Which RPM notifications have been successful and why?

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 The most recent RPM notification by Stanley Black and Decker Australia Pty Ltd (SBD) in respect of certain power tools was revoked by the ACCC in June this year.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?

Background

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).  

Which rpm notifications have been successful and why?

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.  

Which RPM notifications have been revoked? 

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.  

When might RPM receive immunity? 

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:  

• Tooltechnic – The Fein and Festool products were highly differentiated and particularly complex: their features and full functionality were not readily apparent without demonstration or explanation.  These features were sufficient for consumers to benefit from pre- and post-sale services (including additional sales effort to explain and demonstrate full functionality of the products), which would allow the consumer to make more informed decisions.  
• Weldclass – While the products were complex, they were not considered any more complex or highly differentiated than other similar machines in the market.  
• Dewalt - Most of the products were on par with other brands in terms of complexity, such that any benefit for consumers from pre- and post-sales services were unlikely.

Address ‘free-riding’ by discount retailers and increase service-based competition:  

• Tooltechnic - Since the authorisation for previous RPM conduct, the ACCC had the benefit of observing that the ‘free-riding’ problem had been addressed, resulting in better quality services being provided to consumers, and increasing inter-brand and service-based competition between dealers.  
• Weldclass – While the issue of ‘free-riding’ was submitted as rationale for the conduct, there was no evidence to suggest that the issue existed. None of the products in the relevant price range required higher levels of service than what was already provided.

• SBD – The issue was submitted as rationale for the conduct but was not specifically addressed in the ACCC’s draft notice of decision.  

The products have a small market share in a highly competitive market:  

• Tooltechnic – The Fein and Festool products had a large number of competitors, including other high end brands. This meant Tooltechnic had little incentive to set minimum retail prices above competitive levels because doing so would risk a reduction in sales of the products overall.
• Dewalt – The products had a relatively large market share which increased the anti-competitive detriment by making it profitable for other manufacturers and/or dealers to also unilaterally increase their prices.

• Weldclass - While Weldclass’ market share was small, the detrimental impact on inter-brand competition was likely to increase: Weldclass was proposing to increase its market share by increasing the number of distributors with which it engaged, if the RPM conduct obtained immunity.

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:  

• reducing transaction costs in identifying and managing suspected loss leading; 
• ensuring reputation as a price point and preventing vigorous discounting against itself; and
• maintaining margins to facilitate re-investment into the business which was described as having a genuine commitment to innovation, sustainability and its local community. 

In SBD, limiting the proposed RPM conduct to a minimum advertised price did not increase the likelihood of a net public benefit because: 

• even though the proposal did not apply to in-store activity and would not prevent dealers negotiating discounted prices directly with customers, it was unlikely that customers would negotiate a price below the minimum advertised price; and
• even though the minimum advertised price was lower than the RRP and dealers could continue to advertise discounts to the RRP, it was unlikely that dealers would set advertised prices above the minimum advertised price. 

What you need to know

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 products being complex and highly differentiated, requiring pre- and post-sale services to enable consumers to make more informed purchasing decisions;
• the RPM addressing ‘free-riding’ and increasing service-based competition; 
• the products holding a small market share in a highly competitive market; and
• the RPM applying to one distributor only.

The following arguments have not, to date, been sufficient to convince the ACCC that RPM has a net public benefit: 

• addressing suspected loss leading; 
• ensuring reputation as a price point; and
• maintaining margins to facilitate re-investment into innovation, sustainability and local community.

 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).