On October 24, Dentons held a web-streamed roundtable discussion on the state of play of resale price maintenance (RPM) enforcement and policy in Europe.
Moderated by Yves Botteman (partner, Belgium), panelists Marc Kuijper (partner, Netherlands), Jean-Nicolas Maillard (partner, France), Agnieszka Stefanowicz-Barańska (partner, Poland) and Josef Hainz (partner, Germany) shared their experiences and views on the current state of RPM enforcement in their respective jurisdictions.
A quick refresher on RPM
While suppliers may recommend prices or impose maximum prices on their distributors, they may not impose fixed or minimum resale prices, as this would amount to a 'by object' restraint under Article 101(1) of the Treaty on the Functioning of the European Union and qualify as a 'hardcore' restriction under Article 4 of the Vertical Block Exemption Regulation (VBER).
The European Commission's vertical guidelines provide that RPM may withstand scrutiny in three limited situations cases, namely: (a) the launch of a new product, where RPM may incentivize distributors to increase their promotional efforts; (b) a short-term low price campaign in a franchise system; and (c) to address the free-rider problem, where RPM allows for additional pre-sale services for complex products. However, those limited exceptions have rarely been put forward by suppliers and tested in front of national competition authorities and courts.
What are the RPM enforcement trends in the EU and in key jurisdictions?
Following the Yamaha case in 2003, the European Commission
(EC) vacated the vertical space for fifteen years.
During that time, most of the enforcement took place at national
But the EC is now back in the vertical debate and has taken over the driver seat. Following the conclusions of the e-commerce sector inquiry in May 2017, the EC adopted several RPM decisions: four in the consumer electronics sector (Asus, Denon & Marantz, Philips, Pioneer, for a total fine of €111 million) and one in the Guess case (with a fine of €39.8 million). These cases share common features, including the extensive use of price algorithms and price monitoring techniques and the fact that, procedurally, the companies involved extensively cooperated with the EC and admitted wrongdoing in order to reduce the penalty.
The Authority for Consumers and Markets (ACM) has not adopted a RPM decision in almost 20 years: the last fine decision in a RPM case dates back from 2000 (€226,000) but was quashed in 2005.
Perhaps due to this adverse outcome, the ACM has showed a tepid appetite to pick-up RPM cases. For instance, in 2009, the ACM launched a survey on the online retail market. The survey attracted many responses on RPM but the ACM nevertheless decided not to investigate the issue further. Similarly, in a 2015 paper on enforcement priorities on vertical agreements, the ACM displayed a very nuanced approach on RPM, indicating that RPM would only be sanctioned if there is significant harm to consumers. A number of practitioners concluded that, absent horizontal coordination or a pattern of widespread use of resale price fixing measures across a given industry or business sector, RPM would not face a significant risk of enforcement by the ACM.
But the climate has now changed: since September 2018, the ACM has a new chairman with new enforcement priorities. In December 2018, there were dawn raids at the premises of several consumer products manufacturers for RPM practices. Likewise, in February 2019, a press release announced that the ACM would be watching this space very closely.
The level of RPM enforcement in Poland has varied over time. From 2000 to 2010, the Polish Competition Authority (UOKiK) adopted more than 50 decisions in RPM cases – perhaps because, in the words of the UOKiK itself, RPM cases were "low hanging fruits", easy to prosecute and sanction.
As of 2011, the trend changed as it appeared that enforcing payment of small fines imposed on many companies was, in practice, very cumbersome. Therefore, the UOKiK started fewer proceedings against fewer parties, i.e. the proceedings were initiated only against the supplier or the supplier and his key distributors, but the fines were increased. This trend strengthened in 2014 with the appointment of the new head of the UOKiK, who was very receptive to calls from the private sector and economic circles calling for a more lenient approach, and the authority limited itself to soft enforcement – warnings etc. The UOKiK closed a number of then ongoing proceedings but did not open any other case files.
