Overview
Yesterday, in four separate decisions, the European Commission (EC) fined consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer €111 million for imposing fixed or minimum resale prices on their online retailers, as well as limiting the ability of retailers to sell cross-border (see press release here).
The topic of vertical restraints is admittedly not new – quite the opposite, in fact. However, yesterday’s decisions are highly relevant for businesses engaging in e-commerce, as they are the first ones to take stock of the EC’s findings in the recent e-commerce sector inquiry, in particular as far as pricing algorithms and monitoring softwares are concerned.
Background
Yesterday’s announcement comes on the heels of the final report of the EC e-commerce sector inquiry, which the EC released in May 2017. The report flags a tendency for manufacturers to seek greater control over their online distribution networks, which in turn results in a number of antitrust issues in the online space, including:
- The widespread use of pricing restrictions (resale price maintenance, or RPM), which affects 42% of the respondents to the inquiry. According to the EC, the online space is prone to such restrictions, due to the increased price transparency online as well as the use of pricing software that allow for the automatic adjustment of prices, based on the observed prices of competitors;
- Geographic restrictions to sell, also known as geoblocking. According to the final report of the EC, such restrictions affect 11% of the respondents to the consumer goods section of the inquiry. They may be caught by Article 101 TFEU when adopted as part of an agreement between supplier and retailer – not when adopted unilaterally by the latter.
As a follow-up to the inquiry, the EC immediately announced the launch of several investigations into suspected anti-competitive vertical restraints in e-commerce in three sectors: consumer electronics (concluded yesterday), video games, and hotels (which are both ongoing).
First Glimpse into RPM in the Digital Age
While the non-confidential version of the consumer electronics decisions will not be published before a few more weeks, if not months, the EC press release already provides useful practical guidance on RPM in the online space.
The RPM practices themselves took a fairly traditional form. Online retailers who would not follow the prices imposed by the manufacturers would face threats or sanctions, e.g. blocking of supplies. In addition, Pioneer backed its RPM policy with a limitation of cross-border sales in order to sustain different resale prices in different Member States.
More importantly, the effect of these RPM practices was amplified and maximized by the use of online tools:
- Sophisticated monitoring tools allowed manufacturers to track deviations from the imposed price and to intervene swiftly in case of price decrease;
- Since most online retailers use pricing algorithms that automatically adjust retail prices to those of competitors, the RPM practices impacted not only the distributors of the infringing parties, but the overall industry, thus leading to higher prices for consumers.
As a result of the above findings, and despite the cooperation of the infringing parties, the EC imposed significant fines: €63.5 million to Asus, € 7.7 million to Denon & Maratz, €29.8 million to Philips and €10.1 million to Pioneer. Interestingly, these fines include reductions for ‘providing evidence with significant added value and by expressly acknowledging the facts and the infringement’ ranging from 40 to 50%. While the press release makes no reference to them, this language echoes that of the leniency and settlement procedures – which are strictly limited to cartels. To the best of our knowledge, it is the first time that the EC makes implicit use of these rules in the context of vertical restraints.
More to Come
For the past decade, the EC largely left the enforcement of RPM in the hands of national competition authorities. These days are now over: more decisions are coming, and the EC is sending a clear signal that the risk of fine is more serious now than ever.
For businesses operating online, yesterday’s decisions are a useful reminder that they should be extra careful when engaging with their online distributors. In this regard, while the use of pricing algorithms and monitoring softwares is lawful under EU competition law, they should never become instruments that support a RPM policy – a message that may be worth (re) conveying to your commercial teams.