Resale price maintenance (RPM) occurs where a supplier uses various methods designed to ensure that its resellers do not sell its products for less than a minimum resale price.
RPM is against the law (bar a handful of very limited exceptions). The consequences of engaging in RPM can be severe – fines can be as much as 10% of a business’s worldwide turnover.
Setting recommended retail prices (RRPs) is not RPM, unless the RRPs are accompanied by other restrictions or inducements which have the effect of making the RRPs a minimum resale price in all but name.
Competition law regulators are increasingly active in their investigation and prosecution of RPM, particularly in the online channel. In recent years, there have been a string of large fines imposed by the Competition & Markets Authority (the UK competition law regulator) on suppliers in diverse industries for RPM, including fines of £3.7 million against Casio, £4.5 million against Fender Musical Instruments, and in 2020 £5 million against Roland UK Limited and its parent company.
Despite the risks of engaging in RPM, in our experience it is rife in many industries.
Why is RPM a problem for distributors?
Distributors are very often stuck in the middle when it comes to RPM. The distribution agreement with the supplier may include a term which fixes the distributor’s margin, interfering with the distributor’s ability to set its own resale price. In addition, many suppliers require their distributors to police compliance by retailers with the supplier’s RRPs. We regularly see communications from distributors to retailers where the distributor sets out the “conditions” with which the retailers must comply to continue to be able to purchase the supplier’s products.
Any distributor which is involved in the supplier’s RPM will be party to unlawful conduct. In most cases, the distributor will be in a weaker position to the supplier and will as a result find it commercially difficult to object to the RPM. Despite this, the UK competition regulator has made it clear that this will not always protect distributors from being fined for RPM.
What can distributors do?
If you are a distributor and:
your distribution agreement provides for a fixed distribution margin, or restricts the discounts which you can grant to customers; or
your supplier requires you to ensure that your retail customers sell the products below RRP; or
there are various ways to proceed. Depending on the scale of the RPM and the extent of the distributor’s involvement, the distributor may want to consider blowing the whistle on the supplier and seeking to take advantage of the CMA’s leniency policy. Distributors often find that if they speak out against the supplier or refuse to police the prices at which their retail customers sell, the supplier terminates the distribution agreement. Distributors which have been dropped by their suppliers for taking a stand against the supplier’s RPM should consider their legal options for bringing a claim against the supplier.
To read Parts 1 and 2 of the series ‘Clowns to the left of me, Jokers to the right’ please click the links below.
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