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Minimum resale price maintenance (“MRPM”) has been outlawed for many years, most recently under section 5(2) of the Competition Act, 1998, which prohibits the practice on a per se basis (ie, it is presumed anti-competitive by object). This prohibited practice also attracts an administrative penalty of up to 10% of a firm's annual turnover for a first time transgression.
Resale price maintenance- the easy choice
Minimum resale price maintenance (“MRPM”) has been outlawed for many years, most recently under section 5(2) of the Competition Act, 1998, which prohibits the practice on a per se basis (ie, it is presumed anti-competitive by object). This prohibited practice also attracts an administrative penalty of up to 10% of a firm's annual turnover for a first time transgression.
Most suppliers and their retail customers and distributors are well aware that on-selling of goods should take place at a price that is not determined by the supplier, but independently by the retailer or distributor, with reference to own costs, own business model and profit expectations in its market. In turn, competition is bolstered as consumers can shop around for the best prices, and distributors are encouraged to improve their efficiencies. This also explains why the setting of a maximum resale price is not prohibited outright – resellers may undercut the maximum any time, providing scope for price competition.
Suppliers have many reasons for trying to maintain the retail price of their goods. In many cases, the chosen price point and positioning is perceived to affect the image and value of a brand, distributors can be incentivized to trade in and invest in the promotion of the product as free riding can be discouraged through MRPM, in cases of multiple distribution channels the supplier (and distributors) could be protected against intra-brand competition, and the risks of creating new markets can be lessened. Many jurisdictions have moved away from a per se prohibition of MRPM, recognizing that competition can be fostered in other ways and that depending on circumstances, maintaining prices may be efficient.
As the recommendation of a resale price is permissible, it is normal for suppliers to publish their retail price wish lists in the hope that the distributors sell at the list price. However, suppliers must make it clear the recommendation is non-binding and it remains the prerogative of the retailer and distributor to choose the resale price, which legitimately would be equal to the recommended or list price. Sometimes, the suppliers overreach themselves in forcing sales at their recommended price, which can fall foul of the prohibition against MRPM.
In the leading case on the subject involving Federal Mogul, the Competition Appeal Court said that to prove MRPM "it suffices to produce evidence which shows that a supplier has imposed on its distributors a price at which its goods are to be resold and the distributors are thereby induced to comply with this minimum price on pain of a sanction for non-compliance". In the 7-11 saga, the Competition Tribunal pointed out that an obligation to sell at a specific price also amounts to MRPM.
Over the years, the competition authorities have dealt with various "repetitious or habitual conduct" involving recommended and list prices, translating to MRPM. The Competition Appeal Court has suggested that the notion of a "practice" means that for RPM to be prohibited there should be more than a single, isolated event.
Most recently in October 2012, Pentel SA, a firm wholly owned by a Japanese manufacturer of stationery products, admitted to the contravention of the Competition Act and agreed to pay an administrative penalty of just short of R3 million. Pentel SA supplies stationary to local independent distributors under contract and required them "to resell stationery products as per the prices published on the price list taking the discount offered to them by Pentel South Africa as their profit margin" and adherence to the list price was enforced by threats of cancellation of the distribution agreements and withdrawal of discounts.
The competition castigation of local car manufacturers of some years ago illustrates the various methods devised by suppliers to maintain minimum resale prices under guise of price recommendations. For example, the manufacturer of Volkswagen agreed with its Gauteng dealers that no discount off the recommended retail price list should be allowed on a newly launched vehicle and compliance was monitored; Nissan paid rebates to its dealers if they complied with its fleet sale policy involving recommended maximum discounts, as audited; Toyota levied fines on its dealers who contravened its prescribed maximum discount policy; General Motors expected its dealers to earn a minimum margin on sales of certain new vehicles, and ensured by disciplinary action and possible review of the franchise, whilst Citroen encouraged its dealers to charge its recommended prices through audits and a refusal to supply a certain vehicle.
It is not always easy to determine whether a supply results in a re-sale under the Competition Act. Unquestionably, a supplier distributing goods using a true agent is in law distributing and selling the goods itself, and no resale and MRPM is involved. Once a distribution relationship involves the distributing agent undertaking responsibility, for example, for damages caused by the product, risk of inventory, investment in equipment, premises, training and promotions, and for non-paying of customers, it must be considered carefully whether the agent is actually an independent reseller, in which case MRPM is problematic as explained. Business models involving consignment and franchises should also be checked for the practices of MRPM.
If a consumer is told that the retail price is not negotiable as it’s the listed or recommended price of the supplier, this can only be lawful is the retailer freely and independently prefers to sell at that price. Otherwise it could be an indication of MRPM. Suppliers might bear in mind the case brought against Oakley some time ago, where a consumer "shopping around" found that all outlets were charging the same price for sunglasses.The consumer alerted the Competition Commission which brought charges against Oakley.
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Petra Krusche is a director in Cliffe Dekker Hofmeyr's Competition practice. She is involved in all aspects of that field of law and has gained a good understanding of the FMCG sector through work for firms in FMCG retail and supply.... VIEW MY PROFILE |
