28 Mar 2022

Introduction

The last ten years have seen the development of distinct sales channels with online selling rivalling instore. In addition, suppliers are selling direct to end customers and, in so doing, compete with the distributors and retailers to which they also supply the same goods. 

In such situations, manufacturers and suppliers may seek to charge different wholesale prices depending on whether the products are to be sold instore or online. Equally, different wholesale prices may be charged depending on whether a distributor will sell to a retailer or directly to consumers.

In either situation what is taking place is dual pricing. 

The current position

Currently, under both EU and UK competition laws, dual pricing which results in online sales being disadvantaged amounts to a restriction on passive sales (being – in effect – sales made in respect of unsolicited requests by buyers and as a result of general advertising) and amounts to a so-called hardcore restriction on competition.

The upshot is that an agreement – whether written or unwritten and either formal or informal – containing a hardcore restriction is unenforceable. The parties to it may be fined either by the Competition & Markets Authority (CMA) or the EU Commission. It is also open to third parties to claim damages for loss resulting from the enforcement of a hardcore restriction. 

The new position from 1 June 2022  

The law is changing and as from 1 June 2022, dual pricing may be exempt from infringing competition law. 

Within the EU, a product intended to be sold offline will be capable of being sold at a lower price to a distributor or retailer than a product intended to be sold online if the price difference reflects the difference in investments made or costs incurred in both the instore and online channels. 

As a result, a supplier wanting to reward or incentivise a distributor for its offline sales may sell the product at a lower price than the same product is intended to be sold online. 

The UK

Earlier this month, the CMA closed its consultation period in respect of the UK law that will come into force on 1 June 2022. 

The CMA is expected to adopt the same position concerning dual pricing as the EU Commission. In this respect, the CMA has recognised the difficulties faced by high street retailers in competing with online sellers. 

Can the online channel also be advantaged?

The view of the EU Commission and its current draft guidelines to the new law suggests that a pricing advantage for online sales at the expense of those sold offline will also be exempt from infringing competition law. 

However, what we do not know at the present time is whether the CMA will follow suit so far as UK competition law is concerned. 

Key considerations

1. As a result of the change in EU and UK competition laws concerning dual pricing, manufacturers and suppliers will enjoy greater contractual freedom.  How they choose to use this freedom is likely to depend on:

  • their preferential mix for the online and offline channels for their particular products
  • their bargaining strength as against distributors and retailers.

2. Going forwards, distributors and retailers who feel that they have been disadvantaged by the pricing applied by manufacturers and suppliers may seek to complain to the CMA or EU Commission arguing that the price differential applied fails to properly reflect the difference in investments made or costs incurred in both the instore and online channels.

It follows that manufacturers and suppliers need to be capable of justifying their pricing decisions and giving thought as to whether they will have exposure to distributors and agents in part

3. Dual pricing is only one aspect of how competition law is changing. Other changes include the mixing of exclusive distribution and selective distribution and the legality of most-favoured clauses in contracts. However, the situation is complex not least as the new EU and UK competition law regimes will diverge as a consequence of Brexit. We shall be addressing further issues in upcoming issues of agentlaw news.

4. Although as at 1 June 2022, competition law in both the EU and UK will be very similar, there will also be some material differences.  Going forwards, we may see also divergences in interpretation of where the laws are the same with the attendant difficulties which this causes for businesses selling in both the UK and the EU.

5. A further difficulty for such businesses may arise in the context of Northern Ireland which is part of the union of the United Kingdom but which in broad terms follows EU competition law.

6. Before then there will be a 12-month transition period from 1 June 2022. This means that agreements which meet the current law but not the new will be regarded as exempt until 31 May 2023. 

7. But businesses should be planning now on how they will adapt their pricing or how the prices they charge may be adapted given – or take advantage of –  the new laws.

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