Around The World Enforcement
Update on Resale Price Maintenance
July 11, 2016
Presented by: Pricing Conduct, Corporate
Counseling, and International Committees
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Introduction to Panelists
• Speakers:
– Chris Zammit, Senior Counsel, Fiat Chrysler Automobiles
– Julie Soloway, Partner, Blakes, Cassels & Graydon LLP
– Marcio Dias Soares, Partner, Mattos Filho, Veiga Filho,
Marrey Jr e Quiroga Advogados
– Didier Théophile, Partner, Darrois Villey Maillot Brochier
• Moderator:
– Thomas York, Associate, Jones Day
3
Resale Price Maintenance
Resale price maintenance (RPM), or vertical price fixing,
refers to agreements between participants at different
levels of the market structure to set the resale price of
products or services.
– Vertical, not horizontal, agreements.
– Two types:
• Minimum RPM: agreements that set prices below which goods
cannot be resold.
• Maximum RPM: agreements that set prices above which goods
cannot be resold.
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An Update on U.S. Resale Price
Maintenance
The arc of RPM law is long, but does it
bend toward the rule of reason?
Chris Zammit
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A Brief History
• 1911 – Dr. Miles: All RPM Agreements Per Se unlawful
• 1919 – US v. Colgate: Not RPM if no “agreement” with
distributor, but merely unilateral refusal to deal
• 1968 – Albrecht v. Herald Co: Dr. Miles explicitly applied to
Maximum RPM agreements, but with notable dissent
• 1990 – Atlantic Richfield Co. v. USA Petroleum Co.: Per se
rule for Maximum RPM upheld, but language indicates
change to come.
• 1997 – State Oil v. Khan – Dr. Miles overruled for Maximum
RPM, applies rule of reason
6
The Arc hits a Snag?…
• 2007 – Leegin Creative Leather Products v. PSKS, Inc.: US
Supreme Court overrules Dr. Miles for Minimum RPM and
applies rule of reason
• But…
– Opposition from some lawmakers
– Opposition from some retailers
– Some states, in laws and courts, show resistance
7
Where we are today
• Some states have explicitly refused to follow Leegin, either by
statute or case law
• Some states have followed Leegin, either by statute or case
law
• Most states have not specifically addressed the issue
• The federal antitrust agencies have provided limited guidance
• Bottom line: the legal landscape is far from clear
8
The Contact Lenses Cases
• Started when Johnson & Johnson instituted a minimum RPM
policy in 2014 applicable to all resellers
• Unique market
– Contact lenses are prescribed by eye care professionals
(“ECPs”), who publicly advocated for RPM policies
– The prescription is tied to a brand
– Contact lenses are resold to consumers by both ECPs and by
other retailers
– Limited number of manufacturers for contact lenses who also
adopted similar RPM policies
9
The Contact Lenses Cases (con’t)
• Costco objected to the policy
– Filed suit in March 2015
• Costco’s lawsuit alleged minimum RPM presumably in
violation of the rule of reason under Leegin
– Alleged that J&J instituted the RPM policy at the request of
ECPs
• J&J moved to dismiss Costco’s claims in April 2015, seeking
to characterize it as a Colgate policy
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The Contact Lenses Cases (con’t)
• J&J and Costco agreed to dismiss the case in May of 2016
after J&J said it was repealing the RPM policy
• But not before…
– Dozens of actions were filed, resulting in an MDL action in
Florida with over 50 classes of putative plaintiffs;
– Utah passes a law prohibiting contact lens manufacturers and
distributors from entering into minimum RPM programs; and
– The Maryland Attorney General’s office filing a complaint.
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Maryland Attorney General Action
• Filed on February 29, 2016
• Seeks injunctive relief and civil penalties for J&J's ongoing
violation of Maryland statute prohibiting minimum RPM
• Given statute that does not follow Leegin, complaint focuses
on failure to meet Colgate requirements
• Attaches email between Costco and J&J indicating
agreement, between companies, not unilateral conduct
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Counseling Pointers On RPM
• For a national program especially, stick to pre-Leegin
counseling
– Will MSRP, MAP, Showroom requirements or other policy with a
more established legal landscape meet the same goals?
• Remind yourself, rule of reason does not mean per se lawful
– Inquire deeply into the business desire for the RPM program
– What is the possibility of concerning discovery?
