Online Retailing and RPM

With resale price maintenance (RPM) again under scrutiny by the Competition and Markets Authority (CMA), suppliers and resellers should urgently review their online sales strategies.

Why now?

The CMA recently flagged the risks of RPM in an open letter intended to “remind all suppliers and resellers what RPM practices look like” and “what to do if they are or may have been involved in them”.

The letter followed the latest in a series of cases in which the CMA has imposed fines for RPM in online markets.  Notably:

• In 2016 the CMA fined the commercial fridge division of ITW Limited over £2m for imposing “minimum advertised prices” on its dealers, with threats of higher wholesale prices or loss of supply for dealers that advertised below those prices
• Also in 2016, bathroom supplier Ultra Finishing Limited was fined for issuing its online retailers ‘recommended’ retail prices accompanied by threats of higher wholesale prices and/or loss of supply for resellers pricing above the recommended level
• Most recently, in June 2017, National Lighting Company (NLC) was fined £2.7m for imposing on its resellers a maximum 20 per cent discount off the ‘trade price’ for online sales of its Saxby and Endon products. NLC monitored its resellers’ online prices, threatening those who failed to comply with the suspension of their accounts and/or their right to use official product images.

Is it just in the UK?

The CMA is not the only competition authority to have taken a greater interest in RPM in online markets recently. The past few years have seen manufacturers fined for RPM in Austria (HP and Samsung), Poland (Swatch), and Germany (mattress manufacturers Recticel Schlafkomfort, Metzeler Schaum, and Tempur).

RPM was also a key focus of the European Commission’s recent E-commerce Sector Inquiry. In February the Commission announced formal investigations into practices by consumer electronics manufacturers Asus, Denon & Marantz, Philips, and Pioneer that may restrict the ability of their online retailers to set their own prices. This is an unusual step by the Commission, which has tended to leave enforcement of vertical infringements to national competition authorities.

What is RPM?

RPM exists where suppliers and resellers enter agreements or adopt practices that restrict resellers’ ability to reduce their prices below a given level. This may take the form of an express agreement that the reseller will sell at or above a given price. But it may also be achieved indirectly. For example, by:

• fixing the distribution margin
• limiting the discount that resellers can apply on resale
• setting “minimum advertised prices”
• requiring resellers to link their resale prices to the prices charged by their competitors
• linking rebates or reimbursement of marketing costs to observance of a given price level or
• using threats (e.g. higher wholesale prices, loss of supply) to induce resellers to sell at a particular price.

Can suppliers still recommend resale prices?

The rules on RPM do not prevent suppliers setting maximum resale prices or recommending prices to resellers.

But recommended prices – which can be useful to communicate to consumers about product quality or protect brand position – should never be accompanied by incentives or threats that could prevent retailers from reducing their prices below the supplier’s recommended price level.

What are the risks of engaging in RPM?

RPM is illegal and may result in fines of up to 10 per cent of annual worldwide group turnover. Both the supplier and the reseller may be held to have infringed competition law.