CMA’s continued focus on resale price maintenance

On 29 June 2020 the CMA imposed total fines of £5.8 million for resale price maintenance (RPM) in the musical instruments and equipment sector, in three separate cases.  This follows the fines imposed in August last year on Casio (£3.7 million) and in January this year on Fender (£4.5 million) for similar conduct and brings the total of RPM infringement cases in this sector (in the UK) to five in less than a year.

The CMA has also, for the first time, imposed a fine for RPM on a retailer who agreed to implement the agreement despite previously having received a warning letter from the CMA making it aware that there was evidence it might be engaging in RPM.  Although in the case of RPM, retailers are party to the anti-competitive agreement, the CMA has so far only imposed fines on suppliers on the basis that the restrictions are imposed by them on the retailers.  In its open letter to the musical instruments sector the CMA advises retailers that, if they agree with suppliers to sell at fixed or minimum prices, they may be found to be infringing competition law.  Although addressed to the musical instruments sector, the open letter sets out practical guidance relevant to suppliers and retailers in all sectors.

It is also interesting to note that the infringing conduct was picked up through the CMA’s in-house price monitoring tool, which was developed by its Data, Technology and Analytics unit in order to detect suspicious online pricing activity.

Focus on RPM

RPM remains high on the CMA’s enforcement agenda because of its direct impact on consumers. The internet makes it easier for suppliers to monitor prices and/or discounts offered by retailers and thereby enforce compliance with a minimum or recommended retail price.  The CMA has particular concerns over practices that restrict retailers from advertising prices below the supplier’s recommended resale price (even though they are ultimately able to sell at such lower prices), because, according to the CMA, in the context of online sales, the price advertised online is normally the price paid by the customer.

Latest cases

In the latest cases, the CMA issued an infringement decision finding that Roland, a supplier of electronic drum kits, engaged in online RPM by restricting retailers from selling its musical instruments below a set minimum price.  A fine of £4 million was imposed on Roland.  Korg, a supplier of synthesisers and high-tech music equipment, was similarly found to have engaged in online RPM and was fined £1.5 million.

Roland and Korg both used price monitoring software, making it easier for them to monitor real time pricing and ensure compliance by their retailers.  In addition, both suppliers were also aware that their conduct was in breach of competition law and had taken steps to conceal what they were doing, but using its IT forensic tools the CMA nonetheless uncovered emails and messages from IT servers and mobile phones.  Both companies admitted the infringement under the CMA’s settlement process, which resulted in a 20% reduction of the fine.

The CMA also issued a statement of objections alleging that GAK, a retailer of musical instruments, and Yamaha had engaged in RPM in breach of the competition rules.  GAK admitted the infringement in a settlement agreement with the CMA and agreed to pay a fine of £278,945.  This is the first time the CMA has imposed a fine for RPM on a retailer, as opposed to the supplier.  GAK had received a warning letter from the CMA in 2015 making it aware that there was evidence that it was engaging in RPM, but had continued the illegal activity.  Yamaha had applied for leniency and will benefit from full immunity from fines if it continues to cooperate with the investigation.  The CMA’s final decision in this case is expected later this month.

In addition to the latest infringement decisions, the CMA has sent warning letters to 70 other suppliers or retailers of musical instruments suspected of having engaged in RPM.  Failure to terminate infringing conduct following a warning letter may result in an uplift in the fines imposed of 25%.

Open letter – practical guidance

The CMA has also written an open letter to suppliers and retailers in the musical instruments sector warning them that they should not participate in RPM as there is evidence suggesting that RPM has been widespread in this sector.  The open letter contains practical guidance that will be relevant to businesses in all sectors:

Guidance for suppliers

• Do not dictate the price at which your products are sold by distributors/retailers, online or through other channels
• Imposing a minimum advertised price for online sales will amount to RPM
• Indirect RPM (using financial incentives, withholding supplies, offering less favourable terms) is prohibited
• You will not be able to conceal your RPM agreements and doing so will only result in higher fines
• Use of price monitoring software is not prohibited but should not be used to support RPM

Guidance for retailers

• You must independently set the price of the products you sell
• Suppliers are not permitted to dictate the price at which you sell or advertise their products online
• If you agree with your supplier to sell at fixed or minimum prices you will be in breach of the competition rules
• Do not ask your supplier to influence your competitors’ prices.  If you report your competitors’ prices to your supplier you may be found to have instigated RPM which will result in higher fines and possible director disqualifications
• If you are asked to comply with a restrictive pricing policy you should report this to the CMA.

The CMA is not the only competition authority in Europe to be focusing on RPM.  So far in 2020 we have seen new investigations launched or fines imposed for RPM in Austria (musical instruments), Czech Republic (sports equipment), Finland (hardware supplies), France (fine of €1.1 billion on Apple and two wholesalers for competition law infringements including RPM) and Poland (investigations into office equipment and sports equipment), and the Dutch competition authority has stated that action against RPM is a future enforcement priority.

In the context of its review of the vertical agreements block exemption Regulation the EU Commission is also under increased pressure to provide further clarification as to the legal treatment of RPM, given the pro-competitive efficiencies that RPM can generate in certain market contexts.

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