Continued Antitrust Enforcement Against Non-Compliant Manufacturers in Europe: Significant Penalties Imposed for Fixing Resale Prices

by K&L Gates LLP
Contact

K&L Gates LLP

On 24 July 2018, in four separate decisions, the European Commission (“Commission”) levied fines totalling EUR 111 million on four well-known manufacturers of consumer electronic products for imposing fixed or minimum resale prices on their online retailers between 2011 and 2015.

These decisions represent an important example of enforcement activity in this sphere in the EU. In other recent cases suppliers have been investigated and fined for online sales bans, marketplace bans, geo-blocking, discrimination on the basis of the customer’s location and other sales restrictions.

Background
In May 2015, the Commission launched a sector inquiry into the E-commerce of consumer goods and digital content. One of its key findings, as summarised in the Final Report on the E-commerce Sector Inquiry dated 10 May 2017 (“Final Report”), was that the growth of E-commerce over the last decade has significantly impacted companies’ distribution strategies and behaviour. More specifically, the Commission found that (i) price transparency has increased, (ii) price comparison tools are increasingly affecting price competition, (iii) companies are now able to monitor prices more easily, and (iv) alternative online distribution models have changed the way that many companies can access customers.

The Commission concluded that these market trends have affected the way in which manufacturers shape their distribution and pricing strategies, in particular with a view to achieving greater control over distribution networks, price levels and product quality. The Final Report expressed the Commission’s concerns that this has in turn led to an increased reliance on vertical restraints in supply and distribution agreements, such as pricing restrictions, marketplace bans, restrictions on the use of price comparison tools and online sales bans.

As a result of the Sector Inquiry, the Commission launched three separate investigations to assess if certain online sales practices prevented consumers from enjoying cross-border choice and being able to buy (i) consumer electronics, (ii) video games and (iii) hotel accommodation at competitive prices. Combined with the 2-year long Sector Inquiry, this sent a clear message that the Commission is ready to actively enforce EU competition rules by cracking down on unjustified vertical restraints.

The four infringement decisions
The Commission found that the consumer electronics manufacturers breached EU competition law by imposing fixed or minimum resale prices and otherwise restricting the ability of their online retailers to set their own retail prices for these widely-used products. In particular, the Commission’s investigation showed that each of the four manufacturers individually targeted online retailers that offered the lowest prices for their products. If those retailers did not follow the prices requested by the manufacturers, they faced threats or sanctions such as blocking of supplies.

Importantly, the Commission also found that the impact of these practices on prices was much broader and not limited to the retailers in question. By targeting certain low price retailers, the four manufacturers were able to influence prices charged by a much wider group of retailers. This was possible because many online retailers use pricing algorithms and price comparison websites to continuously monitor prices charged by their competitors so that they may then adjust their own prices accordingly. As such, in circumstances where one retailer offers lower prices than others, this would prompt other competitors to lower their prices. Conversely, if that retailer puts its prices back up, its competitors would tend to follow. Moreover, the manufacturers also used sophisticated monitoring tools to effectively track resale price setting in the distribution network, allowing them to intervene with individual retailers where the prices decreased.

The four infringement decisions are the first to be issued as a result of the Commission’s recent enforcement efforts into vertical restraints, with the video games and hotel accommodation investigations still ongoing. Moreover, this is the first time since the Commission’s 2003 musical instruments case that the EU regulator has imposed penalties for resale price maintenance. However, in the 2003 case the fines levied amounted to EUR 2.56 million - well below the EUR 63.5 million, EUR 7.7 million, EUR 29.8 million and EUR 10.2 million imposed on the electronics manufacturers last month (these fines were in any event significantly reduced due to the companies’ cooperation).

Resale price maintenance in the EU and around the world
Resale price maintenance can either be achieved directly, through contractual provisions that establish the resale price, the maximum discount a retailer may offer or the margins it may enjoy; or indirectly, for example by applying pressure or threatening a retailer (e.g. with delayed or suspended supplies).

European Union
Any agreement that fixes or sets minimum price levels for resellers is treated under EU competition as a so-called “hardcore” restriction of competition. Where a hardcore restriction is included in an agreement, the agreement is presumed to be anti-competitive and thus will fall within the scope of the EU prohibition against anti-competitive agreements contained in Article 101(1) of the Treaty on the Functioning of the EU (“TFEU”). It is also presumed that the agreement is unlikely to fulfil the efficiency criteria for exemption under Article 101(3) TFEU.

Australia
A similar position to that in the EU applies in Australia. Specifically, Section 48 of the Competition and Consumer Act 2010 (“CCA”) makes resale price maintenance a per se breach and section 96 deems particular forms of conduct to be resale price maintenance.

