German competition authority issues guidance paper on resale price maintenance in the retail food sector
24 August 2017
In July 2017, the German Federal Cartel Office (“FCO”) published a detailed guidance paper (the “Guidance Paper”) on resale price maintenance (“RPM”) in the retail food sector. The purpose of the paper is to explain the background, purpose and scope of the law in this area through practical examples.
This follows consultation on a draft paper published in January and is intended to supplement the existing guidance provided by the European Commission’s Guidelines on Vertical Restraints.
Andreas Mundt, President of the FCO, commented that the guidance follows extensive enforcement in this area by the FCO over the last few years, particularly in the food sector. In fact, in 2016 the FCO imposed fines of €260.50 million against 27 companies in the food sector.
As noted above, the FCO sought consultation on a draft of the paper in January. The consultation revealed that interested parties felt the paper could benefit from more practical examples – the FCO has taken this into account and introduced further examples. Whilst those examples relate exclusively to the food retail sector, the points raised highlight the following general principles:
- RPM, as a form of price fixing, is a restriction of competition “by object” i.e. it is a hardcore infringement of competition law which is very difficult to justify.
- RPM can also have anti-competitive effects by facilitating collusion between both manufacturers and retailers, as well as stifling the development of new products and alternative distribution systems.
- Typically, agreements to set minimum or fixed prices are prohibited, whilst maximum prices do not raise competition law concerns.
- Suppliers can recommend resale prices (“RRPs”), providing these are genuine non-binding recommendations. RRPs can become problematic if suppliers “police” whether retailers apply or deviate from them.
- Indirect fixing of resale prices will also be caught by the law. In particular quantity management, promotion planning, guaranteed margins and re-negotiations can, in some circumstances, distort competition.
- Whilst it is possible in theory that potential efficiencies can arise from minimum or fixed prices, it will only be in exceptional cases that those efficiencies would be sufficient to justify RPM.
- The exchange of information on resale prices can sometimes be justified, as long as it is not used to coordinate and monitor pricing. The provision of historic data is not usually problematic but particular caution must be exercised on the exchange of information about retailers’ future prices or pricing strategies.
- RPM can be unlawful irrespective of whether it is being undertaken by small or large businesses.
Whilst the paper has been drafted by the German FCO specifically with small and medium sized business in the food sector in mind, the paper provides useful guidance for companies operating in any sector and anywhere in Europe. The FCO is one of the most active national competition authorities in opening cases involving RPM, but its efforts are symptomatic of a wider drive across Europe towards enforcement in this area. For example, the European Commission expressly stated in its recent report on its inquiry into e-commerce that it intends to increase enforcement in this area. Similarly, the UK’s Competitions and Markets Authority (“CMA”) has recently issued fines in two cases concerning RPM and published an “open letter” to suppliers and retailers, guidance and case studies on this issue in June 2017.
The full text of the Guidance Paper is currently available in Germany only and an English translation is expected to be published in in due course.
For more information please contact Martin Bechtold or Elizabeth Coleman.