The legal implications of imposing resale prices
UKFT associate member Fox Williams discusses the issue of resale prices, price fixing and how agents and distributors can find themselves caught.
Resale prices are important at all stages of the supply chain. But, the issue of resale prices is also one which can cause legal concern. This is particularly so when a supplier seeks to impose the resale price on its buyer.
At the retail level, the term “recommended retail price” or “RRP” is often used. Sometimes a retailer will seek to take advantage of it by trying to sell the product to a consumer at a price which is less than the RRP.
However, at all the different stages of the supply chain the law distinguishes between communicating a recommended retail price as opposed to seeking to impose a resale price on the buyer. The law is also concerned where the seller imposes indirect consequences or threatens the imposition of such consequences on the buyer.
The law’s concern is one which agents and distributors should share. This is because in a situation where one party is directly or indirectly fixing selling prices or two or more parties are directly or indirectly fixing selling prices then it is the case that one of the most serious infringements of competition law is being undertaken.
Unsurprisingly, there are penalties under EU law as well as UK law. Indeed, the penalties capable of being imposed under UK law are some of the most draconian anywhere in the world.
A business engaged in price fixing can be fined up to 10% of its annual worldwide group turnover. Individuals involved can be fined or imprisoned. Further, the agreement made with the buyer on whom a resale price has been imposed will be void. It will also be open to third parties to sue for damages for infringement of competition law.
Recent decisions of the Competition and Markets Authority have concerned situations where suppliers required retailers to sell at or above a minimum price or restrict competitive online pricing. Further, in 2016 the exchange between businesses of confidential competitively sensitive information concerning the fixing of prices in terms of charges made was also held to be an infringement of competition law.
It is not difficult to envisage a situation where a distributor could find itself committing an infringement of competition law. This could be either as a result of doing the supplier’s bidding when it comes to resale pricing or the distributor itself wanting to ensure price fixing for its own purposes. Equally, agents may find themselves involved. Whilst they are not a contracting party to the sale and purchase of the goods which are the subject of price fixing, by acting as a conduit between seller and buyer – and a result of being considered by the law as an extension of the principals for which they act – they too can find themselves having committed an offence.
Take home points
It is reasonable to anticipate that price fixing occurs in many industries.
Whilst both the Competition and Markets Authority and the European Commission will undertake their own research into situations where price fixing is suspected, it is also the case that each of them will be contacted by third party whistleblowers and such whistleblowing may lead to the launch of an investigation. Indeed, it was reported earlier this year that 2018 saw an increase of 18% in the number of whistleblowing reports to the Competition and Markets Authority over 2017.
Both under EU and UK competition law, there are whistleblowing leniency programmes. The objective of such programmes is to encourage whistleblowing by reducing the penalties which might otherwise be imposed.
Both the EU Commission and the UK Competition and Markets Authority have imposed fines in €ms and £ms. The actions taken by the Competition and Markets Authority have resulted in the imprisonment of individuals involved in price fixing.
The imposition of resale prices can be indirect. A party may be involved in price fixing where a supplier:
- imposes restrictions on how far the buyer can discount its product;
- prevents or limits the buyer’s ability to advertise lower prices online;
- has linked a resale price for the product to what other buyers are selling it for; and
- restricts the buyer from going “on sale”.
For further information on Fox Williams, visit here or call 020 7614 2505, quoting UKFT.