July 2016: Suppliers and retailers will be interested in the publication of an open letter written by the Competition and Markets Authority (CMA) on restricting online resale prices. This follows the CMA’s decisions in May 2016 to impose substantial fines on suppliers in the bathroom fittings and commercial catering equipment sectors. The CMA found that the suppliers had illegally engaged in online resale price maintenance (RPM) with some of their retailers, specifying the minimum prices that the retailers could advertise for sales of the suppliers’ products over the internet.
This business briefing summarises the details of the open letter and is aimed at helping suppliers and retailers understand the practices that are regarded as RPM, and what to do if they are or may have been involved in RPM or similar practices.
What is resale price maintenance?
Resale price maintenance (RPM) occurs where a supplier and retailer agree that the retailer will sell the supplier’s product at or above a particular price. RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price.
In the majority of cases, RPM is illegal because it constitutes vertical price-fixing, preventing retailers from offering lower prices and setting their prices independently to attract more customers.
Business’s understanding of RPM is poor
CMA research shows that businesses’ understanding of RPM is low. About one-third of the businesses surveyed incorrectly thought it was legal to set the price at which other businesses can resell their product, with another 37% uncertain on the rules.
Only 29% correctly responded that “it is unlawful to set the price at which others can resell your products”.
Tips for suppliers
If you are a supplier:
- You must not dictate the price at which your products are sold, either online or through other sales channels.
- Policies that set a minimum advertised price for online sales can equate to RPM and are usually illegal.
- You must not use threats, financial incentives or take any other action, such as withholding supply or offering less favourable terms, to make retailers stick to recommended resale prices.
Tips for retailers
If you are a retailer:
- You are entitled to set the price of the products you sell, whether online or through other sales channels.
- Suppliers are not usually allowed to dictate the prices at which you advertise their products online.
- If you have agreed to sell at fixed or minimum prices with your supplier, you may both be found to be breaking competition law.
The message from the CMA
The CMA takes RPM seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce.
Most businesses want to comply with the law. Not only because it is the right thing to do, but also because it is in their commercial interests to do so. That is why it is important to ensure that everyone in your organisation understands what they need to do to stay on the right side of the law.
The content of this Business Briefing is for information only and does not constitute legal advice. It states the law as at July 2016. We recommend that specific professional advice is obtained on any particular matter. We do not accept responsibility for any loss arising as a result of the use of the information contained in this briefing.