On June 29, 2023, the Court of Justice of the European Union (CJEU) delivered a preliminary ruling in the Super Bock Bebidas vs. Autoridade da Concorrência case (C-211/22) on the questions referred by the Tribunal da Relaçao de Lisboa (Lisbon Court of Appeal). To some extent, the recent judgement is not particularly noteworthy or innovative, as it mainly applies well-established EU competition law principles prevalent through existing case law. However, the Super Bock case marks a significant step forward by introducing these principles for the first time in the context of vertical price-fixing agreements.
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.
On February 29, 2016, the Attorney General of Maryland filed a complaint alleging that Johnson & Johnson Vision Care, Inc. (Johnson & Johnson) violated the Maryland state antitrust law by entering into an agreement with a retailer regarding a resale price maintenance (RPM) policy.
The complaint alleged that Johnson & Johnson initially instituted an RPM policy in response to objections from eye care professionals that they were losing business to discount retail stores, including Costco Wholesale Corporation (Costco), who were charging less than the eye care professionals to fill prescriptions for Johnson & Johnson’s contact lenses. Once Johnson & Johnson implemented its RPM policy, which fixed minimum retail prices for all retailer sellers of its contact lenses, Costco complained to Johnson & Johnson that the policy prevented Costco from offering discounted pricing on the lenses that its customers had come to expect. In response to Costco’s complaint, Johnson & Johnson entered into negotiations with Costco regarding the terms of its RPM policy. Ultimately, Johnson & Johnson agreed with Costco to amend its RPM policy to permit Costco to provide gift cards and other discounts to Costco customers who purchased Johnson & Johnson’s contact lenses from Costco. Johnson & Johnson then entered into similar RPM policy amendments with certain other retailers. (more…)
Recently Shanghai High People’s Court reached a decision in the first lawsuit involving resale price maintenance (RPM) since China’s Anti-Monopoly Law (AML) came into effect five years ago. Shortly thereafter, a key enforcement agency announced RPM-related fines against six milk powder companies, five of which are non-Chinese. Both cases clearly show that RPM can be a violation of the AML, and that RPM is currently under much greater scrutiny by enforcement authorities. It would be prudent for all foreign corporations active in China’s consumer markets to take heed of these changes in China and conduct an immediate review of any potential RPM violations.
“Distribution in China – Legal Issues” is a four-part series. Part I discussed the business models and legal structures most commonly used for distribution in China. Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities. Part III dealt with pre-contract matters of which negotiators of distribution agreements for China should be aware. Part IV outlines the main issues parties should take into account when drafting a distribution contract for use in China. These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.
Last week one of China’s antitrust regulators, the National Development and Reform Commission (NDRC), imposed fines of RMB419 million (+/- US$72 million) on two of the most famous producers of Chinese liquor, Moutai and WuLiangye. The fines were imposed for restricting the minimum price at which their distributors could resell the liquor. This was found to be illegal resale price maintenance. The fines are unprecedented in China and signal major new antitrust enforcement activity in the distribution of goods and in the alcoholic beverages sector in particular.
The fines imposed are at the lower end of the possible range of fines between 1% and 10% of each company’s annual revenues. It remains to be seen whether any of these companies’ customers or distributors will now start private actions in the Chinese courts to recover damages for breach of the antitrust rules. So far there have been over 60 private cases in Chinese courts against both foreign and domestic corporations for alleged breach of the antitrust rules.
Both the liquor companies are State Owned Enterprises (SOE) unlike the six Korean and Taiwanese companies who were fined by the NDRC in January the equivalent of some US $56 million for a price fixing cartel in the Liquid Crystal Display (LCD) market.
In general, foreign companies have largely ignored China’s antitrust rules as enforcement has been weak or non-existent and local subsidiaries of multinationals have down-played the risks. Clearly however, antitrust law in China can no longer be ignored. Many corporations with businesses in China are now scrambling to complete a China antitrust audit and put in place a robust compliance program to address questionable conduct. Those who don’t do so face the now very real risk of significant fines by the Chinese antitrust authorities.
The Kansas Supreme Court recently determined resale price maintenance is per se illegal under state law, becoming the latest state to reject the rule of reason standard mandated by the Supreme Court of the United States. The decision serves as a reminder that although a supplier’s pricing policies may be permissible under federal law, they may nevertheless be subject to per se condemnation under certain state statutes.
Subscribe