Since 2017, RPM enforcement is again on the rise. The UOKiK has not adopted any new decisions but a number of fresh proceedings are reportedly ongoing, including against individuals.
At first glance, one would be tempted to conclude that RPM enforcement in France has slowed down over the last 10 years, with approximately one case per year (compared to two to three cases a year in the preceding decade). However, the reduction in the number of cases masks the fact that:
- the level of fines is higher now than it was then;
- the French Competition Authority (FCA) certainly keeps enforcement against RPM high on its enforcement agenda; and
- the FCA is very active against vertical restraints more generally (e.g. online sales bans or platform bans).
The number of cases (17 cases in the last 10 years and more cases to come) and the sheer amount of the fines may give the impression that Germany is tougher than other jurisdictions. However, this initial impression is to a certain extent misguided. Notably, several cases concerning the grocery retail sector started as suspected horizontal 'hub-and-spoke' conspiracies. In addition, the FCO is reluctant to go after classical, non-complex unilateral RPM cases, but rather tries to focus on cases involving one or more complainants or a leniency applicant.
What types of practices have been on the radar of the authority?
The bulk of the decisions in the past 10 years related to textbook cases, whereby suppliers intended to fix prices by using pressure and threats. However, a few recent cases do stand out, including:
- The pet food case (2012, decision 12-D-10). In this case, the supplier was negotiating prices directly with end-users and the agreed price between them was then passed on to the middleman, the wholesaler, who was merely applying prices which he should have negotiated himself. Therefore, the role of the wholesaler was limited to that of a mere logistical platform.
- The petanque balls case (2017, decision 17-D-02). This decision is noteworthy because the petanque supplier was a dominant supplier in its field and the FCA framed the case as an abuse of dominance as opposed to a vertical conspiracy. This is surprising because it is not the first time that the FCA went after a dominant player engaging in RPM – and, in past cases, the FCA has always taken the conspiracy route rather than the abuse one.
- The Nintendo case (2015, decision 15-D-18). This case relates to the launch of the Wii game console. Nintendo made several public announcements relating to the launch of the Wii, all including a public recommended price. The FCA did not find enough evidence of particular interference on the part of Nintendo in the price charged by distributors and therefore did not find an infringement.
- The liquid fuel heaters case (2016, decision 16-D-17).: The FCA labelled this case as a hub and spoke conspiracy; in practice, though, it is not exactly a textbook hub-and-spoke case.
While the ACM did not adopt a single RPM decision in the past 19 years, there was some private enforcement before the Dutch courts. These private enforcement cases typically related to situations where a supplier terminated a low-price distributor upon receiving complaints from other distributors. For instance, in the bicycle RPM case, the supplier terminated a discounter after receiving numerous complaints from other retailers. The case, though quite straightforward, went all the way up to the Supreme Court, in particular on issues of appreciability of the restriction of competition, i..e. how serious it is. It was eventually upheld.
Hub-and-spoke in Germany and Poland
The debate then turned to 'hub-and-spoke' conspiracies, which often arise in the context of RPM cases. With regard to Germany, as indicated above, this was the case in the grocery retail case, where the FCO initially pursued horizontal conduct. It turned out that the FCO obviously ended up not having enough evidence to substantiate a hub-and-spoke case and subsequently requalified the case as vertical price fixing, which proved easier to prosecute.
As for Poland, with five decisions between 2006 and 2015, the UOKiK has significant experience in hub-and-spoke practices. In these five decisions, it developed an analytical framework to support a hub-and-spoke allegation in a RPM context, namely examining:
- who took the initiative of the illegal behavior;
- whether the distributors benefit from participating in the scheme;
- whether distributors are active in enforcing the scheme;
- whether the distributors are aware of the overall purpose of the scheme;
- whether the distributors have a strong negotiating position (i.e., the agreement would not have been concluded and applied against their will);
- whether the distributors publicly distance themselves from the concerted practice;
- whether the hub acts as a mediator in case of dispute; and
- whether distributors were aware or ought to have known that the information they were sharing with the supplier would eventually reach their rivals.
