CMA updates open letter to businesses about restricting online resale prices
The CMA has updated its 2016 open letter to businesses regarding restricting online resale prices. The letter reminds all suppliers and resellers what resale price maintenance (RPM) practices look like and what to do if they are or may have been involved in them. It also warns of the serious consequences for breaching competition law, which include fines of up to 10% of a business’s worldwide turnover.
What is Resale Price Maintenance?
Resale price maintenance (RPM) occurs where a supplier and reseller agree that the reseller will sell the supplier’s product at or above a particular price. 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. Other than in some very exceptional circumstances, RPM is illegal as it constitutes vertical price-fixing, preventing resellers from offering lower prices and setting their prices independently to attract more customers.
What prompted the open letter?
In May 2017, the CMA fined The National Lighting Company Limited (NLC) and three of its subsidiaries £2.7 million for engaging in illegal RPM. NCL had been dictating the minimum prices at which its resellers could sell its products online. NCL set a maximum discount resellers were allowed to offer off the recommended resale price and used an Internet Licence Agreement (ILA) as a way of enforcing the policy; resellers understood that the pricing restriction was an unwritten condition of the ILA and that they would be penalised for failing to comply.
This case follows two similar CMA investigations in 2016 that saw a supplier of commercial refrigeration equipment fined over £2 million and a bathroom fittings manufacturer fined over £780,000 for their part similar RPM activities online. It was these cases that prompted the CMA to issue the original open letter and, as the NCL case had much in common with them, the CMA decided to update the letter to highlight certain important points relevant to all businesses where there is a supplier/reseller relationship.
Key points for suppliers
Suppliers must not dictate the price at which their products are sold, either online or through other sales channels.
Policies that set a minimum advertised price for online sales can equate to RPM and are usually illegal.
Suppliers must not use threats, financial incentives or take any other action, such as withholding supply or offering less favourable terms, to make resellers stick to recommended resale prices.
Restrictive pricing policies in business-to-business arrangements are illegal whether verbal or written. Suppliers cannot hide RPM agreements, nor try to use apparently legitimate policies (such as image licensing) to conceal RPM practices.
Receipt of a CMA warning letter must be taken seriously by a supplier and independent legal advice sought to ensure their business is compliant with competition law. The CMA noted that NLC received a 25% uplift in its fine for ignoring such a letter.
Key points for resellers
Resellers are entitled to set the price of the products they sell, whether online or through other sales channels.
Suppliers are not usually allowed to dictate the prices at which resellers advertise their products online.
Resellers who agree with a supplier to sell at fixed or minimum prices may be found to be in breach of competition law.
Resellers should report to the CMA any request by a supplier to comply with a restrictive pricing policy.
The letter is a clear warning that the CMA takes RPM seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce. It also encourages companies to report any possible anti-competitive arrangements, even those to which they are or may be party, noting that such businesses may be able to benefit from lenient treatment as a result of their disclosure.
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