13
Counseling Pointers On RPM
• Colgate policies are good in theory, but difficult to implement
in practice
– Unilateral is a pretty difficult test to meet
– Will your sales personnel actually refrain from discussing policies
with distributors or dealers?
– Can you easily terminate the distributor or dealer in practice?
• MD action indicates at least some appetite by states to
enforce
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Price Maintenance in Canada
Section 76 of the Competition Act
Julie Soloway
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Price Maintenance in Canada
• Section 76 of the Competition Act (the “Act”) prohibits price
maintenance where the conduct is having or is likely to have
an adverse effect on competition in a market
– Prior to 2009, price maintenance was a per se criminal offence
– 2009 revisions de-criminalized price maintenance and
introduced “adverse effect” standard
• Application of new provision still subject of debate
– Only one RPM case has been prosecuted by Commissioner of
Competition under revised 2009 rules
− New 2014 guidelines provide insight as to Commissioner’s
approach to enforcement
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Prohibited Conduct
• Suppliers may not engage in conduct that would influence
upward or discourage reduction of prices
– Can include minimum resale prices, MSRP, MAP, refusal to
supply or inducing a refusal to supply because of a person’s low
pricing policy
– Must also establish a resale of substantially the same product
and show that the conduct is likely to have an “adverse effect on
competition”
• Applies to suppliers of a product as well as persons who are
engaged in a business relating to credit cards and persons
with exclusive rights (e.g. patent, trademark, copyright)
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Adverse Effect on Competition
• To be subject to s.76, conduct must have an adverse effect
on competition in a market
• “adverse effect on competition” standard not defined by
statute; interpretation still unsettled
– “adverse effect” is lower threshold than “substantial prevention or
lessening of competition” used elsewhere in the Act (e.g.
mergers & abuse of dominance provisions)
– In Visa/Mastercard (2013) and Nadeau Poultry (2009),
Competition Tribunal held that an “adverse effect” exists where
the conduct has the effect of creating, preserving or enhancing
market power
– Bureau approach generally associates market power with share
>35% (though dependent on characteristics of
relevant market)
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Key Cases
Visa / MasterCard (2013)
Nadeau Poultry (2009)
•
•
•
Nadeau Poultry Farm applied for order
under “refusal to deal” provision seeking
to direct a supplier to supply live chickens
on usual trade terms
Tribunal considered meaning of “adverse
effect on competition” under the Act and
found that “without market power there
can be no effect on competition”
Considered following factors re market
power:
•
•
•
•
•
•
•
Market share and market concentration;
Barriers to entry;
Impact on prices;
The effect of the refusal on rivals' costs;
Impact on quality and variety of the product;
Foreclosure to other customers
Possible elimination of efficient competitor
•
•
•
Commissioner applied for an order
prohibiting Visa and Mastercard from
enforcing certain rules including those
prohibiting merchants from declining
certain cards or applying a surcharge
for credit card use
Tribunal confirmed approach to market
power set out in Nadeau Poultry
applies to s.76 inquiry
“market power” is the “ability to
profitably maintain prices above the
competitive level, or to reduce levels of
non-price competition (such as
service, quality or innovation) for an
economically meaningful period of
time”
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Enforcement
• Enforcement action can be brought by the Commissioner after the
Bureau’s own investigation or in response to complaints
– Allegations are evaluated on a case-by-case basis, with a mind for
market-specific characteristics; parties provided opportunity to respond
to Bureau concerns
– Bureau will compare level of competitiveness in absence of conduct to
level with conduct to determine whether conduct creates, preserves or
enhances market power
• Bureau follows approach used in abuse of dominance, merger review for
market definition and competitive assessment
• Typically no market power where shares <35%
• Affected parties may also apply directly to the Tribunal, with leave
– Leave will be granted if the Tribunal has reason to believe that the
applicant is directly affected by any conduct referred to in s. 76 that
could be subject to an order
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Remedy
• No fines, damages, or imprisonment possible
• Tribunal has discretion to make an order:
− Prohibiting supplier from continuing to engage in the conduct
− Requiring supplier to accept the other person as a customer within a
specified time on usual trade terms
• Even if statutory requirements are met, Tribunal may elect not to
make an order
− In Visa/MasterCard, Tribunal indicated that even if elements were made
out, Tribunal would have elected not to make an order because the
issues identified in the credit card system were complex and better dealt
with by regulation
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Recent developments on RPM:
Brazil and South America
Marcio Dias Soares
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Brazil
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Brief History
• 1997 – Kibon case (No. 0148/1992): RPM analyzed under
the rule of reason.
