Antitrust Alert: German Federal Cartel Office steps up the enforcement against resale price maintenance
The German Federal Cartel Office (FCO) has in the past six months imposed fines for three violations of the antitrust rules against resale price maintenance (RPM). These decisions signal an increased risk of antitrust fines for suppliers active in Germany that use a heavy hand to influence resale prices.
The antitrust rules of Germany and the European Community allow suppliers to recommend resale prices and to agree with distributors on maximum resale prices, but they prohibit fixed and minimum prices. The EC block exemption regulation for vertical restraints of trade provides that price recommendations must "not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties" (Article 4a of Commission Regulation (EC) No 2790/1999). This regulation applies under German law as well.In the gray area between recommended resale prices (permissible) and fixed or minimum resale prices (prohibited), the FCO has for several years tolerated borderline practices. Recent decisions indicate that the FCO has abandoned that tolerant policy.
The facts of these three matters are summarized below:
- In October 2009, the FCO imposed a fine of €4.2 million on Phonak, one of the three leading suppliers of hearing aids in Germany. A retailer had decreased its prices below Phonak's recommended level and also published on the Internet the prices it paid hearing aids manufacturers, revealing a significant retail margin. As a result, other retailers became concerned that they might have to answer to customers and the social security system (which reimburses the costs for hearing aids). Responding to those concerns, Phonak discontinued supplying the maverick retailer, to force that retailer to increase its prices and to discontinue publishing manufacturer prices on the Internet.
- In September 2009, the FCO imposed a fine of €11.5 million on CIBA Vision the largest supplier of contact lenses in Germany. The FCO found that CIBA Vision recommended resale prices to retailers but also operated a monitoring and intervention system to ensure that retailers complied with recommended price levels. If a retailer undercut those prices, CIBA Vision staff would try to persuade the retailer to increase its prices. In addition, CIBA obtained an agreement from eBay that eBay would not list offers to sell contact lenses produced by CIBA Vision. Finally, CIBA required that CIBA Vision distributors not sell CIBA Vision contact lenses through the Internet.
- In April 2009, the FCO imposed a fine of €9 million on Microsoft. The FCO found Microsoft guilty of having influenced one retailer's resale price of a Word, Powerpoint and Excel software package for home users. Microsoft and the retailer had first agreed on the price for the package on two occasions. Subsequently, the retailer advertised that price in its stationery retail outlets with the financial support of Microsoft.
The amount of those fines may seem moderate. However, in all three cases the FCO took into account that the businesses cooperated with FCO staff and agreed not to appeal the FCO's decisions. Future enforcement is likely to result in more substantial fines, as the FCO now has sent a clear signal to business that it will not tolerate any restriction of retail pricing that amounts to any form of fixed or minimum resale prices. Notably, when the FCO decided the amount of the fines, it considered the total revenues of the supplier in the market, not only the revenues the supplier generated with the products it had sold to the distributor in question.The FCO has taken in all three cases the position that the competition rules do not generally prevent a supplier from contacting distributors on its resale prices. However, suppliers must not repeatedly or specifically approach retailers on this subject, as the FCO might regard such communication as illegal pressure to enforce fixed or minimum prices. As a consequence, the supplier generally must not "seek to coordinate the distributor's pricing such that the supplier and the distributor are coordinated on the distributor's future conduct."
The Phonak decision in English and German is available at the FCO's website.
For more information, please contact your principal Jones Day representative or the lawyer listed below.
Jones Day prepares summaries of significant antitrust enforcement, litigation, and policy events as a service to clients and interested readers, to provide timely insight on antitrust and competition law developments relevant to business, but not as legal advice on any specific matter. Please visit our Publication Request form to add your name to our distribution list.