Guidance from the Australian Competition and Consumer Commission (“ACCC”) warns suppliers that it is illegal to (i) put pressure on businesses to charge their recommended retail price or any other set price, for example by threatening to stop supplying to the reseller, and (ii) stop resellers from advertising, displaying or selling goods from the supplier below a specified price.

United States
In contrast to the per se approach adopted by EU and Australian law, under US federal law, albeit not under the law of certain states (see our previous alert, No Rule of Reason Here: State AG Reminds Manufacturers That Minimum Retail Price Agreements Are Illegal Per Se in Maryland with Latest Suit), resale price restrictions in vertical agreements are assessed under the Leegin rule of reason, which requires a balancing exercise between the pro-competitive benefits of an agreement and its anti-competitive consequences.
The recent development in US antitrust law of adopting the rule of reason treatment to assess all vertical price restraints is rooted in the recognition of the pro-competitive justifications that may be present in such agreements. In particular, US courts have understood the importance that some forms of resale price maintenance may have on the promotion of inter-brand competition, for example to tackle the issue of free riding. The US Department of Justice has itself concluded that inefficiencies associated with free riding by retailers can be addressed by minimum resale price maintenance which can encourage retailer performance.

China
Finally, a hybrid system, which reflects the divided approaches to resale price maintenance of the EU and US enforcers, is adopted in China. Although resale price maintenance is prohibited under Article 14 of the 2007 Anti-Monopoly Law (“AML”), courts in China have established a more moderate rule of reason-like approach for resale price maintenance cases brought by private plaintiffs (see our previous alert, Resale Price Maintenance in China: One Country, Two Systems). This divergence in approaches adopted by the Chinese antitrust regulator (endorsing the EU per se rule) and the judiciary (favouring the US rule of reason) certainly makes it more difficult for product manufacturers in China to assess and understand their antitrust exposure. What is clear is that the higher the manufacturer’s market share, the greater the risk of a finding that a resale price restriction runs contrary to the AML.

Vertical restrictions - examples of recent enforcement
The Commission is not the only antitrust regulator to have targeted enforcement of competition law at vertical agreements.
In August 2017, the UK’s Competition and Markets Authority (“CMA”) issued an infringement decision to a leading golf club manufacturer for operating an online sales ban which in the CMA’s view was not objectively justified (the case is currently under appeal).

In Germany, the Bundeskartellamt recently imposed fines on two companies in the clothing industry for setting minimum resale prices and prohibiting retailers from reducing prices and selling goods online. The German authority has more generally been very proactive in the enforcement of vertical competition rules in recent years and continues to adopt a strict position in respect of certain online restrictions.

Earlier this year, the French Authorité de la concurrence carried out dawn raids at the premises of companies suspected of having engaged in anti-competitive practices in the distribution of cosmetics in France and Belgium.
In China, which has only been enforcing its anti-monopoly laws for just over a decade, the National Development and Reform Commission (“NDRC”) has already issued prohibition decisions in around 18 resale price maintenance cases. Resale price maintenance has even become somewhat of a focus for the NDRC’s enforcement activities, representing approximately 40% of all anti-monopoly cases investigated by the authority since 2013.

On the other hand, despite the prescriptive Australian law, litigation by the ACCC is relatively rare with the last significant case being decided in 2013. Until November 2017, regulatory relief was available only through a lengthy "authorisation" process that required a positive ruling from the ACCC. A simpler "notification" process is now also available (see our previous alert, Supplying Products & Managing Margin Down Under). Notification puts the onus on the ACCC to disallow the notified conduct. To date there has been only one notification, which was effectively the renewal of a previous authorisation.

Concluding remarks
Whilst unjustified restrictions in vertical agreements are being actively investigated by antitrustregulators around the world, it is at the same time becoming increasingly clear that price is not the only and most important parameter of competition, and that elements such as quality can play an equally if not more important role. At the end of last year, for example, the EU’s highest court in Luxembourg confirmed that manufacturers operating a selective distribution system may be able to prevent their authorised resellers from selling on third party platforms (see our previous alert, EU Judgment On Banning Sales Via Online Marketplaces - What Does It Mean For Non-Luxury Brands?). In arriving at its judgment, the Court of Justice of the EU recognised that preserving the quality of products or ensuring their proper use may constitute a legitimate objective that is capable of justifying certain restrictions included in vertical agreements.

Important and useful guidance has also been set out in the Final Report and the accompanying Staff Working Document, which explain that many strategies adopted by manufacturers can create important efficiencies justifying behaviour that could otherwise be perceived as restrictive.

Manufacturers and suppliers therefore remain equipped, with useful legal tools at their disposal, to effectively control the sale of their products without breaching competition laws. For example, a properly designed selective distribution system can help manufacturers to prevent brand erosion, limit interference with product lifecycles and indeed enhance a brand by ensuring a high-quality consumer experience.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.