– Merely price recommendation (noncompliance had no
consequences) associated with Kibon’s lack of market power.
• The Brazilian antitrust authority, (“CADE”) reproduced the
same rule of reason analysis on later cases:
–
–
–
–
–
1999 – Ferrero do Brasil consultation (No. 0046/1999);
1999 – Volkswagen case (No. 0089/1992);
2011 – Publishers case (No. 08012.001743/2002-40);
2011 – Everest case (No. 08012.009674/2008-16); and
2012 – Ambev case (No. 08012.001626/2008-71).
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SKF case
(No. 08012.001271/2001-44)
•
In 2013, CADE changed its approach: CADE established that minimum
resale prices are presumed to be illegal (competition restriction by object).
– Defendants would nonetheless be able to put forward an efficiency defense
(having the burden of proof to do so).
– Non-unanimous conclusion: One Commissioner voted that RPM should be
reviewed under the rule of reason.
•
SKF filed a nulity claim against CADE’s decision.
– CADE’s decision was overturned, as the court found that CADE changed the
way it reviewed RPM without prior warning.
– CADE filed an appeal to reinstate the fine against SKF, which is still waiting for
trial.
•
Same approach followed on Sinditanque case (No. 08012.007002/200949).
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Possible change of approach?
•
Shell/Raízen – São Carlos case (No. 08012.004736/2005-42).
– Conduct: interference in the fuel distribution.
– No evidence of minimum RPM.
– Dominant position: Shell was capable of demanding exclusivity from distributors
and influencing the final prices.
– Two of the four Commissioners who voted followed a rule of reason approach.
• One of them stated that CADE was not reviewing its minimum RPM
standard.
•
Shell/Raízen – Marília and Bauru case (No. 08012.011042/2005-61).
– Conduct: coercing filing stations to raise prices and to collude with rivals.
– Rule of reason: One Commissioner examined whether it was justified for Shell to
set minimum RPM to protect its brand and whether any efficiencies arose from
the conduct.
– Shell found guilty: lack of efficiencies combined with market power and
mechanisms to influence the market
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South America
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Colombia
•
Recent change of approach by the Colombian antitrust authority (“SIC”).
•
Until 2012: RPM ilegal per se.
– Adiconar (Res. 25420/02);
– Casa Luker (Res. 8231/01); and
– Gabrica (Res. 8310/03).
•
2013 – Res. 48092/12
– Conduct: influence of a TV manufacturer on distributors’ prices.
– SIC established that the case’s analysis should take into account which type of
restriction the conduct could give rise to.
– Indication that RPM would be assessed on a case-by-case basis.
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Colombia (cont’d)
•
2014 – Gazel II and Perfumes: RPM not unlawful if defendant is able to
prove that the conduct gave rise to pro-competitive benefits.
•
2015 – Roa Florhuila (Res. 16562/15)
– Conduct: influencing rice distribution resale prices.
– SIC established that RPM is not an anticompetitive conduct per se, as it
can give rise to pro-competitive effects as well.
– The company under investigation has the burden of proof on any
efficiency-related argument.
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Latest Developments on RPM:
European RPM cases and issues
Didier Théophile
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Summary
 The EU legal framework – Article 101(1) TFEU
 Exemption under Article 101(3) TFEU
 De Minimis Notice
 EU case law on RPM
 European level
 National level
 Conclusion
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The EU legal framework - Article 101(1) TFEU
•
Definition of RPM
–
–
•
Article 101(1) TFEU: provides that “all agreements between undertakings, decisions by
associations of undertakings and concerted practices which may affect trade between
Member States and which have as their object or effect the prevention, restriction or
distortion of competition within the internal market” are prohibited. RPM is an example of
such agreement which “directly or indirectly fix purchase or selling prices or any other
trading conditions”.[1]
The European guidelines on vertical restraints: provide that “… agreements or
concerted practices having as their direct or indirect object the establishment of a fixed or
minimum resale price or a fixed or minimum price level to be observed by the buyer...” [2]
Per se rule – rejection of the rule of reason
–
Restriction by object:
• If the intention with the agreement is anti-competitive, there is no need to assess its
actual effects.[3] The agreement falls per se under Article 101(1) TFEU.
