A new hope for vertical price fixing?

We like recurring themes on our blog. It has not been long since I wrote a post about the Kölsch part of the German beer cartel. But whilst a beer manufacturer will also be relevant in the following, I promise to leave out the folklore and focus on what the European Court of Justice (ECJ) had to say regarding retail price maintenance in a recent judgment. The judgement is drawing a lot of attention based on what it says on the classification of retail price maintenance under antitrust law, but there are two other aspects that are at least equally noteworthy.

Retail price maintenance (RPM) is, as we all know, when a manufacturer sets a fixed (minimum) price that retailers or distributors must sell their products at. RPM has been one of the enforcement priorities of regulators worldwide with fines in various industries in recent years. For occasional shoppers, this may not be surprising. Who does not know the feeling of certain products just being sold for similar prices everywhere? While there might be various (legal) reasons for this, the moment a salesperson tells you that they are “not allowed” to give discounts on a certain product, it is hard for a competition lawyer to resist the temptation of giving a competition law lecture on the spot.

Still, there do not seem to be many court decisions dealing with RPM. At first glance, this seems to be logical. Under the EU’s Vertical Block Exemption Regulation (VBER), RPM is considered a “hardcore” infringement. Leaves not much room for legal disputes, one could guess. But recently, the ECJ had to address several RPM-related questions in a judgement.

Easy story

The case can be summarized quickly: In 2019, the Portuguese regulator imposed a national-record fine of EUR 24 million on local brewery Super Bock for RPM. The RPM scheme allegedly related to the distribution of Super Bock’s beverages in hotels, restaurants and cafés from 2006 to 2017. Super Bock went to the appeal court which sent a request for a preliminary ruling to the ECJ, seeking guidance on various questions.

Difficult questions

As requested, the ECJ now provided its guidance on the issues raised by the appeal court. The judgment is well-written and an easy read – three elements of the decision stand out for me:

• Ask better questions: On almost two pages of a comparatively short judgment, the court lays out for which decisions it can and should be called upon by national courts. Giving the referring court a slap on the wrist, the ECJ stated that “it would have been desirable for the referring court to have set our succinctly and clearly its own understanding of the dispute […] and the questions of law […] rather than reproducing, in an excessively long form, numerous extracts from the file which had been submitted to it”. Further, “it would assist effective cooperation if it had also reformulated the questions suggested to it by the parties”. This would have allowed the court to give more specific and targeted guidance. In short, the ECJ is only able to give helpful guidance if the questions allow this.

• Different industry, different harm: Regarding legal substance, a key aspect of the judgment is the question whether one needs to assess the effects of RPM in order to find that RPM constitutes a restriction of competition by object.
  
  The ECJ clarifies that the “by object” concept must be interpreted restrictively and shall only apply to certain types of coordination which reveal a sufficient degree of harm. While vertical agreements are generally less detrimental to competition than horizontal agreements, they still have restrictive potential. However, vertical agreements require an assessment to determine whether the conduct causes significant harm to competition before being classified as a “by object” restriction. For this assessment, consideration must be given not only to the economic and legal context but also to “the nature of the goods or services”. To sum it up, RPM may be considered a “by object” restriction in one industry but not in another. The ECJ further clarifies that RPM being a hardcore infringement under the VBER basically has no meaning for the “by object” question. The “hardcore infringement” point is only relevant for assessing the VBER.

• Agreements require two parties: In my opinion, the most intriguing aspect of the judgment concerns the concept of “agreement” with respect to RPM. An infringement of Art. 101 TFEU requires an agreement, meaning a mutual understanding of two or more parties. In an RPM context, this can easily be forgotten as the manufacturer normally “imposes” conditions which retailers have to accept. But the ECJ reminds everyone that merely unilateral conduct is not enough. So, if despite the manufacturer’s request, the retailer does not adhere to the prices set by the manufacturer, it remains a unilateral price fixing attempt which is generally not prohibited under European law. This is different from German competition law, which explicitly prohibits companies from threating other companies and from causing disadvantages in order to induce them to engage in conduct which is prohibited under competition law (Section 21 (2)).

Glimpse of hope?

It should not be expected that the judgment will stop the trend of RPM enforcement, but it could give companies new ideas to defend RPM cases before European regulators and courts. By clarifying once again that RPM requires a mutual understanding of two parties, the ECJ invites the question if and under which circumstances fines should also be imposed on the retailer. Case law is limited, and it will be interesting to see how things develop in this respect.