- Introduction
The EU Commission has always taken a very strict approach on the issue of resale price maintenance, leaving practically no space for exceptions in cases where a certain control over resale prices by members of the distribution network would be necessary for avoiding aggressive price competition, which has been made easier by the access of distributors to Internet.
The EU Commission does not even accept maximum price advertising (MAP) agreements, whereby the reseller agrees not to advertise prices below those recommended, although remaining free to set a lower sale price, in particular by stating in § 189 of the Guidelines that:
« ... Although in principle MAPs leave the distributor free to sell at a price that is lower than the advertised price, they disincentivise the distributor from setting a lower sale price by restricting its ability to inform potential customers about available discounts. A key parameter for price competition between retailers is thereby removed. For the purpose of applying Article 4, point (a) of Regulation (EU) 2022/720, MAPs will therefore be treated as an indirect means of applying RPM.»
This quite inflexible approach taken by the EU towards resale price maintenance, creates substantial problems within distribution agreements, especially since it has become very easy to advertise competitive prices through the internet.
Suppliers need to be able to protect their distribution network from too aggressive pricing policies of distributors, for instance by requiring the respect of a price level compatible with the image of their products.
It may be that this extremely rigid position of the Commission is due to the fear that by opening any space to RPM agreements, the situation would get out of control. However, we must consider that advertising excessively reduced prices may substantially affect the functioning of the distribution network, and that a MAP agreement providing expressly that the distributor remains free to fix the resale price, would be an important means for limiting aggressive advertising practices which can disrupt the distribution system.
Considering all this, it is important to underline the more flexible position take by the Court of Justice in the Super Bock case which might become the basis for a more realistic and flexible approach to the above issue.
- The Super Bock case
The case deals with the distribution of Super Bock beer in Portugal network through a network of exclusive distributors established throughout the country. According to the EU Commission:
« Super Bock regularly fixed and imposed, universally and without change, on all distributors, the terms of business which they were required to comply with when reselling products that it had sold to them. In particular, Super Bock fixed the minimum resale prices with the aim of ensuring a stable and consistent minimum price level throughout national market.
In the event of non-compliance with those prices, the distributors explain that, in accordance with the terms of business set by Super Bock, there were ‘retaliatory’ measures, such as the removal of financial incentives, comprised of trade discounts on the purchase of products and the reimbursement of discounts applied by distributors to resale, and the refusal to supply and replenish stocks. They thus risked losing the guarantee of positive distribution margins that had been granted to them under those marketing terms.»
The Portuguese competition authority decided that the above agreements constituted an infringement of the competition rules and imposed fines. Appeal was brought before the Tribunal de Relação de Lisboa which referred the matter to the Court of Justice, asking in particular a preliminary ruling on the following question:
Does the vertical fixing of minimum prices constitute in and of itself an infringement by object which does not require a prior analysis of whether that agreement is sufficiently harmful?
As the Court expressly noted, the Lisboa Court of Appeal had been very concise in dealing with the matter, by avoiding to examine in detail the specific context of the case and limiting itself to decide the question in abstract terms.
As the Court expressly stated:
« In those circumstances, although the preliminary reference is admissible as it meets the conditions of Article 94 of the Rules of Procedure, the Court is in a position to be able to provide the referring court with minimal and general indications only so as to provide guidance as to the application of Article 101 TFEU in the circumstances of the dispute in main proceedings».
- The issue to be decided
The main issue on which the Lisboa Court asks a preliminary ruling is:
« … whether Article 101(1) TFEU must be interpreted as meaning that the finding that a vertical agreement fixing minimum resale prices constitutes a ‘restriction of competition by object’ may be made without first examining whether that agreement raises a sufficient level of harm to competition or whether it may be presumed that such an agreement, of itself, presents such a degree of harm».
In other words, do resale price maintenance agreements necessarily imply a restriction of competition by object and consequently are they to be prohibited per se by Article 101 TFEU, or is this only a presumption which can be overcome whenever the agreement does not raise a sufficient level of harm to competition?
This issue is of crucial importance since until now the EU Competition authorities have refused to admit circumstances which could justify price maintenance agreements, especially by balancing positive against negative effects of this kind of restrictive practice.
According to the Court the essential legal criterion for ascertaining whether an agreement involves a “restriction of competition by object” is a finding that agreement in itself presents a sufficient degree of harm to competition. And in order to determine whether that criterion is met:
«…regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the actual conditions of the functioning and structure of the market or markets in question».
In other words, although RPM agreements are presumed restrict competition, this presumption can be overcome when it appears that they do not sufficiently harm competition, which situation may occur especially where the parties rely on their procompetitive effects. As the Court expressly stated at § 36:
« … where the parties to the agreement rely on its procompetitive effects, those effects must, as elements of the context of that agreement, be taken into account. Provided that they are demonstrated, relevant, intrinsic to the agreement concerned and sufficiently significant, those effects may give rise to reasonable doubt as to whether the agreement concerned caused a sufficient degree of harm to competition. »
The Court concludes, at § 37, that:
in order to determine whether a vertical agreement fixing minimum resale prices involves the ‘restriction of competition by object’, within the meaning of Article 101(1) TFEU, it is for the referring court to ascertain whether that agreement presents a sufficient degree of harm for competition in the light of the criteria recalled in paragraphs 35 and 36 of this judgment.