• May benefit from an exemption under Article 101(3) TFEU.
[1] Article 101(1)(a) TFEU
[2] Guidelines on vertical restraints 2010/C
130/01, para 223.
[3] Case C-209/07 Beef Industry, para 16.
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Exemption under Article 101(3) TFEU
•
Article 101(3) TFEU
–
1.
2.
3.
4.
–
•
Criteria to be met: the agreement needs to meet the following criteria in order to be granted
the exemption under article 101(3) TFEU:
It contributes to improving the production or distribution of goods or to promoting technical or
economic progress
It allows consumers a fair share of the resulting benefit
It does not impose on the undertakings concerned restrictions which are not indispensable to
the attainment of these objectives
It does not afford those undertakings the possibility of eliminating competition in respect of a
substantial part of the products in question.
In practice: No exemption under article 101(3) TFEU has been granted.
De Minimis Notice
–
Appreciable effect:
• Companies whose market shares do not exceed 10% for agreements between
competitors or 15% for agreements between non-competitors are considered to not
have an appreciable effect.
• Does not apply to hardcore restrictions: The De Minimis Notice was revised in 2014
to reflect the developments in the Expedia case.
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EU Case law on RPM (1/3)
•
Limited number of cases at EU level
•
RPM cases at EU level
–
PO/Yamaha - 2003:
• Yamaha signed an agreement, containing RPM clauses, with its dealers in Italy, Austria and
the Netherlands.
• Hardcore restriction of the type referred to in regulation No 330/2010.[4]
–
Volkswagen - 2001:
• Urged its distributors to maintain price discipline in respect of a car model.
• Restriction of intra-brand competition in terms of prices.
• The Commission’s decision was annulled by the Court of Justice – an agreement could not be
established within the meaning of Article 81(1) [now article 101(1)].
–
Pedro v Total - 2009:
• Exclusive supply agreement as regards petroleum-based products.
• Necessary to value all the contractual obligations in the economic and the legal contexts when
determining whether such obligations constrain the reseller.
• Up to the national court to assess.
[4] Commission regulation (EU) No 330/2010 of 20 April 2010,
Article 4.
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EU case law on RPM (2/3)
•
RPM cases at national level
–
UK - June 2016:
• Fridge supplier was fined for restricting online discounts and for operating a minimum
advertised price policy online. Threatened dealers with sanctions if advertising below the
advertised price.
• Advertised price policy constituted RPM – prevented dealers from decide their own price.
–
Germany - February 2015:
• Mattress supplier was fined for imposing resale price maintenance on its retailers.
• Informed retailers that the products concerned were to be sold as “fixed price goods”.
• Only non-binding price recommendations are legal.
–
France – June 2013:
• 13 luxury perfume and cosmetic manufacturers and 3 national distribution chains were fined
for entering into price fixing agreements.
• Anticompetitive agreements: agreement of “recommended resale price” between the suppliers
and its distributors followed by a “pricing control system”.
• The decision of the French competition authorities was upheld by the Cour de Cassation in
2013.
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EU Case law on RPM (3/3)
•
Few exceptions at national level
–
Hungary - 2008:
• Büki (soft drink wholesaler) had concluded agreements with restaurants for a period of 1-3
years, containing RPM clauses for an energy drink.
• Clauses may be legal or illegal depending on their effect on the market.
• Economic approach: Not entitled to hold that a RPM obligation infringes article 101(1) TFEU
without analyzing whether the agreement actually has anti-competitive effects.
–
Bulgaria - 2006:
• Insurance companies did not breach antirust rules by adopting a minimum tariff for Green
Card Insurance.
• Only considered anticompetitive in case of anticompetitive effects on the market.
• Possible application of the exemption criteria under national Bulgarian law.
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Conclusion
• Strict approach towards RPM
– The Commission recognizes some positive effects:
• To solve a free-rider problem
• To open up or enter new markets
• Uniformity and quality standardisation
– However, as regards the EU case law, no exemption under article 101(3) TFEU
has been adopted.
• Remains a hardcore restriction
– RPM cases are assessed by the national authorities.
– The European treatment of RPM remains hostile.
[5] Guidelines on vertical restraints 2010/C
130/01, para 106-109.
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Questions?
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