Water cooler and triangular chairs

Online resale price maintenance practices attract highest fines yet from the CMA

05 February 2020. Published by Lambros Kilaniotis, Partner and Melanie Musgrave, Senior Associate

The CMA announced on 22 January 2020 that it has fined Fender, the guitar manufacturer, £4.5 million for illegal resale price maintenance practices ("RPM").

From 2013 to 2018, Fender had required retailers to sell its guitars online at, or above, a minimum price. The CMA found evidence that, on being tipped off about non-compliance with this pricing policy, Fender would sometimes pressurise retailers to increase their online prices. 

The CMA noted that online sales of musical instruments has grown to c.40% of total sales which are worth c.£440 million annually and that guitars represent a significant part of these sales. It was, therefore, "even more important" that musicians have access to competitive prices online. 

Although this is the CMA's largest fine to date for competition law infringements involving RPM, Fender had benefited from a 60% fine reduction as a result of its leniency application and a further 20% reduction under the CMA's settlement procedure, as it had admitted that it had acted illegally and had co-operated with the CMA throughout its investigation.

RPM

RPM involves a retailer agreeing (or at least acquiescing) with a manufacturer to sell the latter's products at, or above, a minimum price, set sometimes under the guise of a 'Recommended Retail Price' or RRP, rather than determining its retail prices independently. RRPs are not problematic from a competition law perspective, provided that they are just that, simply a recommendation, and that there are no incentives or threats from the manufacturer to 'encourage' a retailer to adhere to these prices. RPM can sometimes be indirect, such as a limitation on the extent to which a retailer can discount from the RRP or a restriction on the retailer advertising lower prices online. 

RPM enforcement action

Although internet shopping provides consumers with many benefits, it also makes it easier for manufacturers/ suppliers to track the prices at which their products are being sold and to then take prompt action if retailers are not adhering to their pricing policies.

Both the CMA and the European Commission have been active in investigating RPM cases in recent years.  In August 2019, the CMA had fined Casio £3.7 million for illegal RPM in relation to digital pianos and keyboards. The CMA's three previous RPM infringement decisions involved diverse sectors, namely: light fittings; bathroom fittings; and commercial refrigeration. In its latest press release, the CMA pointed out that in 2018 it had issued four advisory letters and thirty-four warning letters about RPM, thereby alerting many companies to the illegality of RPM and prompting them to act to ensure compliance.

In addition, the CMA has published on its website guidance, case studies and an open letter to suppliers and retailers about RPM practices and competition law compliance. 

The message for manufacturers and retailers

With this fifth infringement finding and highest fine to date, manufacturers and retailers alike are on notice that the CMA takes RPM very seriously and that RPM is illegal.

Although in the RPM cases to date, the CMA has used its discretion and only addressed its infringement decision to the manufacturer, retailers cannot afford to assume that this will always be the case and that, going forward, the CMA will not also find that the retailers themselves have infringed competition law by agreeing to adhere to the manufacturer's minimum prices, with all the consequences which such a finding then entails.  In some RPM cases, it has been found that retailers have monitored their competitors' pricing compliance and reported non-compliance back to the manufacturer. The CMA is well aware that retailers can face a business dilemma between competition law compliance and adherence to a manufacturer's minimum pricing policy so as to ensure supplies. However, it encourages retailers to come forward and report RPM to it. 

Manufacturers should be very careful in relation to their pricing strategies and engagement with retailers, particular in relation to RRPs. It is not inconceivable that an overzealous employee may inadvertently engage in RPM by trying to encourage higher resale prices in their discussions with their buying counterpart at the retailer.  However, in its investigation into Fender, the CMA discovered that certain employees had deliberately sought to hide their illegal actions by minimising what was put in writing. In relation to Casio, the CMA noted that Casio had used new software which made "it easier to monitor online prices in real time and ensure widespread compliance with its pricing policy".

Whether a retailer or a manufacturer, it would be prudent to revisit your competition compliance programme and training, if you have not recently done so, to ensure that: (i) there is a clear message about the need for competition law compliance; (ii) everyone understands the potential issues in relation to their particular job role and is able to spot possible issues,  including RPM;  and (iii)  there is an effective internal reporting system to deal with any queries or potential concerns whether about the company's own practices or those of a third party. 

Legal advice should always be sought promptly, if there are concerns about potential RPM or other anti-competitive practices so that due consideration can be given as to what action the company should take, if appropriate.