Introduction

Basic agreement

Fines

Comment

Introduction

The Federal Cartel Office has imposed fines totalling €4.43 million on five furniture manufacturers and four managers for resale price maintenance, following a case report published in mid-January 2017. The comparatively low fines should not be misinterpreted – the German enforcer intends to fight vigorously against resale price maintenance.

The proceedings were initiated by dawn raids in 2014 and 2015, following complaints by retailers. This indicates that vertical infringements are a top priority for the Federal Cartel Office. Many authorities revert to dawn raids only for investigating horizontal cartels.

Basic agreement

The Federal Cartel Office found that there was a basic agreement between manufacturers and retailers, according to which retailers:

  • must not sell below certain minimum resale prices; and
  • must stay within a certain corridor when granting rebates.

Different approaches were taken to implement the agreements. The following practices occurred in most of the cases:

  • The recommended resale price was used as a reference for the minimum resale price and the rebate corridor.
  • Manufacturers and resellers agreed which products could be used for promotional activities.
  • A monitoring system ensured compliance with the basic agreement and the pricing conduct of the retailers. Retailers played an active role, for example, by complaining about maverick retailers or expressing the expectations of the manufacturers to intervene and enforce adherence to the agreed minimum prices.
  • Manufacturers applied undue pressure on retailers by ceasing to supply maverick retailers or threatening to do so. Some manufacturers applied a yellow and red card system to discipline retailers.
  • Occasionally, additional rules were agreed for online trade, always with the aim to enforce a rigid, sustainable price level.

The Federal Cartel Office considered this conduct to be straightforward infringement.

The Federal Cartel Office applied the concept of a basic agreement to the infringements – a concept that the office has often applied for horizontal agreements. It allows the enforcer to consider all actions that implement the basic agreement as one and the same infringement. The downside of this approach is that rules on limitations become essentially ineffective. The longer standard period of limitation for competition law infringements in Germany is five years. By applying the concept of a basic agreement that links numerous individual actions, even actions dating back longer than five years can still be prosecuted if these actions are considered to implement a basic agreement which is still in place (ie, still implemented by follow-on actions).

Fines

The Federal Cartel Office did not impose any fines on the retailers in this case – unlike in its recent decision in the food retail sector, where the enforcer imposed fines on more retailers than on manufacturers. However, in the present case, the authority made clear that its decision not to fine the retailers was a matter of discretion and taken in view of the particular facts of the case. Retailers should be alert that manufacturers are not the only scapegoats in vertical cases. Vertical agreements remain agreements, and both sides to that agreement can be fined.

No comfort should be taken in the relatively low amount of the fines. A number of case-specific aspects may have played an important role. The five companies fined were comparatively small. All agreed to settle the case and in return received a 10% fine reduction. The Federal Cartel Office found that some of the companies had only very limited financial resources because of ongoing reorganisation and restructuring measures and the enforcer accepted this as a mitigating factor when calculating the fines.

Comment

The decision demonstrates that the Federal Cartel Office remains decided to prosecute vertical infringements as well as cartels. This is in line with a number of more recent decisions where the office has already imposed fines for vertical price fixing practices, most notably in the food retail sector but also in the sale of mattresses and navigation devices.

For further information on this topic please contact Kai Neuhaus at CMS Hasche Sigle by telephone (+32 2 6500 420) or email (kai.neuhaus@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

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