One of the major components of a brand’s marketing mix is its price positioning. From a commercial point of view, it is important that suppliers can determine their price positioning on the market to be able to continue to adapt to the economic environment, prevent resale prices which are inconsistent with their brand image, combat excessive prices or simply ensure their economic balance through an adequate price position on the market. In addition, resale prices which are too low can lead to demands for reductions from the network and this in turn destroys investment capacity.
However, from a legal point of view, suppliers who interfere in distributors’ pricing policy are severely sanctioned. Minimum resale price fixing is regarded as a hardcore restriction of competition giving rise to the loss of the exemption provided for by the vertical restraints regulation (EU Regulation No 330/2010) and is unlikely to qualify for individual exemption either. How much room for maneuver do suppliers still have when commercial necessity forces them to exercise a strong influence on resale prices in their network and they are faced with the legal risk related to the prohibition of resale price maintenance?
1. Never include terms imposing resale prices in contracts.
First of all, suppliers should take care to avoid making any contractual agreement with distributors which restrict the buyer’s capacity to set his own resale prices. Contractual terms of this type constitute immediate proof of a restrictive agreement. Although it is unusual nowadays for contracts to contain such terms, it does still happen.
2. Only use maximum or recommended resale prices.
Although Regulation No 330/2010 classifies resale price maintenance as a hardcore restriction (black clause), the provision is “without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by any of the parties”. Where the supplier has a large market power, maximum or recommended prices can nonetheless generate anticompetitive effects that must be analyzed carefully by suppliers and their legal advisors.
3. Be very cautious of the possibilities of exemption for resale price maintenance (RPM) announced by the Commission.
In the guidelines on vertical restraints, the Commission considers that RPM can benefit from an exemption under Article 101(3) TFEU where during the introductory period a manufacturer introduces a new product, to organize in a franchise or a similar distribution system a coordinated short term low price campaign to allow retailers to provide additional pre-sales services, in particular in case of experience or complex products. However, the practical effects of these theoretical assumptions are relative, as the fixing of resale prices remains a hardcore restriction which is subject to a twofold negative presumption: as an anticompetitive restriction by object, it is highly unlikely that such a restriction will be individually exempted.
4. Be aware that the position of the Commission and of the Member States is tougher than that of other legal systems.
Importing of the American approach cannot be done without caution. In effect, RPM is much easier to defend under US law by reason of the Colgate doctrine, which established a broad view of the concept of unilateral behavior, and of the position of the US Supreme Court in the 2007 Leegin case which replaced the per se prohibition by the adoption of a rule of reason standard in assessing RPM. In 2014 Australia was the first jurisdiction to grant an exemption for a practice of resale price maintenance.
5. Ensure staff receive training on the constraints of the French triple test – applied more strictly in France than under EU law.
In the absence of any contractual stipulation imposing prices, the Competition Authority will apply the “triple test” to establish RPM. It is sufficient that resale prices have been discussed (recommended prices, for example), that the prices discussed or recommended have been significantly applied and that the supplier or distributor has put in place mechanisms to impose the prices charged.
In reality, this triple test is reduced to a single test – the action or pressure on commercial partners to impose prices – since the first two elements are lawful. The French courts will thus establish RPM with little difficulty. It is sufficient that certain points of sale, even if they only constitute a very small minority of the network, have been subject to pressure from the supplier (CA Paris, 4 April 2006, LawLex061057).
On the other hand, according to the case law of the EU, drawing up recommended prices, expressing concern to distributors about the low price levels, organizing meetings for concerted actions within the network and sending targeted letters to specific distributors asking them to increase their prices, does not constitute a coercive measure capable of characterizing a restrictive agreement (ECJ, Case T-67/01 JCB Service v Commission, Judgment of 1 Jan. 2004).
6. Do not react to demands for intervention from distributors.
Such requests can come from neighbors of a network member accused of charging too low prices. Suppliers must inform them that they cannot intervene.
7. Make sure you can provide proof.
In the event of an investigation, the supplier should collate all evidence of prices charged by the distributors which are lower than the recommended prices in order to fight examples of any adherence with fixed prices that the authorities may have found.
Although the law applied in France on RPM does not correspond to current economic thinking on the issue, suppliers will have to remain vigilant and proceed with great caution.