On 20 November last, for the second time in less than a month, the Italian Antitrust Authority started an investigation under article 101 of the TFUE in respect of the pricing and commercial policy adopted by Enervit (a leading supplier of food supplements for sports, fitness and well- being related nutrition needs) vis-à-vis its online and traditional retailers as well as wholesalers. Namely, as a consequence of a complaint filed by a pharmacist and owner of an on-line retail shop in May this year, the Authority brought under its scrutiny the following conducts of Enervit in Italy, as potential (vertical) restraints of competition: i) the invitation to the retailers to keep the level of discounts applied on Enervit products between 20-25% ii) the prohibition on Italian retailers to sell products or promote the sale of products with an Italian label to non Italian residents iii) the prohibition imposed on Enervit’s exclusive wholesalers to sell or promote the sales of the products outside of the territory of Italy, on penalty of immediate contract termination.
According to the Authority, the above contractual clauses appear on their face to qualify as hardcore restrictions in vertical agreements, as clarified by the European Commission Guidelines on Vertical Restraints (2010/C 130/01) with respect to those restrictions falling under Article 4 of Commission Regulation (EU) no. 330/2010. As such, they are presumed to amount to an illegal restraint of competition, provided that the undertakings concerned may demonstrate that ”likely efficiencies result from including the hardcore restriction in the agreement” and “that in general all the conditions of Article 101(3) are fulfilled” (Paragraph 47 of Commission Guidelines on Vertical Restraints).
It is also of interest that the Authority is challenging the absolute prohibition imposed by Enervit to sell the products destined to Italian consumers to non-Italian residents, on grounds that this would result in an impediment of on-line sales which, as such, are always deemed as a form of “passive sales”. In this connection, the Authority refers to para. 52 of Commissions Guidelines on Vertical Restraints, which consider that “The internet is a powerful tool to reach a greater number and variety of customers than by more traditional sales methods” and as a consequence certain restrictions to on-line sales shall be treated as restrictions on the ability to resell.
In the same vein, the Italian Authority has decided to put under the spotlight the other clauses (dealing with territorial limitations), which effectively limit the ability of retailers and/or wholesalers to engage in intra-brand competition, at least by way of passive selling. However, the most interesting observation of the Authority regards the imposition by Enervit of a system of maximum discounts leading to the imposition of a minimum resale price.The company seems to have justified its behaviour as a strategy to avoid that a price lower than the recommended one,when charged by online retailers, would attract demand from other retailers, thereby detracting from the on- line retailers’ intended focus on sales towards end-users.To encourage abidance with the minimum resale price,Enervit’s policy apparently had gone so far as to reward,by way of extra discounts,the resale price loyalty by retailers.
Italy is experiencing the awakening of the Authority’s to the phenomenon of RPM. Indeed, since the enactment of the Italian competition law back in October 1990, the Enervit case of 20 November last is the second RPM case investigated by the Authority, after the first investigation started only a month before, concerning the RPM system of a manufacturer of solar inverters.
Quite interestingly, in both cases the Italian Authority addressed its objections to the product manufacturers only, as if the case concerned a unilateral conduct rather than an agreement.
The reason why the Authority did not involve also the wholesalers/retailers is not clear nor stated by the Authority. Probably, the implied reason is that, although formally framed in a contractual scheme, neither the retailers nor the wholesalers had sufficient negotiating power to reject the restrictive clauses. Moreover, it can also be assumed that, particularly vis-à-vis vertical agreements restraining competition, the Authority is at liberty to investigate only one of the parties to the agreement, as the validity of the final decision is not subject to the compulsory joinder of the other parties. Last but not least, it is also likely that the Authority did so out of fear of discouraging retailers/wholesalers from reporting other RPM cases to the Authority, also considering that participants in vertical anti- competitive agreements are not eligible for the Italian leniency programs (which in fact only apply to horizontal cartels).
Other competition authorities in Europe have however adopted a different approach.For instance, on 20 September last, the UK Office of Fair Trading issued a statement of objections in the contest of the “Sports bras RPM” investigation for alleged resale price maintenance, in which three department stores were also involved as parties potentially responsible for the breach.
When one looks at the application of the RPM doctrine overseas, the reference precedent is provided by the judgment of the Supreme Court of the United States of 2007 in Leegin Creative Leather Prods. v. PSKS, Inc. In that case, the US Supreme Court decided to overrule the per se rule adopted by the Court of Appeals for the fifth district and analyzed the vertical price restraint imposed by a leather producers to its distributors according to the rule of reason. The Court stated that “Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that resale price maintenance always or almost always tends to restrict competition and decrease output. Vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed”.Thus, US approach to the conduct of retail price maintenance implies a case-by-case analysis and evaluation. Although as mentioned above the EU Commission’s guidelines on vertical restraints leave room for efficiency gain defences by undertakings engaged in hard- core vertical restrictions, the conditions that must be satisfied under art. 101, para. 3, of the TFUE appear to provide for a less flexible tool than the US rule of reason.
The recent focus of the Italian Authority on RPM and other vertical restraints certainly rings a bell and calls manufacturers to the need to review their commercial policies as adopted thus far. Traditionally brand-owners do not like to see fierce intra-brand competition, inter alia because this may lead to tensions between the same brand owners and their customers. However, EU law is quite clear and independent distributors’ pricing policing is something that simply cannot and should not be controlled.