European Commission Fines Consumer Electronics Manufacturers €111 Million for Online Pricing Restrictions
On 24 July 2018, the European Commission announced that it had fined four consumer electronics manufacturers – Asus, Denon & Marantz, Philips and Pioneer – a total of €111 million (c.$126 million) for imposing fixed or minimum resale prices (resale price maintenance or RPM) on European retailers in breach of EU competition law. In addition, the Commission ruled that Pioneer unlawfully limited cross-border sales.
While these decisions reflect long-standing hostility in EU competition law to the imposition of RPM and territorial restrictions in distribution agreements, they are significant as this is the first time that the Commission has imposed fines for such practices since 2003. As such, they mark a notable return by the Commission to this area of enforcement, which it had largely left to Member State authorities over recent years. The decisions are also interesting for their analysis of the role of price monitoring software and repricing tools in policing, and amplifying the effect of, pricing restrictions.
The infringements
The Commission found that each consumer electronics manufacturer infringed the EU's prohibition of anticompetitive agreements by restricting the ability of retailers to set their own retail prices when selling products online. In each case, the Commission found that the manufacturer specifically targeted online retailers who discounted their products and threatened sanctions, such as blocking supply, if they did not increase their prices.
According to the Commission's press release, the individual infringement decisions state that:
- Asus monitored the resale price of certain computer hardware and electronics products, such as notebooks and displays, in Germany and France between 2011 and 2014 and intervened when retailers sold products below its recommended prices by requesting price increases;
- Denon & Marantz engaged in RPM with respect to audio and video products, such as headphones and speakers, in Germany and the Netherlands between 2011 and 2015;
- Philips engaged in RPM in France between the end of 2011 and 2013 with respect to a range of consumer electronics products, including kitchen appliances, coffee machines, vacuum cleaners, home cinema and home video systems, electric toothbrushes, hair driers and trimmers; and
- Pioneer engaged in RPM with respect to home theatre products, iPod speakers, speaker sets and hi-fi products, as well as imposing cross-border sales restrictions in order to sustain different resale prices in different countries. Pioneer's conduct lasted from the beginning of 2011 to the end of 2013 and affected 12 EEA countries (Germany, France, Italy, the United Kingdom, Spain, Portugal, Sweden, Finland, Denmark, Belgium, the Netherlands and Norway).
The Commission punished the manufacturers for this conduct by imposing fines of €63.5 million, €7.7 million, €29.8 million and €10.2 million, respectively. Each manufacturer benefited from a reduction in fines of between 40% and 50% by cooperating with the Commission's investigation and acknowledging the infringement. Interestingly, none of the retailers that implemented the manufacturers' pricing demands were fined, even though they will have been technically parties to the infringements.
Comment
While all four decisions appear to be based on long-standing case law that categorises RPM and cross-border sales restrictions as serious infringements of EU competition law, the fact that the Commission has issued them is in itself significant. Although the Commission used to be highly active in enforcement against vertical restraints, decentralisation of EU competition law enforcement in 2004 saw it effectively leaving such cases to the national competition authorities (NCAs) of the EU Member States. The Commission's return to this area was heavily trailed in its May 2017 Final Report on the E-commerce Sector Inquiry, as well as by its earlier announcement of a raft of investigations of vertical agreements, including these four cases.
Notwithstanding this build-up, it remains remarkable to see the Commission taking on three cases that could easily have been taken by NCAs, given their relatively limited geographical scope. This seems especially odd given the well-established framework for case allocation and the extensive experience of the German and French competition authorities in bringing RPM cases. These cases must, therefore, be seen as reflecting a deliberate policy decision by the Commission to signal a return to the fray on vertical restraints. Meanwhile, investigations into distribution agreements for PC video games and licensed merchandise products remain ongoing. The Commission is also investigating whether various restrictive distribution and rebate practices by a brewer led to abusive market segmentation. So it is safe to assume that vertical restraints will remain an enforcement focus for the Commission for the foreseeable future.
The Commission presumably also viewed these cases as an attractive opportunity for it to take a position on the role of price monitoring and repricing software and thereby build on general comments contained in the E- commerce Sector Inquiry Final Report. Rather than viewing the use of such software as a component part of the infringing conduct, the Commission appears to have examined it as part of the factual context.
Specifically, the Commission was concerned that manufacturers' use of price monitoring tools enabled them to identify retailers' non-compliance with pricing 'recommendations' more rapidly. It was also concerned that the widespread use of repricing tools by online retailers meant that manufacturers could ensure that targeted enforcement of pricing requirements against specific retailers had a wider impact. This is because the use of such software meant that manufacturers could focus their RPM efforts on a small number of lower priced retailers in the confident expectation that their return to 'compliant' pricing would be rapidly reflected across the market, as a result of the software's response. Although full details will have to wait until publication of the text of the Commission's decisions, there appears to have been no attempt by the Commission to argue that the use of such software, let alone its provision, is itself infringing conduct.
