German Antitrust Authority's Draft Guidance on Resale Price Maintenance in the Food Retail Sector Provides Valuable Insight. Also Relevant to Sectors Beyond Food Retail. Companies Have Opportunity to Comment.
In December 2016, the German Federal Cartel Office (FCO) concluded proceedings in relation to vertical price fixing (also referred to as resale price maintenance (RPM)) in the food retail sector. In one of its largest investigations ever the national antitrust regulator imposed fines on 27 companies of EUR 260.5 million in total.
At the beginning of the proceedings in 2010, the FCO issued a note aimed at providing leniency applicants with guidance on what it considered legal and illegal behaviour regarding RPM and communications between the market actors, and on how companies should terminate the violations they were accused of (Handreichung). The note became a de facto reference for the assessment of business relations between retailers and manufacturers in the food and retail sector. Its strict attitude towards communications between the industry players provoked critical comments both from legal and business communities.
The FCO frequently announces its intention to launch a consultation on a guidance that was based on the findings and conclusions of antitrust proceedings. The draft guidance published yesterday aims at explaining the background, purpose and scope of the prohibition of RPM and related communications, and provides a number of useful examples. While it is addressed to the bricks-and-mortar food retail sector, the final document will likely be a reference for other industries as well.
In Europe, as well as in Germany, RPM is prohibited and can only be cleared in exceptional cases that hardly have been made successfully. RPM covers cases in which the purchaser/retailer is restricted in its freedom to set its own resale prices for the products. Economic theory suggests that RPM can harm competition because it eliminates price competition between retailers offering the same product and prevents retailers from passing on cost savings which they have achieved to the end consumer.
While a straightforward RPM fixing arrangement between a supplier and a retailer may be easily understood, there are many areas where RPM is not clear-cut and where market players are uncertain about the legality of related market practices. The draft guidance explores borderline RPM cases and provides in particular suggestions on how to manage the communication processes between the market actors.
The draft guidance addresses the following issues:
- Explaining the legal and economic background of RPM, and the structure of the German food retail sector.
- Providing examples of illegal RPM, including fixed markup over the purchase price or linking the resale price to another retailer's resale price.
- Explaining how pressure exercised against or incentives granted to retailers by suppliers can amount to an illegal RPM.
- Explaining how recommended resale prices – that are in principle legal as such – and related communications can turn into illegal vehicle for unlawful RPM.
- Describing the limits of lawful communications and arrangements on quantity management and promotion planning, e.g. quantities, periods, promotion price.
- Explaining how guaranteed margins and demands for compensation for unfulfilled revenue expectations/re-negotiations can amount to a prohibited RPM.
- Identifying potential illegal effects of a termination of and refusal to engage in business relations.
- Describing unlawful access and use of data shared between suppliers and retailers.
The deadline to respond is 10 March 2017.
The European Antitrust & Competition partners of Mayer Brown have dealt with a number of cases and issues in the retail area, and would be happy to explore in greater detail the sensitive issues your company should deal with.