Background
The UK Competitions and Markets Authority (CMA) has fined Dar Lighting Limited (Dar) – a lighting products supplier, £1.5M for engaging in “resale price maintenance” (RPM). CMA's press release can be found here.
What is resale price maintenance?
RPM is when a supplier prohibits retailers from selling products below a certain price. RPM is a hardcore restriction which is prohibited under Chapter I of the Competition Act 1998 and which cannot benefit from a vertical agreements block exemption.
RPM is considered highly detrimental to consumers as it keeps the prices of goods artificially high by preventing resellers from lowering prices to be more competitive, meaning the natural course of competition cannot take effect.
CMA investigation
Following an investigation of Dar's trading practices, the CMA found that Dar engaged in RPM, preventing retailers from setting their own prices and from offering discounts on Dar’s products. These breaches took place between 2017 and 2019.
Dar operated a "selective distribution system" to sell its products, meaning that it agreed to only supply them to approved retailers who met certain criteria. On their own, selective distribution systems are legitimate provided certain boundaries are respected, and they are often used to help protect a business’ brand.
However, the CMA discovered that Dar had prevented its approved retailers from setting their own prices and from offering discounts when selling Dar’s products online. This was therefore considered to be anti-competitive.
Interestingly, such anti-competitive pricing restrictions were not explicitly contained in the relevant distribution agreements. Instead, Dar’s branding guidelines contained provisions which, according to the CMA, “supported an environment which would seem inimical to discounting”. For instance, Dar imposed strict instructions as to how its products should be featured on retailers’ websites, a failure of which to do so would be considered a material breach of the agreement.
According to the CMA, the manner in which the branding guidelines were communicated and enforced by Dar created an impression that retailers were not permitted to offer discounts, as this would not be compatible with the goals of this particular distribution system. In support of this conclusion, the CMA relied on both internal communications between Dar’s employees and communications between Dar’s employees and retailers themselves.
Decision
Considering the facts as a whole, the CMA held that Dar's trading practices fell foul of UK competition law, as by prohibiting its retailers from advertising and selling Dar's products below a minimum price gave rise to RPM.
This case serves as a useful reminder that even if a distribution agreement does not contain any express terms restricting competition, the overall way in which the distribution system is operated and policed may still be anti-competitive and in breach of competition law.
Therefore, if you are a supplier within a selective distribution system it is important to make sure that your sales personnel are suitably trained to ensure that their commercial strategies do not breach competition law.
If you are concerned that any of your business’ practices involve RPM or any other trading activities which could fall foul of the prohibitions set out in the Competition Act 1998, and you would like advice on the options available to you, please contact one of the authors.
