Antitrust Risk: German Antitrust Agencies Continues its Active Pursuit of Resale Price Maintenance Cases with EUR 8 Million Fine

August 21, 2012

 

On August 20, 2012, the German Federal Cartel Office (Bundeskartellamt, FCO) fined TTS Tooltechnic Systems Deutschland GmbH, the manufacturer of high-end power tools sold under the Festool brand, a total of €8.2 million for introducing and operating a system of resale price maintenance (“RPM”). The FCO found that TTS had demanded strict adherence from the members of its selective distribution system to the “non-binding” price recommendations. The company apparently threatened negative consequences, such as abolishment of favorable trading conditions or the termination of their supply agreements, if retailers deviated from these suggestions.

The case was triggered by complaints from some of the distributors. In a novel move, the FCO decided to call as witnesses what it described as “a representative sample of retailers,” who are required under German law to testify fully and truthfully. This is noteworthy in particular because the retailers were technically party to the infringement (under German law RPM is not treated as a unilateral action of the manufacturer). It does follow a trend in enforcement practice, though, where the FCO has consistently punished manufacturers and has not imposed sanctions on the retailers.

It is generally accepted that non-binding recommendations for resale prices do not in themselves constitute a competition law infringement. However, beyond the issuance of such recommendations, it is not always clear how far manufacturers are allowed to go when it comes to discussing pricing with retailers. A letter to the parties of a major investigation in the food sector, which was subsequently published by the authority, added to the confusion by adopting a very restrictive approach. However, officials acknowledge that some discussion of retail prices is an integral part of the business relationship and have tried to qualify the statements in this letter as relating only to the particular case. However, the situation is a difficult one for manufacturers to navigate. When doing business in Germany, companies must carefully evaluate their distribution policies and practices, particularly when using recommended retail prices.

It is important to understand that compliance does not only concern distribution policies as such, but extends to the training of the sales force. Some aggressive remarks by a single member of the sales team may already constitute an infringement—the prohibition does not only apply to RPM “systems.” Neither does it require the efforts to be successful—the unsuccessful attempt to set retail prices can be punished as much as the implementation of an effective system of RPM. To make matters worse, immunity is not available in such cases. As Garmin, the manufacturer of outdoor navigation aids, found out last year, self-reporting a case of RPM to the FCO does not lead to immunity under the FCO’s whistleblower notice. Given that the FCO treats this as a vertical agreement (between the manufacturer and the retailer) rather than a horizontal cartel (amongst retailers, using the manufacturer to ensure uniform pricing), manufacturers cannot avail themselves of this tool to escape fines. Prevention must therefore be the primary aim of the manufacturers, a point which the President of the FCO, Andreas Mundt, has regularly made.

O’Melveny & Myers’s Antitrust and Competition team in Brussels has assisted several companies in the EU adjusting their distribution practices and training sales staff to achieve business goals while avoiding the aggressive enforcement stance against resale price maintenance.

______________________________________________________________________________

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Marc Reysen an O'Melveny partner licensed to practice law in Brussels - Capital Region, and Christian Riis-Madsen, an O'Melveny partner licensed to practice law in Brussels - Capital Region, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York's Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, Phone:+1-212-326-2000. © 2012 O'Melveny & Myers LLP. All Rights Reserved.