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Too many suppliers seeking to control resale prices ignore that it may be unlawful, says expert

Out-Law News | 22 Jun 2016 | 2:56 pm | 2 min. read

Suppliers are trying to control the price their goods can be sold at by distributors in "too many contracts" and the practice is "almost invariably unlawful", an expert has warned.

Competition law specialist Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com, highlighted the problem as the UK's Competition and Markets Authority (CMA) warned both suppliers and retailers that it is prepared to take enforcement action to clampdown on resale price maintenance (RPM) in online markets and shops.

RPM is a form of 'vertical' price-fixing involving parties at different levels of the supply chain, as opposed to price-fixing involving direct competitors.

The CMA has written an open letter (3-page / 232KB PDF) in which it warned that businesses that engage in RPM will be in breach of competition law other than in "very exceptional circumstances".

"Resale price maintenance (RPM) occurs where a supplier and retailer agree that the retailer will sell the supplier’s product at or above a particular price," the CMA said in its letter. "RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price."

"There are some very exceptional circumstances in which it may not be unlawful to specify retail prices and you may wish to seek independent legal advice on this point. However, in the majority of cases, RPM is illegal because it constitutes vertical price-fixing, preventing retailers from offering lower prices and setting their prices independently to attract more customers," it said.

Lougher said the CMA's letter "is a useful and timely reminder of the fact that it is almost invariably unlawful for a supplier to seek to control the resale prices of its distributors". 

"This principle applies regardless of whether the products are sold online or through bricks and mortar outlets," Lougher said. "The legal principle is clear, but we still encounter too many contracts in which the supplier is engaging in resale price maintenance. The CMA’s recent infringement decisions make it clear beyond any doubt that resale price maintenance, whether for online or offline sales, is unlawful and will attract fines."

The CMA had highlighted concerns about retail price maintenance (RPM) practices last month after imposing a fine of £2.3 million on a fridge supplier over conditions the company placed on the resale price of its products for internet sales.

The CMA said ITW Ltd, through its Foster Refrigerator division, had employed a ‘minimum advertised price’ policy that restricted the price that its goods could be advertised for online by distributors. The company threatened to charge its dealers "higher cost prices for Foster products" or to stop supplying the products altogether if the distributors advertised the fridges below the minimum price, the CMA said at the time.

The CMA also fined a bathroom fitting company £786,668 for engaging in RPM. It served the penalty on Ultra Finishing Ltd after the company threatened to penalise online retailers for not pricing its products at or above its 'recommended' prices.

According to new CMA research, however, less than a third of the businesses it surveyed (29%) knew that it is generally unlawful for them to set the price at which others can resell their products. The CMA said approximately a third of businesses said they think the practice is legal and that a further 37% of companies were uncertain of the rules.

Ann Pope, CMA senior director, said: "Price competition from online sales is usually intense, given the ease of searching on the internet. RPM, by preventing retailers from offering discounted prices, denies buyers the benefit of the lower prices and increased quality that comes from genuine competition."

"The CMA is strongly focused on enforcing competition law to ensure that digital and online markets are working as they should be, across all sectors, for the benefit of consumers. The CMA is issuing this advice so that all businesses know what to look out for when dealing with the supply and retail of products, whether this is online or via traditional ‘bricks and mortar’ stores," she said.

In its letter the CMA pointed out that retailers as well as suppliers could be found liable for breaching competition rules by engaging in RPM.