Suppliers and resellers should take note of the CCPC’s proposal to extend its new administrative leniency policy to cover resale price maintenance conduct. This proposal signals the CCPC’s commitment to enforcing the competition laws against suppliers and resellers who agree specified or minimum resale prices. However, recent amendments to Irish competition law mean that suppliers and resellers who are quick to act may be able to obtain immunity, or leniency, from fines.
What is Resale Price Maintenance?
Resale Price Maintenance (RPM) is a form of vertical price fixing whereby a supplier requires a reseller to sell at, or above, a certain price. RPM can also be achieved indirectly, for example by:
- Fixing the distribution margin
- Fixing the maximum level or restricting the use of discounts or special offers
- Linking the prescribed resale price to the resale prices of competitors, or
- Granting incentives dependent on the resale of the product at a specified/minimum price or margin
RPM does not include a supplier establishing a recommended or maximum retail price provided the supplier does not take steps to enforce that price, and there is a genuine possibility for a reseller to independently set the price.
An exception to the rule against vertical price setting arises in the context of a genuine agency arrangement – ie, it is permissible for a principal to set the price at which an agent sells the principal’s products. However, the conditions for establishing a genuine agency relationship under Irish and EU competition law are onerous and interpreted strictly by competition authorities. The result is that parties who enter what they believe to be a principal and agent arrangement may unknowingly be engaged in unlawful RPM, where that arrangement does not constitute a genuine agency agreement for competition law purposes.
Ireland’s Competition and Consumer Protection Commission (CCPC), like the European Commission and the UK’s Competition and Markets Authority (CMA), considers that RPM is a serious competition law breach as it restricts downstream price competition.
Following recent amendments, the Competition Act 2002 (as amended) provides that the CCPC may impose administrative financial sanctions for competition law infringements, including RPM, of up to €1 million or 10% of total worldwide turnover.
Recent RPM reinforcement
In April 2019, after receiving a complaint, the CCPC opened an investigation against Coach House – the UK’s largest trade only furniture & giftware supplier. The CCPC sought assistance and information from the CMA, the German Federal Cartel Office, the Finnish Competition and Consumer Authority, and the European Commission. During its investigation, the CCPC found evidence that Coach House took steps to enforce its then suggested selling prices for household furniture products.
Ultimately, Coach House entered legally binding commitments with the CCPC to cease the allegedly infringing conduct. The High Court made the commitments an order of court, binding for seven years. Following the Coach House case, the CCPC published a guide on RPM in July 2021. In the guide, the CCPC reiterated the position that RPM is generally a serious breach of competition law. In addition, the CCPC encouraged suppliers and resellers to review their practices around pricing and discounting policies to ensure that they do not risk entering into illegal agreements. The CCPC encouraged suppliers and resellers to contact them if they believe their business has been involved in RPM or if they are aware of other businesses in their industry that may be engaged in RPM.
Although the resellers do not appear to have been investigated by the CCPC in the Coach House case, a recent decision by the CMA to impose fines against GAK, a reseller of Yamaha musical instruments, for RPM conduct is proof that, in appropriate cases, resellers will also be investigated and fined.
A renewed focus on RPM enforcement in Ireland
The Competition (Amendment) Act 2022 gives the CCPC new powers to impose administrative fines for competition law infringements and provides for the introduction of an Administrative Leniency Policy ( ALP). According to the CCPC’s draft proposals, the ALP will specifically extend to immunity applications in respect of RPM conduct, signalling a clear policy decision to ramp-up RPM enforcement. This renewed focus on RPM is consistent with the approach of other European Competition authorities, including the European Commission, which recently fined four suppliers of consumer electronics a total of €111 million for RPM conduct and the CMA, which, in addition to the GAK case, imposed millions of fines for RPM infringements on a number of musical instrument manufacturers.
Under the ALP, immunity from administrative financial sanctions is available to the first participant in a cartel that successfully applies for leniency by submitting new and relevant evidence to the CCPC and cooperating genuinely. However, under the ALP, parties that “instigate” RPM will generally not be eligible for immunity from administrative financial sanctions, although they may apply for leniency for a reduction in administrative financial sanctions. Where immunity is not available, an undertaking may benefit from a reduction in administrative financial sanctions of up to 50%.
See our recent article on ALP: 5 Top Tips When Seeking Leniency from Administrative Financial Sanctions.
What this means for clients
If you are a supplier or a reseller, seek advice on any agency agreement to which you are a party to ensure it meets the criteria for a genuine agency arrangement.
If you are a supplier, never try to dictate, directly or indirectly, the prices advertised or charged by your resellers:
- DO NOT restrict resellers’ freedom to set prices, including by applying a specific or minimum resale
- DO NOT restrict resellers’ freedom to offer discounts or seek to enforce or promote an anti-discount culture
- DO NOT threaten in any way a reseller if it does not follow your pricing instructions
- SEEK ADVICE before using automatic software for price monitoring
- SEEK ADVICE before implementing or enforcing a pricing policy
As a reseller, do not co-operate with a RPM policy:
- DO set your own prices independently
- DO NOT agree to apply a specific or minimum resale price, even where this is strictly required and/or heavily incentivised by your supplier
- DO NOT use a price-matching software at the request of your supplier
- DO NOT surveil other resellers’ pricing on behalf of your supplier