CMA letter warns firms that restricting internet prices is illegal

Open letter

The UK’s Competition and Markets Authority today took the step of publishing an open letter about resale price maintenance (RPM) and compliance with competition law following the conclusion of recent high-profile cases, including the one involving the catering equipment industry.

Last month the CMA fined Foster Refrigerator almost £2.3m for restricting distributors’ ability to sell its products online at independently-determined prices.

The three-page letter issued by the CMA this morning details the different kinds of practices that can amount to RPM, which include the use of ‘minimum advertised price’ or MAP policies.

It also warns suppliers and dealers that they can both face serious consequences for engaging in illegal RPM.

In the letter, from Ann Pope, senior director, antitrust, at the CMA, the organisation says that businesses need to understand that competition law exists to protect companies and consumers from anti-competitive behaviour.

Pope writes: “Resale price maintenance (RPM) occurs where a supplier and retailer agree that the retailer will sell the supplier’s product at or above a particular price. RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price. There are some very exceptional circumstances in which it may not be unlawful to specify retail prices and you may wish to seek independent legal advice on this point.

“However, in the majority of cases, RPM is illegal because it constitutes vertical price-fixing, preventing retailers from offering lower prices and setting their prices independently to attract more customers.”

The letter highlights the case that saw Foster fined for engaging in RPM, noting that the manufacturer imposed a MAP pricing policy that restricted the price at which dealers could advertise its product online. The policy was accompanied by threats to dealers – including threats to charge them higher cost prices for Foster products or stopping supply – if they advertised below the minimum price.

The CMA found that prohibiting retailers from advertising online below a certain price restricted in practice their freedom to set the price for online sales and, as such, amounted to illegal RPM for these sales.

While Foster was the only manufacturer to be fined, the CMA subsequently revealed it had sent “warning letters” to 20 catering equipment companies it suspects of being involved in price fixing. A Freedom of Information request made by FEJ’s sister company Catering Insight revealed that 15 of these companies were manufacturers and five were resellers.

In today’s open letter, Pope drew on recent cases to highlight “certain important points” with regards competition law.

If you are a supplier:

– You must not dictate the price at which your products are sold, either online or through other sales channels.

– Policies that set a minimum advertised pricefor online sales can equate to RPM and are usually illegal.

– You must not use threats, financial incentives or take any other action, such as withholding supply or offering less favourable terms, to make retailers stick to recommended resale prices.

If you are a retailer:

– You are entitled to set the price of the products you sell, whether online or through other sales channels

– Suppliers are not usually allowed to dictate the prices at which you advertise their products online

– If you have agreed to sell at fixed or minimum prices with your supplier, you may both be found to be breaking competition law

Pope warns that there can be “serious consequences” for businesses that break competition law, including fines of up to 10% of a business’s worldwide turnover.

“The message from these recent cases is clear: the CMA takes resale price maintenance seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce,” she wrote.

She adds that it is important for companies to ensure their staff understand what they need to do to stay on the right side of the law and pointed to a range of compliance guidance on the CMA’s website for further help.

She concluded by saying: “If you have information on other companies in your industry that may have been involved in an anti-competitive arrangement, then you can report this on the CMA’s website. If you think your business has been involved in RPM, then you may even benefit from lenient treatment by coming forward to the CMA. We also recommend that you seek independent, legal advice.”

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