Resale Price Maintenance: German Federal Cartel Office remains vigilant
The German Federal Cartel Office (hereafter FCO) imposed a fine of 130.000 Euros on Denmark-based toymaker Lego for a violation of the prohibition of Resale Price Maintenance (hereafter RPM). In accordance with the press release of the FCO dated 12 January 2016 sales representatives of Lego GmbH approached retailers in northern and eastern Germany during 2012 and 2013 in order to urge them to raise the final retail price for certain “highlight products“.
The sales representatives monitored compliance of the retailers and penalized non-compliance: The sales representatives created a list which contained the targeted products and retailers and was updated regularly. Some of the retailers were threatened with a delivery reduction or even a refusal to supply if they would not adhere to the retail price stipulated by the list. In addition, the sales representative also made the purchase prices for the targeted retailers contingent on the adherence to the listed retail prices. An internal investigation of the Lego Group suggests that the RPM did not have an effect on the overall German market level for retail prices (Lego’s press release can be found here) .
This decision demonstrates that the FCO will continue its efforts to combat RPM – regardless of whether or not there is additional evidence of horizontal collusion. (cf. the press release of the FCO about fines imposed on three manufacturers of mattresses for using RPM of 22 August 2014, 06 February 2015 und 22 October 2015) Thus, the FCO’s most prevalent competition concern is that RPM deprives retailers of their economic freedom to act, because “real competition can only exist if retailers are free to set their retail prices“ (Andreas Mundt, President of the FCO, FCO press release of 22 October 2015).
The FCO pointed out that Lego showed significant efforts from the onset to contribute to clarification of facts and to make necessary organizational and personnel changes. This cooperation and the fact that a settlement was reached were taken into account by the FCO when determining the fine.
RPM is regularly 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 relevant block exemption regulation, because it is considered unlikely that RPM will contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits. At best a company can try to argue an individual exemption in accordance with Art. 101 (3) TFEU or § 2 of the German Act against Restraints of Competition. Whether or not the requirements of the respective rules are met has to be determined by the parties which want to use RPM. In addition, there are further difficult questions concerning legal differentiation in this field of law, for instance, if and to what degree manufactures may have follow-up communication with their retailers on recommended retail prices.
Even if the FCO issues a guideline on questions concerning RPM in the near future just like the Austrian authority did recently (Standpunkt zu vertikalen Preisbindungen der Bundeswettbewerbsbehörde) on thing remains abundantly clear: In regard of the significant consequences of a wrong assessment of the compatibility of RPM with competition law and the enforcement intensity of the FCO in this area in recent years each company is well-advised to thoroughly check its sales and distribution practices.
Any questions? Please contact: Dr. Alexander Birnstiel or Fabian Hübener
Practice Group: Antitrust & Competition