We have already written about the Frikom case twice – about the operative part of the 2012 decision of the Serbian Commission for Protection of Competition fining the ice-cream manufacturer for abuse of dominance, and about the 2013 judgment of the Administrative Court confirming the Commission’s decision. On 6 February 2014 the Supreme Court of Cassation upheld the Administrative Court’s judgment. Following the ruling of the Supreme Court of Cassation, the Commission has published the reasoning of its 2012 decision. One of the interesting parts of the reasoning concerns the legality of recommended resale prices, which is the topic of this post.
Previous practice of the Commission
Prior to the issuance of the Frikom decision, the Commission had on several occasions pronounced itself on the legality of recommended and maximum resale prices. In a 2009 opinion, the Commission noted that a supplier is free to impose on a buyer a maximum or recommended resale price, as long as the buyer remains free to determine the resale price of the contract product. The Commission emphasized that a recommended resale price must not be connected with any form of pressure or incentive which would effectively amount to the buyer’s obligation to accept the recommended prices.
Recommended prices in the Frikom decision
The Frikom decision offers additional criteria when assessing legality of recommended prices. The Commission’s analytical framework is based on the European Commission’s Guidelines on Vertical Restraints, which is cited in several instances.
The Commission starts from recognizing that resale price maintenance can be achieved not only by express vertical price-fixing, but also indirectly. Indirect means include fixing the distribution margin or the maximum level of discount a distributor can offer on the prescribed price level, offering rebates conditional to the observance of prescribed price levels, linking the resale price to the resale prices of competitors, threats, intimidation, warnings, penalties, delay or suspension of deliveries or contract terminations related to the non- observance of given price levels.
According to the Commission, the most important factor for the assessment of anticompetitive effects of maximum or recommended resale prices is the market position of the supplier. The stronger is the market position of the supplier (especially if the supplier is at the same time the manufacturer of the relevant product with a market share significantly exceeding 40% on a highly concentrated market), the higher is the risk that a maximum resale price or a recommended resale price would lead to the uniform application of such price by resellers, because the latter are likely to find it difficult to deviate from what they perceive to be the preferred resale price suggested by an important supplier. The Commission added that the likelihood of observance is higher among small and medium retail customers because they have a weaker bargaining position vis-a-vis a large supplier and are prone to securing business with a strong business partner.
The Frikom decision further notes that recommended and maximum resale prices may benefit from a block exemption, provided that the conditions prescribed by the vertical block exemption decree are met, including that none of the parties to the agreement has a market share in the excess of 25%. Block exemption, however, does not apply if the recommended/maximum prices in effect amount to minimum or fixed prices, as the latter practices represent hardcore restraints. The Commission did not exclude the possibility that such hardcore restraints obtain individual exemption, but noted that this would be possible only in exceptional cases.
Against this analytical background, the Commission found on the facts of the case that Frikom abused its dominance, inter alia, by engaging in illegal resale price maintenance – initially by expressly fixing retail prices and subsequently by agreeing recommended resale prices which in fact amounted to fixed prices because the initial period during which the overt price fixing was taking place had lasted long enough to create among Frikom’s customers a habit of respecting the ice-cream manufacturer’s price recommendations.
The importance of the Frikom decision is twofold.
Firstly, the decision shows that, under certain conditions, the Commission may treat recommended or maximum prices as restrictive agreements, especially when the supplier has a strong position on the market.
Secondly, imposition of resale prices may be qualified not only as a restrictive agreement but also as a form of abuse of dominance.