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Becket McGrath advises clients on all aspects of EU and UK competition law, with an emphasis on defending companies against agency investigations, counselling, compliance, competition litigation and merger control. Although he advises clients in a broad range of sectors, he has a particular interest in the media, technology, e-commerce and life sciences sectors, as well as the interface between intellectual property and competition law. He also represents companies in UK consumer protection proceedings, primarily in the technology sector.
He has experience of enforcing UK and EU competition law at a senior level in the UK's Office of Fair Trading (now the Competition and Markets Authority) and retains good links with enforcement agencies and regulators in the UK and across the EU. Becket is a frequent commentator on legal developments and is on the Editorial Board of the publication Digital Business Lawyer. Becket is listed as a ‘thought leader’ in the latest Who's Who Legal/Global Competition Review directory of leading competition lawyers and is also recommended by the Legal 500.
Representative engagements and transactions include:
- Advised Clearlake Capital Group on the European Commission’s merger control review of its investment in EagleView Technology Corporation
- Advised Zenith Hygiene Group plc on the CMA merger control review of its acquisition by Bain Capital
- Advised veterinary diagnostics specialist Abaxis on the UK merger control aspects of its $2 billion acquisition by Zoetis
- Advised BroadSoft, Inc. on the European merger control aspects of its $1.9 billion acquisition by Cisco
- Acted for StubHub on the CMA’s secondary ticketing consumer protection investigation
- Advised Orchard Therapeutics on the UK merger control aspects of its acquisition of GSK’s rare diseases gene therapy business
- Advised Minerva Neurosciences, Inc. on its involvement in the remedies arising from the European Commission’s conditional clearance of the acquisition of Actelion Ltd. by Johnson & Johnson
- Acted for two media companies as third parties on the CMA’s in-depth public interest review of Fox’s bid for Sky
- Advised a third party to the CMA's Competition Act investigation into price-fixing for the online sales of posters
- Advised a third party on the CMA's phase two merger investigation of ICE/Trayport, which the CMA ultimately prohibited
- Advised Rovi Corp. on the non-US merger control aspects of its acquisition of Tivo Inc
- Advised a third party on the CMA's "Three Counties" estate agents investigation
- Advised an online retailer on an OFT Competition Act investigation relating to its sales platform terms
- Advised a third party on the European Commission and OFT "E-books" investigations
- Advised a global CAD software company on a European Commission investigation
Speaking engagements:
- Panel Chair, Selective Distribution after Coty, Vertical Restraints & Distribution Conference, 27 June 2018
- Speaker, “Competition and International Licensing”, Federal Circuit Bar Association/European Patent Lawyers Association Global Series, 26 September 2017
- Chair, Pharmaceuticals panel, Law Society Competition Section Annual Conference, 17 May 2017
- Speaker, Online distribution, GCR Live Dusseldorf, 3 November 2016
- Panel Chair, “E-commerce and digital markets”, Law Society Competition Section Annual Conference, 19 May 2016
- Speaker, "Competition Law Developments in Technology, Media and Telecommunications," 5th AIJA Annual Competition Conference 2016, Valencia, 4 March 2016
- Speaker, “Price parity clauses and their effect on competition”, CIIAI Conference on Technology and Competition Law, Beijing, December 2015
- Speaker, "Vertical Restraints in the Online World," Irish Society of European Law (ISEL), September 2014
- Speaker, "Online distribution platforms and the relationships between content owners and digital distributors," GCR Live, Telecoms, Media and Technology, July 2014
Recent publications:
- Author, Handbook of Competition Enforcement Agencies 2018 (UK Chapter) - Global Competition Review, June 2018
- Mentioned, “Metal companies shred five scrap sites in divestment remedy,” GCR, August 2018
- Author, "Hamburg appeals court upholds marketplace ban," Digital Business Lawyer, August 2018
- Author, “UK government introduces new national security merger review thresholds”, Financial Director, June 2018
- Mentioned, “Financial regulator clarifies competition guidance”, GCR, April 2018
- Mentioned, “Brexit offers opportunity to improve UK competition policy framework, finds Lords Report”, Digital Business Lawyer, March 2018
- Mentioned, Our Editorial Board look forward to the year ahead - Digital Business Lawyer, January 2018
- Author, “Chapter on European Union: E-Commerce,“ - GCR: The European, Middle Eastern and African Antitrust Review 2018
- Mentioned, “The complicated politics holding up Rupert Murdoch's Sky Deal,” CNN News, September 2017
- Mentioned, “Fox worries prompt UK to take long look at Murdoch's Sky bid,” Reuters, September 2017
- Mentioned, “U.K. Gets Tougher on Murdochs as CMA Readies for Lengthy Probe,” Bloomberg.com, June 2017
- Mentioned, "Insurers face increased costs following block exemption's demise,” Insurance Day, May 2017