Legal evaluation and practical approach for the assessment of vertical restraints Autorità Garante della Concorrenza e del Mercato
6 March 2014
Vito Auricchio –
Matteo Padellaro –
Table of contents
Resale price restrictions
Hub & spoke agreements
On‐line sales
Price parity clauses
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Resale price restrictions
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Recent RPM cases enforced by NCAs in the EU
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The legal framework
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Art. 101 TFEU
"1. The following shall be prohibited as incompatible with the internal market: 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, and
in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions“
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Art. 4 Regulation 330/2010
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Guidelines on Vertical Restraints (parr. 48, 223‐229)
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Art. 2 (2) Law 287/90
"Agreements are prohibited between undertakings which have as their object or effect
appreciable prevention, restriction or distortion of competition within the national market
or within a substantial part of it, including those that:
a) directly or indirectly fix purchase or selling prices or other contractual conditions"
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The legal standard
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RPM is a hardcore restriction.
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If an agreement includes a RPM provision, the entire agreement is presumed to fall within
Art. 101 (1).
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It is also presumed that the agreement is unlikely to fulfil the conditions of Art. 101 (3).
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It is up to the companies to demonstrate that the conditions of Art. 101 (3) are met.
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The rule in general
The supplier may impose a maximum resale price or recommend a resale price.
→ however, it does not have to correspond to a fixed or a minimum sale price.
Maximum or recommended prices are exempted provided that the market share of each of the
parties to the agreement does not exceed the 30% threshold.
RPM may be used in certain exceptional circumstances, provided that the conditions of Art. 101
(3) are met.
In between these rules, there are a number of grey areas, that are analysed below.
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Choosing the pricing strategy
Can a supplier oblige the reseller to apply a given price?
No
“The exemption (…) shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object:
(a) the restriction of the buyer’s ability to determine its sale price” (art. 4, (a) VBER).
Solar and Wind Inverters
suppliers.
(2013) retailers had to abide by minimum prices set forth by the
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Giving price instructions to a reseller
Can a supplier provide a discount or a bonus to the reseller for applying recommended prices?
No
"making the grant of rebates or reimbursement of promotional costs by the supplier subject to the observance of a given price level" (Vertical Guidelines, par. 48).
Enervit
(2013) the supplier granted an extra‐rebate to retailers that sticked to
recommended prices.
Psispsikas/Renault
(2012) the manufacturer granted “quality” bonuses to retailers for the
application of recommended prices.
Bayer Vital
(2008) the supplier offered to the pharmacies an additional rebate for the
positioning of its products as premiums, and for the maintenance of its price recommendations.
Polifarb
(2006) the supplier granted to retail chains discounts on the sell‐in price for
respecting suggested prices.
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Influencing the discount policy of the reseller
Can a supplier set a floor (of discount) below which the retailer cannot go?
No
“fixing the maximum level of discounts the distributor can grant from a prescribed price level". (Vertical Guidelines, par. 48)
IMS Sofa
(2012) the retailers were allowed to apply discounts not greater than 3%.
Mercedes
(2002) the car manufacturer had set a maximum discount level of 3% for
retailers, below which supplies would have been interrupted.
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Defining the promotional initiatives
Can a supplier limit the promotional initiatives of the distributor?
Not really
Sfrinks Polska
(2013) retailers were forbidden to introduce promotion campaigns without
prior consent of the manufacturer.
Lladro Commercial
(2003) the manufacturer prevented resellers from mentioning in the
promotional material the application of discounts.
Littala
(2011) the manufacturer, amongst others, had fixed the maximum length of
promotional campaigns.
BBS
(2012) the manufacturer directed retailers as to moment in which to launch
promotional campaigns and which products to include.
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Choosing the resale channel
Can a supplier prevent the retailer form using a given sales channel (internet, mail orders, etc.)?
In principle, no
BBS
(2012) the supplier prevented retailer from making sales through internet or mail
order without the supplier’s prior consent.
Master Cycle
(2006) the supplier prohibited to retailers to sell to discount dealers.
However, in specific circumstances, yes
In a selective distribution system, sales to unauthorized dealers can be prohibited (Art. 4 (b) (iii)
VBER).
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Monitoring the activity of the reseller
Can a supplier recommend prices and monitor such prices?
