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Resale price maintenance (RPM) has traditionally been regarded as anti-competitive because it can mute price competition between retailers, resulting in higher prices for consumers who wish to acquire products and services.
Due to recent changes in the law, however, parties have been able to seek statutory immunity for RPM from the Australian Competition and Consumer Commission (ACCC), if the RPM conduct would be likely to result in a public benefit that would outweigh any likely public detriment (a “net public benefit”).
Since November 2017, there have been five notifications to obtain immunity for RPM – only two have been successful. The most recent RPM notification by Stanley Black and Decker Australia Pty Ltd (SBD) in respect of certain power tools was revoked by the ACCC in June this year.
So what do these decisions tell us about the prospects of getting immunity to control the retail price of your products?
RPM broadly involves certain conduct by a supplier that seeks to prevent a reseller from reselling the supplier’s products below a price specified by the supplier. It is prohibited by the Competition and Consumer Act 2010 (Cth). RPM is a per se prohibition – it does not matter whether the RPM has any effect on competition.
Immunity for RPM can be sought by lodging a notification with the ACCC. If there is no ACCC objection, immunity commences within 14 days of lodgement. In deciding whether to revoke a notification or allow it to stand, the ACCC must assess whether the proposed conduct would likely result in a net public benefit.
Immunity can also be obtained by authorisation application to the ACCC but this is a considerably longer and more costly process (6 months compared to 14 days; $7500 compared to $1000).
Tooltechnic Systems (Aust) Pty Ltd (Tooltechnic) (July 2018)
The most significant notification that has been allowed to stand was lodged by Tooltechnic in respect of RPM for Fein and Festool power tool products.
The rationale of the conduct is to ensure that dealers can obtain sufficient returns to invest in pre- and post-sale services (such as product demonstrations, ‘try before you buy’ schemes, advice, trouble-shooting and timely repairs). This would prevent discount retailers from ‘free-riding’, which may occur when customers visit one retail outlet to receive a high level of retail service but then buy from another (cheaper) retail outlet. As a result, discount retailers could ‘free-ride’ on the investment of full-service dealers who in turn would not achieve a sufficient return and would be discouraged from investing in the training and equipment necessary to provide the services.
The ACCC determined that the consumer benefits of more informed decision making and increased service-based competition outweighed the detriments of increased prices. This decision was supported by observations of Tooltechnic’s RPM conduct in respect of the Festool products, which was authorised by the ACCC in 2014 (the only RPM authorisation ever granted).
HP PPS Australia Pty Ltd’s (HP) (October 2019)
The only other notification allowed to stand was HP’s proposal to specify prices to the sole distributor for its HP Online Store, in connection with a new distribution model to be adopted. Under the conduct, HP would outsource the order fulfilment function to a third party distributor whilst maintaining control over all other aspects including products, marketing strategies and price.
This conduct was noted by the ACCC as being significantly different to that of other notifications because the conduct only applied to one reseller (the distributor taking on the order fulfilment function) and only to HP Online products which represented a small portion of total HP sales and were price constrained by other HP suppliers and competing products. In these circumstances, the efficiencies resulting from the proposed distribution model outweighed any detriments, particularly in circumstances where without immunity, HP would not implement the new model and consumers would miss out on the benefit of those efficiencies altogether.
SBD, along with another power tool manufacturer, may have been emboldened by the Tooltechnic case. They also sought to take advantage of the more streamlined notification process by lodging RPM notifications in respect of their own power tools. In each case, a similar rationale was cited (that is, to encourage investment in pre- and post-sale services).
On 4 June 2020, the ACCC revoked SBD’s notification for its proposal to require dealers not to advertise certain Dewalt products below a specified price in online and in-print advertising.
In February 2020, the ACCC published a draft notice proposing to revoke the notification of JWL Marketing Pty Ltd (t/as Weldclass Welding Products) (Weldclass) for RPM in respect of certain welding and plasma cutting products. The ACCC is expected to issue its final decision later this year, following a conference requested by Weldclass.
One other notification, lodged by Meredith Dairy for RPM to be imposed on its distributors (and by distributors on retailers) in respect of its goat cheese products, was also revoked in June 2019.
Increased prices are seen as the key detriment
In each of the cases where the ACCC revoked the RPM notification, the public detriments were considered to be higher retail prices for the products, and potentially competing products, through loss of discounting. This detriment was also noted in respect of the Tooltechnic notification even though, in that case, the benefits of RPM were considered greater.
The ACCC was particularly critical of the RPM conduct proposed by Meredith Dairy, stating that it was unlikely to result in any public benefit and the strategy to maintain margins and levels of profitability would essentially result in a wealth transfer from consumers to Meredith Dairy and retailers, via higher consumer prices and greater business returns.
Factors giving rise to public benefits
The following key factors enabled the ACCC to conclude that RPM conduct would be more likely to result in a net public benefit:
Complex and highly differentiated products requiring pre- and post-sale services:
Address ‘free-riding’ by discount retailers and increase service-based competition:
The products have a small market share in a highly competitive market:
Public benefits arguments that have failed
Some examples of rationale and benefits which are unlikely to attract immunity without the factors above (as seen in Meredith Dairy) include:
In SBD, limiting the proposed RPM conduct to a minimum advertised price did not increase the likelihood of a net public benefit because:
The prospects of getting ACCC immunity to control the retail price of your products is low.
To date, the ACCC has identified very fact-specific and limited factors that have given rise to substantial public benefits that outweigh the key and obvious public detriment of RPM – increased prices for consumers. These include:
The following arguments have not, to date, been sufficient to convince the ACCC that RPM has a net public benefit:
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