At around the time of last month’s EU referendum, the Competition & Markets Authority (the UK’s competition watchdog) published guidance materials for suppliers, distributors, and retailers on the thorny issue of price-fixing. Given the recent political and economic upheaval, you would be forgiven for having missed it!
But the CMA’s guidance is crucial for suppliers, distributors and retailers, particularly those whose products are increasingly sold online. The risk of not knowing the law in this area is too great a risk to take. Businesses can be fined up to 10% of worldwide turnover for falling foul of price-fixing rules, and directors can be banned from running companies for up to 15 years. In very serious cases, directors can also be sent to prison for up to five years. In addition third parties who have suffered loss can sue for damages.
And it is not just price-fixing which is unlawful. Businesses which require retailers to sell at minimum prices are breaking the law.
It is also the case that the less obvious activity of suppliers which is designed to maintain prices is also likely to be unlawful. Examples of such activity are:
- restrictions on discounting; or
- threats or incentives to sell at a particular price.
In contrast setting a “recommended retail price” is lawful, as long as the recommended price is genuinely no more than a recommendation. If suppliers and distributors take steps to ensure retailers sell at no less than the supposedly “recommended” price, the line is crossed and the suppliers, distributors and retailers involved will be breaking the law. Most forms of resale price maintenance are prohibited by competition law rules.
The CMA’s guidance comes in the wake of two cases where the CMA imposed combined fines of £3+ million on two suppliers for infringing competition law by engaging in resale price maintenance in the online channel.
The first case concerned Ultra Finishing Limited, a bathroom fittings supplier.Ultra had provided resellers with online trading guidelines, which “recommended” that online prices should be no lower than 25% less than RRP. These recommendations were expressly stated not to be legally binding on resellers. So far, so lawful. The problem was that in practice, Ultra had taken steps to enforce its “recommended” online prices by (for example) threatening to charge higher product prices or to cease supply of the products to resellers who did not toe the line.
The second case concerned ITW Limited, a supplier of commercial refrigerators. ITW had provided customers with a policy which contained “minimum advertised prices”. As with the Ultra case, ITW had taken action to seek to enforce compliance with the minimum advertised prices, including putting pressure on offending retailers to increase their advertised prices, or stopping supply altogether.
In both cases, the CMA found that the suppliers’ restrictions on online advertising and sales prices restricted the retailers’ ability to sell their products online at independently determined prices, and therefore amounted to illegal resale price maintenance.
The CMA has emphasised in its recent guidance how important the online channel is in terms of enhancing price competition, as it opens up markets and provides customers with more choice. Brick-and-mortar retailers which have invested in the supplier’s products do not always view purely online sellers in such a positive light, particularly when online sellers with lower costs undercut their sales prices. Often, those brick-and-mortar retailers seek the supplier’s assistance in such circumstances, which can lead suppliers to try to maintain prices above a certain level. As can be seen from the above cases, suppliers, distributors and retailers need to be alert to the dangers in this area. The CMA’s focus in respect of price-fixing is very much on the online channel.