In principle, yes
Par. 48 of the Vertical Guidelines identifies price monitoring system as a mechanism to make vertical
price fixing more effective, but not a per se element from which to infer RPM.
Can a supplier monitor retail prices (or be informed by retailers of such prices) and then intervene to bring them in line with his recommendations?
No
Luxury Perfumes
(2006) the suppliers, after being informed by retailers of price‐cutting
resellers, would intervene vis‐à‐vis such resellers.
Ciba Vision
(2009) the supplier monitored retail prices and intervened in “critical” situations.
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Structuring the retail price
Can a supplier provide that the recommended retail prices of his products be linked to those of competitors?
No
Imperial Tobacco
(2010) some of the manufacturer’s brands prices would be linked to
those of competing brands of another manufacturer. The retailer would then match the brands
price changes with those of its rival’s equivalent brands.
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Redefining the pricing policy
Can a supplier resort to RPM in exceptional circumstances?
Yes
→ introduction of a new product, during the initial phase of the launch of the product;
→ coordinated short term (2‐6 weeks) low price campaign in a franchise or similar distribution
system;
→ to avoid a fee‐riding in the provision of (additional) pre‐sales services for experience or
complex product.
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On‐line sales
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1. Overall enforcement scenario of online sales restrictions European Commission and NCAs’ main decisions/investigations
Commission investigation on onlines sales of consumer electronic products and small domestic appliances Several investigations/decisions in France and Germany
Recent moves by other NCAs, including the Italian, UK and Polish Authorities
Other cases to come soon (price parity clauses imposed by online platforms are under scrutiny by several competition authorities)
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2. Setting up a distribution system
The Four Main Parties
Suppliers
Pure on‐line distributors
«Brick & Mortar» distributors
Third Party Platforms
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3. Dealing with pure on‐line resellers
Can a supplier exclude online pure players from its system?
Yes
Freedom to trade is the basic principle (par. 75, Guidance on the Commission's enforcement priorities)
Brick and mortar shop clauses are explicitly allowed (par. 54 Guidelines)
But
Festina, Hi Fi, Produits
Cosmetiques
No safe harbor outside the Block Exemption (see par. 188 of the Guidelines and the EU case law on discounters)
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4. Dealing with the appointed dealers
Can a supplier prevent its appointed distributors from resorting, at least partially, to the online channel?
No
Guidelines par. 52 “every distributor must be allowed to use the internet to sell products”
Pierre Fabre (2009/10 ‐ 2013): restriction by object
Bang & Olufsen (2012)
Roma Medical Aids Limited (2013):
Royal Canin Polska (2014)
BBS (2012)
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5. Dealing with Third Party Platforms
Can a supplier prevent distributors from selling through third party platforms?
Yes, but…
“a supplier may require that its distributors use third party platforms […] only in accordance with the minimum quality standards! (par. 54 Guidelines)
Flexible
Strict
approach
approach
Scout (2009)
Amer Sport Products
(2008)
Puma (2008) Sternjakob (2013)
Sennheiser (2013)
Camera Producer (2013)
Adidas: open/closed platforms ( investigation opened in 2013)
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Hub & Spoke agreements
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The general framework
Supplier
A
Distributor 1
Distributor 2
…from a purely vertical scenario...
Distributor 3
Supplier
A
Distributor 1
Distributor 2
…to a trilateral/horizontal scenario….
Without any direct contact between the distributors.
Distributor 3
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How can it work in practice?
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A supplier can act as a “hub” by collating and distributing information about the future price
(or other commercial conditions) intentions of its retailers (“spokes”).
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Retailers gain advance knowledge of the price intentions of their rivals, without need for
direct horizontal contacts.
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At all stages of production/distribution chain: manufacture, wholesale, retail, etc.
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All commercial conditions: prices, discounts, payment terms, etc.
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The constituent elements of Hub & Spoke agreements
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There has to be a conduct and a mental element.
i.
retailer 1 discloses to supplier A its future pricing intentions;
ii.
1 may be taken to intend that A will make use of that information to influence market
conditions by passing that information to other retailers (of whom retailer 2 is, or may
be, one);
iii. A does, in fact, pass that information to retailer 2;
iv. retailer 2 may be taken to know the circumstances in which the information was
disclosed by A to retailer 1; and
v.
retailer 2 does, in fact, use the information in determining its own future pricing
intentions.
