Resale Price Maintenance – Exception for short-term promotions?

Agreements restricting competition are prohibited as anticompetitive agreements by Article 101 TFEU unless the agreement’s impact on trade or competition is not appreciable (cf. the EU Court of Justice in the Expedia case, C-226/11, judgment of 13 December 2012). Whether an agreement constitutes an appreciable restriction of competition or is in the “safe harbour” can be assessed according to the European Commission’s De Minimis Notice. Accordingly, an agreement is particularly appreciable if its object is to restrict competition. This applies in particular to so-called hardcore restrictions, such as vertical price maintenance (or resale price maintenance = “RPM”).

Regarding a special offer for dietary products, the German Higher Regional Court of Celle surprisingly took a different view and decided that even resale price maintenance could be considered non-appreciable and thus falling outside the ban of anticompetitive business practices under Article 101 TFEU (judgment of 07.04.2016, Case 13 U 124/15 [Kart]). In this case, the manufacturer made a special offer to a group of its customers (pharmacies) with a special purchase discount: once, for a limited period and limited to a maximum quantity. In return, the customers should commit themselves to “present the product clearly… and not fall below a resale price of EUR 15.95“.

The Hanover Regional Court had instead seen the agreement as an unlawful resale price maintenance (judgment of 25 August 2015, Case 18 O 91/15) – and now the German Federal Court confirmed the same: the minimum prices specified here within the advertising campaign appreciably restrict competition and are thus banned as anticompetitive business practice under Article 101 TFEU (judgment of 17 October 2017, Case KZR 59/16). This corresponds to the case law of the EU Court of Justice in the Expedia case (see above) and the German Federal Court with regard to the sales requirement “one bar extra “ (i.e. without extra charge compared to the usual package size) of the Italian confectionery manufacturer Ferrero (judgment of 08.04.2003, Case KZR 3/02) – because the latter explicitly concerns “the scope for price increases resulting from the increased contents of the package” – not, however, the retailer’s decision to set prices freely downwards.

Practical tips

Vertical price fixing is generally prohibited, whereas providing a manufacturer’s suggested retail price (MSRP, also “recommended retail price”) and maximum selling prices are allowed – this is briefly the principle of German and European antitrust law on pricing frameworks. Furthermore, recommended retail prices and maximum selling prices (“MSP”) are subject to the restriction that they ” they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties” (Article 4 lit. a Vertical Block Exemptions Regulation). That means:

• the manufacturer or supplier may provide guidance,
• however, the reseller may set his sales prices freely.

Exceptions may apply – in addition to the RPM on the price of books or in the case of specialisation agreements – by way of the efficiency defence under Article 101 (3) TFEU in individual cases, e.g.

• in the introductory period when launching new products on the market, or
• in the case of short-term special offers if accompanied by a corresponding increase in efficiency, for example by investing the higher margin into better customer advice, which benefits all customers and Resale Price Maintenance prevents retailers who do not offer the customer advice from free riding (cf. EU Guidelines on Vertical Restraints, para. 225).

Such actions, however, require excellent preparation because manufacturers can only set resale prices for very short periods if they can convincingly demonstrate efficiency gains such as preventing free-riders.

In the case of fixed prices, the competition authorities quickly become sensitive. For example, fines for vertical price maintenance have recently been imposed again in Germany. In this respect, special care must be taken particularly in distribution and sales agreements.

4. Correspondingly, each company’s sales team should continue following the previous case law on recommended retail prices, maximum selling prices and discount campaigns. Guidance for the practice is provided by

• the Federal Cartel Office’s paper of July 2017 on the prohibition of fixed prices in stationary food retailing,
• the European Commission’s De Minimis Notice, the Guidelines on Vertical Restraints (para. 48 et seq., 223 et seq.) and the „Guidance on restrictions of competition “by object” for the purpose of defining which agreements may benefit from the De Minimis Notice“ – all three, however, must always be assessed in the light of current case law because the understanding of the EU Commission contained in these documents does not bind neither the courts nor the national antitrust authorities.