Bundeskartellamt publishes guidelines on resale price maintenance

Earlier this year the Bundeskartellamt published a draft guidance paper on the prohibition of vertical price fixing and resale price maintenance. The guidance paper relates to the brick-and-mortar food retail sector; however one can also draw general conclusions from the guidance paper how the Bundeskartellamt approaches cases in relation to vertical price fixing and resale price maintenance. The guidance paper is a reaction of the Bundeskartellamt to several proceedings which were conducted in recent years in which the Bundeskartellamt intervened in vertical cases in the food retail sector. In these cases the Bundeskartellamt imposed fines on retailers as well as manufactures who engaged in various price fixing activities. Hence the guidance paper is influenced by the experience of the Bundeskartellamt made in these cases. Additionally the Bundeskartellamt issued guidance to the parties of these proceedings to stop infringing behaviour which has been used in practice also beyond these proceedings and the authority wants to formalise and extent the guidance given. Currently the Bundeskartellamt is reviewing the answers in received during the consultation period in order to prepare a final version.

The guidance paper is relatively detailed with regard to common practices on the market and will certainly help companies with their compliance. However the guidance paper unfortunately lacks a detailed discussion of issues which could be called “grey area”. Hence, the guidance paper discusses in detail various cases in relation to vertical price fixing and seeks to draw a line between clearly infringing behaviour and legal activities of manufacturers and retailers. The various groups of cases which are being discussed are agreements on fixed and minimum prices, recommended resale prices, quantity management and promotion planning, guaranteed margins, termination of an on-going or refusal to engage in business relationships, and data exchanges between retailers and suppliers. We will have a closer look at the cases of fixed and minimum prices, recommended resale prices, guaranteed margins and data exchanges between retailers and suppliers.

Agreements on fixed and minimum prices

In the section on agreements on fixed and minimum prices, the Bundeskartellamt discusses relative clear cut cases where manufacturer and retailer agree on certain fixed or minimum resale prices including linking the retail price to the prices of competitors of the retailer or providing the retailer with incentive such as a separate rebate to adhere to a recommended retail price.

The Bundeskartellamt gives some practices notes to retailers to avoid an infringement by opposing the actions of the manufacturer, pointing out the legal situation and, if necessary, by contacting the competition authorities. But the Bundeskartellamt also acknowledges that this may not be in all cases a viable option for a retailer if it is depended on the manufacturer or does not have sufficient buyer power. In such cases the retailers are advised to at least document threats by the manufacturers to be able to proof that the retailer did not initiate the price fixing practice which can prove favourable in subsequent proceedings. However the Bundeskartellamt makes it clear that it expects retailers and in particular retailers with buyer power to oppose such practices of manufacturers.

Recommended retail prices

In the section on recommended retail prices the Bundeskartellamt states that suppliers are, in general free to explain their opinion and reasons for a recommended retail price as long as the non-binding character of their recommendation is not put in doubt or additional information are provided to influence the retailer in an anti-competitive way.

This section of the guidance is to be seen against the background of the earlier decisions of the Bundeskartellamt where it took a relatively strict view in relation to the communication and re-discussion of recommended resale price once these have been communicated to the retailer. In such an earlier case the Bundeskartellamt was of the view that already re-discussing recommended retail prices after their initial communication can amount to an infringement of competition law. In this regard the Bundeskartellamt clarifies that it will not intervene if a manufacturer who is not important or crucial for the success of the retailer (who has a strong buyer power) discusses the recommended resale price during the normal annual negotiation (which are regularly practice in the food sector) and then again during the course of the year. In such a situation the retailer will not take the reference to the recommended resale price as a “threat” with negative consequences for the retailer. However the Bundeskartellamt upholds its position that re-discussing recommended resale prices already a second time can amount to an infringement in certain circumstances where this can be seen as a threat to observe the recommended resale price. This can be the case where the manufacturer provides an important product and the retailer is dependent or the success of the retailer is dependent on selling this product.

Guaranteed margins

With regard to guaranteed margins, the guidance paper identifies two particular critical issues, ie (1) the supplier guarantees a certain (minimum) margin to the retailer and (2) the retailer requests a compensation payment if the expected margin cannot be realised. The Bundeskartellamt states that such arrangements of guaranteed margins for the retailer can amount to an infringement under German law. Leaving aside considerations regarding a dominant market position or either party which can raise issues under the rules on abusive conduct, the structure of such an agreed margin can be problematic with regard to the prohibition of vertical price fixing as such a guaranteed margin can give the retailer an incentive to observe the recommended resale price. Also the guaranteed margin shifts the usual risk which the retailer has to bear to the manufacturer which again can be an incentive to observe the recommended resale price or ease an agreement between the parties in this regard.

Data exchanges between retailers and suppliers

In relation to the data exchanges between retailers and suppliers the Bundeskartellamt highlights that the provision of sales data on the product of manufacturer by the retailer to the manufacturer is in most cases unproblematic. However the Bundeskartellamt determines certain boundaries for such exchanges. These data exchanges may not lead to an agreement regarding the price setting behaviour of the retailer as such a data exchange can be part of a system to supervise control the price setting of the retailer in accordance with the communication by the manufacturer. A crucial point will be how current the data is. For example, the Bundeskartellamt identifies that a gap of three months regarding the age of the data is usually not an indication for illegal conduct based on case experience of the Bundeskartellamt.

Enforcement priorities

The Bundeskartellamt also explains its enforcement priorities. In this regard the Bundeskartellamt states that the structure of the market (eg market position of the manufacturer and the retailer as well as the degree of concentration on the market), the complexity of the product is complex and whether the product requires additional services by sales personnel as well as other criteria such as the extend of the binding effect on consumers and distribution agreements on the market will drive the decision to intervene in penalty proceedings or administrative proceedings. These criteria show that the Bundeskartellamt will focus on clear infringements with broad market effect when conducting penalty proceedings and may use administrative proceedings for less clear cases.