On 12 July 2017, the German Federal Cartel Office (FCO) published a guidance paper (Guidance Paper) on the prohibition of resale price maintenance (RPM). The Guidance Paper has a particular focus on the food retail sector. At the same time, it offers good insights into the FCO’s current overall thinking on RPM. The FCO reiterates that companies engaging in RPM may be subject to severe fines. In addition, it is evident from the Guidance Paper that the FCO has a very broad understanding as to what may be considered as RPM.
WHAT HAPPENED:
- RPM describes a situation where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a certain (minimum) price.
- While RPM falls under the rule of reason under US Federal antitrust law, it is considered as a hardcore antitrust restriction in most European jurisdictions, as well as under some US State antitrust laws (cf. Maryland’s Attorney General’ recent challenge of RPM).
- The FCO is arguably the most active antitrust authority in terms of RPM. In recent years, it imposed fines for alleged RPM in a number of proceedings across various industries, including cosmetics, furniture, mattresses, tools and toys. In December 2016, the FCO imposed fines totaling € 260.5 million on 27 food retailers and food manufacturers.
- A number of authorities provided in the past guidance on RPM. For example, the European Commission addresses RPM in its Guidelines on Vertical Restraints, and in the United Kingdom, the CMA published in June 2017 a one-pager on RPM. The FCO’s Guidance Paper now offers very comprehensive and specific guidance on RPM, in particular, but not exclusively, with respect to the retail sector.
WHAT THIS MEANS:
- The Guidance Paper outlines the legal background of RPM. RPM can be present only if there is an agreement between at least two independent companies (g. supplier and independent distributor). RPM does not apply to supplier-owned distributors or agents.
- The FCO discusses at some length the economic background of RPM. It acknowledges that minimum or fixed prices may generate efficiencies. At the same time, the FCO indicates that such efficiencies will only in exceptional cases be sufficient to justify RPM.
- The Guidance Paper offers detailed guidance, including numerous examples, on various aspects of RPM:
- Agreeing on minimum or fixed prices is generally prohibited, while maximum prices usually do not raise any issues.
- Suppliers can recommend resale prices, as long as these prices are actually non-binding recommendations. The Guidance Paper provides various examples for situations where recommended resale prices are likely to be considered as binding. For example, the termination or refusal of supply may be considered as an indication that the supplier “punishes” the retailer for not respecting recommended resale prices.
- RPM does not only apply to straightforward agreements of resale prices, but similarly to aspects which may have an indirect impact on prices, in particular quantity management, promotion planning and guaranteed margins.
- The exchange of information on resale prices can be justified, as long as it is not used to monitor and / or coordinate pricing strategies. The FCO recommends particular caution with respect to the exchange of information about the retailer’s future prices or pricing strategies.
- The prohibition of RPM applies regardless to the size of the companies involved, and irrespective of market shares.
- The Guidance Paper will be helpful for all companies operating in Europe, and specifically Germany. It contributes to better understand potential pitfalls in relation to retailer pricing.
The Guidance Paper is currently only available in German. However, a draft version (dated January 2017) as well as a press release announcing the Guidance Paper’s publication on 12 July 2017 is available in English.