- The approach to the issue of restrictions by object
The principle that certain agreements can be considered by their very nature as restricting competition has been expressed by the Court of Justice in the Technique Minière case of 30 June 1966 where it is said that an agreement can be considered as restrictive by object – and consequently be caught by the prohibition of Article 101(1) – where such restrictive object results:
«… from all or some of the clauses of the agreement considered in themselves»[1].
The basic idea on which this reasoning is based is that there are agreements which by their very nature restrict competition without need to verify their actual effects on the market.
This assumption has however been tempered in the following years by the consideration that agreements which are to be qualified as restrictions of competition in abstract terms (“by their very nature), may nevertheless escape the prohibition of Article 101(1) when they do not actually present a sufficient harm to competition, i.e. in the presence of circumstances which exclude their negative impact on competition.
The notion of agreements which are restrictive by object must be interpreted strictly: in several cases the Court has refused to qualify certain agreements as restrictions by object.
Thus, in the Maxima Latvja case[2], the Court stated that:
- « § 21… the essential legal criterion for ascertaining whether an agreement involves a restriction of competition ‘by object’ is therefore the finding that such agreement reveals in itseld a sufficient degree of harm to competition for it to be considered that iti is not appropriate to assess its effects.
- § 23. Taking account of the economic context in which agreements, such as those at issue in the main proceedings are to be applied, the analysis of the content of those agreements would not, on the light of the information provided by the referring court, show, clearly, a degree of harm with regard to competition, sufficient for those agreements to be considered to constitute a restriction of competition “by oject” within the meaning of Article 101(1) TEFU.
More recently, the Court confirmed its position in the Visma case[3] in the following terms:
« … an agreement concluded between a supplier and a distributor under which the distributor that was the first to register the potential transaction with the end user enjoys, for six months from the time of registration of that transaction, ‘priority in progressing the sale process’ unless that user objects, cannot be classified as an ‘agreement which has as its object’ the prevention, restriction or distortion of competition within the meaning of that provision, unless that agreement, in view of its provisions, objectives and context, may be regarded as revealing such a sufficient degree of harm to competition as to be so classified ».
The Super Bock case follows this line of reasoning, but its actual importance is due to the fact that it refers to a category of agreements which have always considered as restrictive without leaving any space for exceptions of any kind.
- The coordination with the prohibition of hardcore restrictions
Article 4(a) of the block exemption 720/2022 at present in force excludes the benefit of the block exemption for agreements which have as their object:
« … the restriction of the buyer’s ability to determine its sale price, without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties. »
This means that vertical agreements imposing the respect of minimum resale prices cannot benefit of the block exemption 720/2022, but it does not exclude that RPM agreements which do not cause a sufficient harm to competition (in compliance with the principles affirmed by the Court in the present case) would not fall under the prohibition of Article 101 (and would consequently be legal independently of the block exemption.)
In other words, an RPM agreement which does not cause a sufficient harm to competition does not need to benefit of the exemption because it should be considered a priori as lawful.
However, this conclusion gives rise to a first problem. If the RPM agreement contains additional restrictions would these be lawful as well?
- The actual evaluation of harmful/non-harmful restrictions
The critical issue which could not be decided by the Court of Justice, due to the lack of information about the actual functioning of the network and the respective pricing policies, remains unanswered.
It will be for the Lisbon Court to decide to what extent the RPM system at stake is sufficiently harmful to competition, for the purpose of qualifying it as a restriction by object. This evaluation would imply an analysis of its potential effects on the market and of possible pro-competitive aspects which may prevail over the restrictive ones.
This is an issue on which there are no judicial precedents, due to the rigid approach taken in the past by the EU antitrust authorities, consisting in avoiding any discussion about possible pro-competitive aspects of RPM.
- Conclusions
The Super Bock case can open new spaces for a more flexible approach to RPM, for which we should prepare, also taking into consideration the developments which have taken place in the last years in the US.
Considering the need for companies managing distribution networks to prevent and/or control excessive forms of price competition at the resale level, which have been facilitated by the growing importance of sales on the Internet, a revision of the current approach to RPM appears to be necessary and the Super Bock Case might be the occasion for developing a more realistic approach to this crucial issue.
[1] Court of Justice, 30 June 1966, case C-56/65, Société Technique Minière v. Maschinenbau Ulm.
[2] Court of Justice, 26 Nov. 2015, case C-345/14, SIA Maxima Latvija v. Konkurences padome.
[3] Court of Justice, 18 Nov. 2021, case C-306/20, SIA Visma Enterprise v. Konkurences padome
Further information about Antitrust aspects related to distribution is available in the Antitrust Report section of the IDI website, which has just been updated.
Fabio Bortolotti, IDI President and Country expert for Italy
