However, such agreements can be exempted from the prohibition if the conditions set out in Article 15 of the AML are satisfied (e.g. they lead to an improvement in product quality, reduces costs, enhances efficiency).
Enforcement of this prohibition differs, depending on whether it is carried out by a public authority, or brought via a civil action in court. Under a public enforcement by the National Development and Reform Commission (NDRC), the NDRC's practice has been to find an infringement without having to prove any anti-competitive effects arising from the RPM. In other words, the existence of an RPM arrangement in itself is sufficient to find an infringement, unless it is exempted under Article 15 of the AML.
In contrast, in a private enforcement, the court would require the plaintiff to first show that the RPM had the effect of eliminating or restricting competition before determining that it was in breach of Article 14 of the AML. Relevant factors to consider include the market position of the relevant parties, whether there was sufficient competition in the relevant market, the motivation for the RPM practice, and the effect of the RPM practice on competition in the market.
This distinction has most recently been recognised in Hainan Yutai Scientific Feed v. Hainan Price Bureau where the Hainan Higher People's Court noted that public enforcement agencies are not required to demonstrate anti-competitive effects when finding that an RPM practice infringed competition law, while private plaintiffs are required to do so.
The NDRC has taken an active approach to enforcing against RPM practices in China. It has reportedly found 18 infringements in the five year period from 2013 to 2017, and has issued fines of up to RMB 350 million on a single party.
It is clear that significant competition law concerns surround RPM. In light of the increasingly common use of RPM, especially in the online retail space, businesses are advised to proceed with care when navigating the RPM minefield.