Do suppliers who address aggressive retail pricing necessarily face antitrust sanctions? In a recent case, the Düsseldorf Higher Regional Court reviewed several statements made by a supplier vis-à-vis a retailer and raised no concerns (Düsseldorf Higher Regional Court, 8 July 2020 – VI-U [Kart] 3/20), ruling that the communication did not infringe the cartel prohibition (Section 1 ARC, Art. 101 TFEU) and stating that it found no agreement and no concerted practice nor did the communication threaten or inflict disadvantages within the meaning of Section 21 (2) ARC.
Facts of the case
The defendant is a supplier of toys including model boats. The claimant sold these products online.
Between 2016 and 2018, the defendant supplied the claimant who regularly undercut the defendant’s recommended retail prices.
In June and July 2018, the defendant contacted the claimant by e-mail and asked the claimant where he obtained the products and why he “use[s] very aggressive prices on the market”. The defendant stated that he finds the “business practices [of the claimant] very questionable”, that the claimant should “reconsider its price policy” and that for the claimant “it would probably be best to completely discontinue our products and concentrate on other manufacturers”. A further issue was that the claimant advised one of its end customers in a warranty case to file a complaint directly with the defendant.
In June 2018, the defendant stopped supplying its products to the claimant and blocked the claimant’s merchant account.
Firstly, the Düsseldorf Higher Regional Court held that the communication did not infringe the cartel prohibition (Section 1 ARC, Art. 101 TFEU) with no evidence found of agreement or concerted practice. The Court also found that the claimant had refused to adapt its pricing policy.
Furthermore, the Court decided that the defendant’s communication did not violate Section 21 (2) ARC. According to Section 21 (2) ARC, undertakings may not threaten or inflict disadvantages on other undertakings or promise or grant advantages to other undertakings in order to induce them to conduct business, which can not be made the subject of a contractual obligation under the cartel prohibition. Such forbidden conduct can concern retail price maintenance. Threats by suppliers aimed at low retail prices regularly infringe Section 21 (2) ARC. A supplier can speak with retailers about retail pricing, but it must do so under the confines of competition law.
In this case, the Court found that the defendant did not threaten the claimant with termination of the business relationship in order to induce the claimant to increase its resale prices. The Court considered the e-mail response by the defendant to the claimant in which the defendant stated: “We never …. interfered in its pricing policy”. The Court found it plausible that the defendant terminated its business relationship with the claimant because it had doubts about the claimant’s professional business conduct. The claimant did not have all advertised goods in stock nor did it order them from the defendant. Furthermore, the claimant wrongfully advised one of its customers to file a complaint directly to the defendant in a warranty case.
Ultimately, the Court confirmed its ruling from the previous year (Düsseldorf Higher Regional Court, 18 September 2019 –VI-U [Kart] 3/19) [https://www.cms-lawnow.com/ealerts/2019/12/duesseldorf-higher-regional-court-allows-discussion-of-retail-pricing-in-individual-cases] and stated that “anyone who asks the business partner to reconsider his pricing strategy respects his pricing sovereignty and does not – unless […] there are circumstances to the contrary – exert any prohibited influence on pricing”.
Comments on the judgment
Firstly, the Court appears to have interpreted Section 21 (2) ARC slightly more narrowly than the German Federal Supreme Court (German Federal Supreme Court, 6 November 2011 – KZR 13/12) and the German Federal Cartel Office (Notes on the prohibition of fixed prices in the area of stationary food retailing, margin number 88.) Secondly, the findings of fact by the Court appear contradictory. The defendant allegedly supplied the claimant for two years. In its e-mail correspondence, the defendant claims not to have found the claimant in its customer list. This claim of not having a customer relationship with the claimant was apparently an important indication for the Court that the defendant had not threatened to terminate the customer relationship if prices were not increased. In the case of a supply relationship alleged by both sides, further details would be necessary to determine whether a discussion of prices is understood as undue pressure.
The two recent decisions by the Düsseldorf Higher Regional Court provide suppliers with additional information on how to react if retailers – in their view – behave inappropriately (e.g. by advertising goods without enough stock or aggressive pricing below the recommended retail price). Suppliers can derive the following Do's and Don'ts from the ruling:
- Do make retail price recommendations.
- Do take the liberty to speak with retailers if you do not like their business conduct, including aggressive pricing, but be careful not to threaten them. State clearly in written form (e.g. via email) that you do not intend to interfere with their pricing policy. Whether your communication is interpreted as a threat may depend on your market power.
- Do feel free to terminate relationships with retailers who don't meet your expectations, but make it final and not dependent on future behaviour. Do not inform other retailers of the termination of the business relationship in any way. Do not base the termination on retail pricing behaviour, but on objectionable business practise.
- Do not agree on retail prices.
- Do not exchange information or views that lead to a concerted practice on retail pricing.
- Do not inflict disadvantages on retailers or threaten them with disadvantages in the case of noncompliance with retail price recommendations.
- Don't promise or grant advantages for adhering to retail price recommendations.
Finally, exceptions may apply in individual cases, such as if a supplier has considerable market power.
Article co-authored by Alexander Laute