Does resale price maintenance infringe competition law?

Introduction

The Celle Regional Court recently clarified that agreements with distributors regarding minimum retail price can be legal if limited to a short promotional period.(1) The decision is welcome and follows a long-established line of European Court of Justice (ECJ) case law on hardcore restrictions with no considerable effect on the market.

In a clear resale price maintenance case, the court confirmed that not every hardcore restriction of competition necessarily infringes EU and German competition law. Instead, it must be established on a case-by-case basis whether the agreement has the potential of appreciably restricting competition. Agreements with distributors not to undercut a fixed minimum promotional price can be compatible with competition law if they apply only for a strictly limited period and cover only a limited product volume. In these cases, the agreements – even though restrictive of competition by their nature – cannot have any significant effect and therefore fall outside the scope of competition law.

Decision

The court decided on a promotional agreement between Almased (a low-calorie diet food manufacturer) and pharmacies, granting the pharmacies a discount on the purchase price on condition that the pharmacies' sale price was not less than €15.95. The bonus was available for 12 months, but was granted to each pharmacy only once and for a maximum of 90 units. The court established that pharmacies typically order according to demand and do not keep considerable stock. The Almased diet food was sold via different distribution channels, including pharmacies, drugstores and online. The promotional offer was available only to pharmacies.

The court had no doubts that the agreement on the minimum resale price was a clear case of resale price maintenance and, as such, a hardcore restriction of competition. The court also considered whether every hardcore restriction per se has an appreciable effect on competition, thus making it redundant to assess the potential effects on competition in all hardcore restriction cases. The court clearly dismissed the approach, referring to case law of the Federal Civil Court. In the case at hand, the agreement had the potential for only minor effects on the market because the promotional campaign was run for only a limited time and the discount was granted only on a limited order volume. The pharmacies were free to lower their product price once the stock from the privileged order was sold. End customers were free to buy the product at a lower price from other distribution channels to which the campaign did not apply.

The court briefly analysed the ECJ case law and rightly concluded that agreements qualifying as hardcore restrictions in the sense of the EU Vertical Block Exemption Regulation (Article 4) do not infringe Article 101 of the Treaty on the Functioning of the European Union (TFEU) if they have the potential of only an insignificant effect on the market, taking into account the actual circumstances (including the economic context of the agreement in question). The ECJ distinguished between infringements of competition by object and by effect. However, this distinction does not mean that restrictions of competition by object infringe Article 101 of the TFEU, even if they have only a theoretical effect on the market.

Comment

Whether there is an irrefutable presumption that all hardcore restrictions of competition have a significant effect on the market has been much debated in recent years. On the basis of a brief analysis of existing ECJ case law, the Celle Regional Court concluded that there is no such irrefutable presumption under EU law. Consequently, the potential for a sufficiently deleterious effect on the market must be established for resale price maintenance cases just as for any other type of agreement. Agreements between manufacturers and their distributors – according to which the distributors receive a special bonus for a limited period if they participate in a promotional campaign and demonstrate increased sales efforts – can be compatible with competition law, even if they prevent the distributor from selling below a fixed resale price for the promotional period. If such agreements do not have the potential for a significant effect on the market – especially if they are strictly time limited – there is no need to prove justification.

For further information on this topic please contact Nantje Johnston at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email ([email protected]). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

Endnotes

(1) See www.rechtsprechung.niedersachsen.de/jportal/?quelle=jlink&docid=KORE211182016&psml=bsndprod.psml&max=true (in German).