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So, the finding of a hub & spoke agreement depends on a series of elements that transform
a vertical relationship into a horizontal one.
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However, cautions approach because many vertical information exchanges are perfectly
legitimate (General Court, JCB, T‐67/01).
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The legal framework
“[any] exchange of information between competitors is liable to be incompatible with the competition rules if it reduces or removes the degree of uncertainty as to the operation of the market in question, with the result that competition between undertakings is restricted” (Court of Justice, T‐Mobile, C‐8/08).
Horizontal
Anticompetitive information exchange “indirectly
(…) through the companies’ suppliers or retailers” is in breach of Art. 101 (Horizontal Guidelines, par. 55).
"Strong or well organized distributors may be able to force or convince one or more suppliers to fix their resale price above the competitive level and thereby help them to reach or stabilise a collusive equilibrium“ (Vertical Guidelines, par. 224)
Vertical
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Defining the pricing policy
Can a distributor (1) say to a supplier (A) that it will increase the retail prices of product X only subject to distributors 2 and 3 increasing their prices too?
No
Toys
(2003) Replica Football kit
(2013) Rewe
(2013) conducts of this type accompanied by
the fact that the supplier had coordinated price increases among distributors, have been considered a
constituent element of a concerted practice aimed at increasing retail prices.
The same conclusion would apply in case a distributor (1) says to a supplier (A) that it will accept the latter’s
sell‐in price increase on condition that another distributor (2) increases its retail prices, and the supplier
coordinates the price increases.
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Disclosing conditions obtained by a supplier
Can a distributor (1) disclose to a supplier (A) the price (or other relevant commercial conditions) applied by another supplier (B) in order to obtain better conditions?
Yes
Discussions between a supplier and a distributor are normal in a vertical relationship (General Court,
JCB, T‐67/01) and, if aimed at allowing the distributor to obtain better economic conditions are even
pro‐competitive (
Autorité de la concurrence, Ethudes thématiques 2009, pag. 135).
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Disclosing the future price policy by a retailer to a supplier
Can a distributor inform a supplier of the date on which it intends to increase the retail prices of certain products?
In certain circumstances, yes
If the supplier manufactures private label products (or products with price‐on‐pack), there might be a
legitimate commercial reason for the retailer informing the supplier of the date of the retail price
increase (Diary
judgment of CAT 20.12.2012, par. 238).
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Adopting an indirect “commitment” with my competitors
Can a price parity clause be introduced in parallel in a relationship between several suppliers and several distributors?
Not really
Publisher 1
Publisher 2
Publisher 3
Publisher 4
Publisher 5
Price Parity
Distributor 1
Distributor 2
eBooks
(2013) the Commission found that, in the circumstances of the case, a price parity
clause providing that each of the publishers would have to match on Apple's iBookstore any
lower prices available for the same e‐book titles from other online retailers worked as an
incentive for publishers to make sure that e‐books prices were not too low.
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Who can be the hub?
Can a retailer be the hub?
Yes, he can
Toys’r’Us
(2000) Toys’r’Us informed each of the major toys manufacturers that he would have
purchased products from them on condition that they would have not sold the same product to the
discount channel.
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Behavior that a supplier must pay attention when he speaks with his retailer
A supplier cannot:
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coordinate the timing and the content of the promotional activities of several distributors
promise a distributor (1) a prize/bonus/discount in case the latter informs the supplier of
deviations from recommended prices by another distributor (2)?
In the consultation document od the Austrian NCA on vertical and trilateral price fixing (17.06.2013),
the above is classified as illegal conduct.
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Establishing the liability for the infringement
In the case of triangular exchange of commercially sensitive information, can a supplier avoid liability because he was only “conveying” information useful to retailers?
No
AC‐Treuhand (General Court, 8.07.2007, T‐99/04) a consultancy firm that organized cartel meetings
was found liable of infringing Art. 101 TFUE as it supplied a fundamental contribution to enforce the
cartel.
Can a supplier or a retailer avoid liability by saying that the price increase benefited third parties?
No
Diary (
2011) the fact the retail price increase of certain diary products had been introduced
with the intention of passing the proceeds to UK diary farmers, and that producers and retailers made
limited (if any) financial gain, was not considered to exclude liability of the latters.
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Thank you
Vito Auricchio
[email protected]
Matteo Padellaro
[email protected]
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