Because of its significant experience, one would expect the UOKiK to deal with more hub-and-spoke cases in the future.
Algorithms and RPM in France, Germany, Netherlands and Poland
Until very recently, the UOKiK only pursued very traditional cases, i.e. direct or indirect RPM. However, two years ago, the UOKiK investigated a selective distribution system, probably in a RPM context, and examined extensively the electronic communication system that the supplier and distributor used. Since these were exploratory inquiries, there is no further information on what exactly the UOKiK was looking for and what were its conclusions. There have been unconfirmed rumors of an ongoing price algorithm case.
In Germany, the FCO recently published a background paper in the context of the ongoing review of the VBER and its accompanying guidelines. This paper points out that the effect of enforcement of RPM against an aggressively pricing maverick may be magnified by the use of a so-called "spider", i.e. programs that scroll the web to check for competitors' prices. However, there is no enforcement case to date that looks at price algorithm software as the instrument of a conspiracy.
Finally, as for France and the Netherlands, price algorithms do not appear to have come on the radar of the national competition authorities in the cases they had to deal with.
What are the theories of harm?
The last part of the debate focused on the applicable theories of harm: while RPM invariably falls within the definition of a restriction of competition by object, certain authorities increasingly focus their enforcement resources on cases that have an appreciable economic effect on competition.
The appreciability of the restriction of competition has always been an important factor when looking at RPM cases – even though RPM may still formally qualify as a by object infringement. For instance, the last ACM decision on RPM was quashed on appeal because the ACM apparently failed to prove appreciable restrictive effects on competition. Similarly, private enforcement cases largely focused on the appreciability of the conduct at issue.
The German Federal Court ruled that since RPM is an infringement by object, all RPM cases shall be deemed to cause an appreciable restriction of competition. However, in practice, the FCO appears to make use of its discretion to prosecute only cases that are likely to generate appreciable effects, namely situations involving suppliers with market power, affecting a significant share of demand and where the practices are sufficiently widespread. In addition, the FCO said on several occasions that RPM may be efficiency enhancing (notably in the guidance paper on RPM in the food retailing sector). However, not a single undertaking has ever tried to advance such an efficiency defense – perhaps owing to a lack of guidance and significant uncertainty. To this end, the FCO advocated in the recent background paper including case examples and clearer guidance for the efficiency defense in the EC's revised vertical guidelines.
This trend towards an "appreciability standard" is not apparent in France. The cases that the FCA has dealt with so far were treated as by object restriction with no particular consideration regarding the appreciability of the conduct – it being noted that the cases in question were generally rather straightforward and therefore did not require in-depth analysis.
Whether RPM is to be treated as a restriction by object or by effect in Poland is currently quite unclear – not because of UOKiK but because of the courts.
While RPM is traditionally looked at as restriction by object, two recent events suggest that this may be changing. First, in a 2011 ruling, the Polish Supreme Court said that RPM should be dealt with under the rule of reason analysis. Second, in 2014, the UOKiK did conduct a full-blown rule of reason analysis (even though it did find that, in that particular case, the premises were not met).
However, it is unclear whether this marks the beginning of a new trend since (1) the UOKiK did not adopt any new decision since then and, (2) a 2018 ruling of the Polish appeal court suggests that the authority should conduct a by-effect analysis, but a motion of cassation was filed against it.
Closing statement: is the current enforcement paradigm against RPM adapted to the digital era?
In conclusion, all speakers agreed that the current enforcement stance against RPM is not adapted to the digital era.
Specifically, one may argue that these rules jeopardize the very existence of the diverse brick and mortar shops in the centers of European cities while putting the EU at odds with other jurisdictions that either do not enforce RPM or look at it under a 'rule of reason' analysis. Further, RPM may generate pro-competitive effects by improving product distribution and fostering innovation.
It is hoped that the ongoing review of the VBER will generate a healthy and open debate on the rationale behind prosecuting RPM as by object violations of EU and national competition rules.
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