Price promotions by retailers for best-selling books, such as the most recent Harry Potter, often see the books priced at a significant discount to the publisher’s recommended resale price. This highlights a fundamental principle of European (and UK) competition law: the prohibition on resale price maintenance (RPM).
The basic principle, generally accepted across competition regimes from the UK to the new Chinese regime, is that a supplier of goods is prohibited from fixing the price or setting a minimum price at which a purchaser of the goods can resell those goods. In the EU and UK this goes beyond directly setting the price and covers any agreements that have as their indirect object or effect the establishment of a fixed or minimum resale price.
The European Commission considers that indirect prohibited means of RPM include fixing the distribution margin, fixing the maximum discount a distributor can grant from a prescribed price level, linking rebates or reimbursement of promotional costs to the observance of a given price level, linking the prescribed resale price to a competitor’s price, or threats, intimidation, warnings, penalties, delay or suspension of deliveries or contract terminations in relation to the observance of a given price level.
However, it is nonetheless permissible to recommend a resale price and set a maximum price – although this too can be problematic if, in practice, it acts as a focal point at which retailers should price.
Since 2000, the UK Office of Fair Trading (OFT) in the UK has investigated more than 30 cases of potential RPM( leading to six decisions resulting in fines). These cases demonstrate the range of provisions which may raise RPM concerns.
For instance the OFT has suggested that provisions: requiring retailers to inform the supplier in advance of all special offers planned by the retailer and entitling the supplier to repurchase the products concerned, or that “in-season” products not be displayed alongside discounted “out of season” products in order to “protect in-season product price/value”, or prohibiting any mention of product sales involving a discount or price reduction in any advertising campaign could, in some circumstances, give rise to possible infringements of the competition rules.
In a significant number of the publicly-reported cases, the OFT did not impose fines (or take an infringement decision), preferring to close the file on the basis that the agreements had been amended and suitable compliance processes had been put in place. This may be more a consequence of the OFT’s desire to conclude some of its many longstanding cases rather than a policy applicable to future infringements.
There is therefore no reason for complacency as regards this type of provision. Investigations, even if concluding without an infringement decision, can be costly and time consuming for companies and there remains a significant risk for retailers in accepting such restrictions, owing to the danger that an agreement to comply with a manufacturer’s resale price could result in price-fixing between retailers. An example of this might be where a purchaser abides by a particular price if its competitor does likewise.
However, the consensus on RPM may be breaking down and the position in the future may be very different. Recently, the US Supreme Court has ruled that RPM would not always infringe US antitrust rules but instead arrangements should be subject to an assessment as to their effects. It remains to be seen how this new precedent will be applied in the US, and whether it will influence thinking elsewhere, but it may lead to a change in the way competition law authorities approach RPM. In the meantime, with fines on retailers in two recent UK cases exceeding £30 million, this is an area where retailers should exercise extra care.