Resale Price Maintenance Under Competition Law

 

Competition authorities look upon resale price maintenance (RPM) as a form of vertical restraint. It involves an upstream supplier (e.g. a manufacturer) selling its product to a downstream firm (e.g. a retailer) on the condition that the product is (re)sold to final consumers at a fixed price (fixed-price RPM); or at a specified price floor (minimum RPM); or a specified price ceiling (maximum RPM).

 

The treatment of RPM under competition law differs across jurisdictions.

 

In UK, EU, Australia and New Zealand, it is a per se offence because of its presumed harmful effects on competition and economic welfare. For example, an upstream supplier may make use of RPM to reduce or eliminate price competition between retailers who sell the product to final consumers; or to exclude competing suppliers from the market by providing incentives to distributors or retailers (e.g. through guaranteed margins) to stop stocking or selling the products of other manufacturers.

 

Until recently, RPM has also been treated as a per se offence under section 1 of the Sherman Antitrust Act in the US.  In a case involving minimum RPM, the Supreme Court (‘the Court’) overturned the per se rule and judged that its legality should be based on a rule of reason (competition) analysis.[1] This ruling reflects the Court’s earlier decisions which apply the rule of reason standard to maximum RPM.[2] In Leegin, the Court did not consider the per se rule to be appropriate for a minimum RPM agreement that has the effect of promoting “interbrand competition among manufacturers selling different brands of the same type of product by reducing intrabrand competition among retailers selling the same brand”. Legal challenges to such an agreement will need to show it has or will lead to higher prices, less consumer choice, greater monopoly power or collusion among manufacturers.

 

In Canada, RPM is only prohibited when there is evidence that it has or is likely to have an adverse effect on market competition.[3]

 

In Malaysia, RPM is not specified as a per se offence under the Competition Act 2010. Nonetheless Malaysia Competition Commission (‘MyCC’) has expressly adopted a stand in its “Guidelines on Chapter 1”:

 

 

 

 

 

 

 

 

In light of this, a Malaysian manufacturer who wishes to engage in RPM would be well-advised to document:

 

• the business rationale for its RPM scheme (e.g. marketing or branding strategy);

• the actual or likely sources of vertical restraints on distributors and/or retailers, including the level of mandated price mark-ups;

• its share of the relevant market;[4]

• the degree of market rivalry with other manufacturers selling substitutable products (level of inter-brand competition);

• the number of competitors who have adopted RPM schemes;

• the actual or potential efficiency gains and benefits conferred (upon distributors, retailer and final consumers).

 

CLEC has the expertise and experience to assess the pro- and anti-competitive effects of RPM schemes in the market context in which such agreements are intended or proposed.

 

 

 

[1] Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

 

[2]         State Oil Co. v Khan, 522 U.S. 3 (1997).

 

[3]        Competition Act (Canada), section 76.

 

[4] It is worth noting that the Australian Competition and Consumer Commission (‘ACCC’) has recently authorised Tooltechnic Systems (Aust) Pty Ltd to engage in RPM on the ground that Tooltechnic holds a very small share of the market. See ACCC 2014, ACCC authorises minimum retail process on Festool power tools, media release 5 December, Canberra.