Resale price maintenance as a new enforcement priority of the EU Commission?

On 24 July 2018, the European Commission issued four separate decisions, yet to be published, fining consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer for imposing fixed or minimum resale price maintenance (RPM) on their respective retailers. It imposed fines of € 111 million in total, after it granted significant reductions of up to 50% for cooperating with the Commission.

According to the press release, the reductions were warranted because the manufacturers provided “evidence with significant added value and expressly acknowledged the facts and the infringements of EU competition law”. While “significant added value” is a criterion from the Commission’s Notice on Immunity from fines and reduction of fines in cartel cases, the Commission seems to have applied the same standard for a conduct that is purely vertical in nature. Thus, companies seem to be able to achieve similar benefits in vertical cases and can decide to cooperate in order to mitigate their exposure. Commissioner Vestager stated that the level of fine reduction depends on the extent and timing of the cooperation in the specific case, and the resulting benefits in terms of efficient procedure and effective enforcement.

According to the Commission, all manufacturers restricted the ability of their respective online retailers to set their own retail prices for consumer-electronics products. Retailers that did not comply with the RPM faced sanctions such as blocking of supplies. It noted that the RPM typically had a broader impact on overall online prices because of pricing algorithms used by many online retailers nowadays. Some of these algorithms automatically adapt retail prices in relation to competitors’ pricing. Therefore, if the manufacturers use RPM to restrict in particular the low pricing maverick, this can have a chain effect on overall online prices for the respective product due to other retailers’ pricing algorithms realizing that the previous maverick price is no longer available. In addition to RPM, Pioneer also limited its retailers’ ability to sell cross-border into other Member States.

The four separate infringements had different durations and mostly affected different product and geographic markets. They took place between 2011 and 2015. While some practices were only used in one or two Member States, Pioneer’s measures apparently concerned 12 Member States.

RPM has long been regarded as a very severe or “by object” infringement of competition law. It is also classified as a hardcore restriction in the context of the Vertical Block Exemption Regulation (330/2010), because it is considered unlikely that RPM will contribute to improve the production or distribution of goods or to promote technical or economic progress, while allowing consumers a fair share of the resulting benefits. An individual exemption for RPM is theoretically possible, but unlikely and requires a very thorough legal self-assessment.

However, it is noteworthy that the Commission fined RPM cases for the first time in roughly 15 years. Since then these cases were mostly brought by national competition authorities (see for example the Lego Case and the Furniture Case of the Bundeskartellamt, the German competition authority). While Commissioner Vestager explained that the cases originated from customer complaints, the Commission focused on similar measures in its recent e-commerce sector inquiry. The results showed that pricing restrictions are the most widespread restrictions of competition in these e-commerce markets. In total, 42% of respondents to the sector inquiry were affected by pricing restrictions. However, pricing restrictions in the report not only include prohibited restrictions that fix the resale price or impose a minimum resale price, but also generally permissible recommended resale prices or maximum resale prices (see paragraph 334 et seq. of the Commission Staff Working Document to the Final report on the E-commerce Sector Inquiry) . Considering that the Commission also launched an investigation last year assessing if “certain online sales practices prevent consumers from enjoying cross-border choice and from being able to buy products and services online at competitive prices”, it seems prudent to assume that vertical restraints will remain an enforcement focus for the Commission for the time being.

In regard of the significant risks of RPM and the enforcement intensity of both the national competition authorities and now also the Commission, compliance training and audits for sales and distribution practices should also focus on RPM and cross-border sales restrictions.