NEWSLETTER COMPETITION 8/2018

RESALE OF GOODS AT PRODUCER DETERMINED PRICES. IS THAT ADMISSIBLE?

Producers often wish to exercise control over the prices at which their goods are sold. However, this is inadmissible under competition law and ranks among the most serious breaches of competition law. Businesses fixing resale prices has been analysed by the European Commission in four recently issued decisions with respect to electronics manufacturers.

 

 

The Commission imposed a total of EUR 111 million in fines on Denon&Marantz, Asus, Pioneer and Philips for producers influencing the resale prices applied primarily by online shops.

It is also another case an important element of which was businesses using price algorithms. In 2016, the British competition authority imposed a penalty on poster and frame Amazon sellers who applied price coordination software.  Another recent debate concerned the Partneo application, which was supposed to evaluate the highest price a consumer was ready to pay for the car parts displayed and set it at that level.

In the case of electronic goods manufacturers, the Commission found that the businesses violated competition law by entering into a price-fixing agreement, and the application of the algorithms served to enhance its effect. Some distributors applied software automatically adjusting prices to the prices of their competitors. Moreover, producers used price change monitoring software in the distribution networks that enabled them to exert pressure on sellers if the prices were too low. One producer also restricted sales abroad in order to retain different prices in different countries. A seller refusing to implement such imposed prices would receive a reminder with demand that they be increased and eventually would be threatened with supply denial.

Price-fixing is illegal both among competitors and in producer-distributor relations. And there is no difference whether the prices are fixed directly or by influencing their components (such as distributor’s margin or the level of discount granted to consumers). A distributor, even though it sells goods that it has not produced, still remains an independent business. And every business should be free in developing its business strategy, including price strategies. Therefore, only by way of exception can a producer have impact on the prices applied by its distributors.

Minimum prices or fixed prices will be virtually always forbidden. A specific example is the so called short-term low price campaigns. On the other hand, a producer can suggest to distributors recommended prices and maximum prices. However, where it undertakes activities resulting in such prices being actually fixed – then it will be in violation of the law. For instance, a producer cannot offer additional discounts for following its price recommendations or threaten to withdraw such discounts where the seller chooses to set prices independently.

In issuing the decision in the electronics manufacturers’ case, the Commission also reminded consumers that everyone who has suffered harm as a result of anticompetitive practices can seek damages from the participants of an anticompetitive agreement. We wrote on the facilitations in cases involving seeking damages for competition law violations in our July Newsletter.

 

CAN TERMINATION OF A PROMOTION AGAINST ITS TERMS AND CONDITIONS INFRINGE COLECTIVE INTERESTS OF CONSUMERS?

In organising a promotional campaign a business must adhere to its own terms and conditions, even if the campaign proves to result in harm to it. Such conclusion can be drawn from the decision of the President of the UOKiK concerning the campaign entitled “Buy Lidl’s own labels in a smart and cheap way. Absolute satisfaction or refund” (DOIK-2/2018).

A campaign organised by Lidl aimed at promoting its own labels. The consumers who bought Lidl’s own-branded products could return the goods within 30 days by submitting only the proof of purchase and packaging. It soon turn out that some customers took dishonestly advantage of the rules of the promotion by returning the packaging of the goods even within hours of the purchase, but retaining its contents. The terms of the promotion specifying the duration of the campaign (until 30 November) stated that the company can change them; however, it should inform consumers of such change on its website a minimum of 7 days in advance. On account of an unpredicted wave or returns, the company decided to terminate the promotion much earlier (i.e. 8 November) without observing the 7-day term.

President of the UOKiK held that such behaviour could have violated consumers’ collective interests. Terminating the promotion against its terms and conditions was held to be contrary to good practices. The authority underlined that the company should have taken into account the risk involved in organisation of the campaign and foreseen potential abuse by consumers. A sudden termination of the promotion prevented other consumers from taking advantage of the promotion in accordance with its terms.

However, the conclusion of the case appears to be most interesting. The company applied for a commitment decision, which was granted. The company undertook inter alia to organise e-learning courses for consumers covering such areas as consumer rights, complaint handling and alternative dispute resolution. The company is also to organise training for Consumer Spokesmen, their office staff, employees of the Trade Inspectorate, which representatives of the UOKiK will also be entitled to attend.

A motion for a commitment decision is one of the possibilities of escaping a fine for competition law infringements, and issuance of such a decision allows the applicant to avoid prolonged and complex administrative proceedings. The proposed commitments should be precise and unambiguous. Above all, however, they should be purposeful, i.e. bring an end to the violation in question and/or remove its effects. It is important that the President of the UOKiK should be in a position to monitor their performance.

Therefore, where the UOKiK instigates proceedings and a business may incur liability for competition law infringements, it may be worth considering the filing of such a motion.

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