Week 8 Resale Price Maintenance PDF

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Summary on Resale Price Maintenance ...

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Week 8 SECTION 48: RESALE PRICE MAINTENANCE________________________________ Resale price maintenance, section 48 and section 96 of the CCA. 

Resale price maintenance occurs when a firm at one level of the distribution chain fixes prices charged by a firm at another level in the distribution chain.

The prohibition is contained in section 48 of the CCA, which provides that a corporation may not engage in the practice of resale price maintenance (RPM). RPM is defined in section 4(1) as the practice of resale price maintenance referred to in Part VIII of the CCA (see section 96 in particular). We will discuss: •

the policy reasons for the prohibition

•

elements of the offence

•

specific defences

•

remedies

•

authorisation

s48: per se prohibition. (it doesn’t matter. You do not need to consider the potential impact on competition the conduct has: no need to do market analysis). Resale price maintenance: agreement between manufacturer and retailer not to sell products below a specified minimum price. RPM restraints have these characteristics: 

vertical relationship (from manufacturer on top to retailer down)



price restraints



on the part of either buyers or suppliers



Per se prohibition.

Arguments of allowing RPM 

Prevention of free-riding



Manufacturers want to maximise outputs (sales) and profits



Improves service



Improves product image

Arguments against RPM: 

It could lead to collusion amongst manufacturers over pricing and cause a detrimental effect on competition (horizontal price-fixing)



RPM likely to be more harmful where the relevant goods are established products

Harper Review has recommended keeping RPM as a per-se prohibition. 

Note RPM is allowed in a vertically integrated model of manufacturer and retailer



RPM can be authorised by ACCC if it is found to have a net public benefit.

Structure and elements of s48 S48: a corporation or other person shall not engage in the practise of RPM. 

RPM does not apply to a maximum price, only a minimum price.

Practise of RPM: defined s96(3) (no need for contract, arrangement or understanding. Manufacturer just needs to make this known to resellers). 

S96(3)(a); RPM if supplier makes it known that it will refuse to supply goods if a dealer refuses to comply with a minimum price. o



S96(3)(b): induces or attempts to induce resellers not to discount (you do not contravene this section if you have a recommended price list). o





Mobil Oil case

S96(3)(c): agrees with a reseller that the reseller will not advertise or sell below a specified price: o



Issue: what is meant by making it known (Dermalogica)

Supplier enters into agreement or offers to enter into agreement for the supply of goods/services to dealer

S96)(3)(d) and (e): takes or threatens to take action against a reseller to force the reseller to sell the goods or services at or above a minimum specified price. o

S 96(3)(d)(i) covers withholding of supply because the second person has sold goods below a specified price, and withholding because the second person is likely to do so (TPC v Sony)

o

S98(1)

o

S100

S96(3)(f): indicates a price that is taken by the reseller as a price below which the reseller should not resell. o

BP v Mobil

o

S99 defines ‘statement of price’

S98: about withholding and what it might be 

Refusing to provide goods or services



Treating a reseller less favourably, even if its temporary

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Making another entity withhold

There might be a legitimate reason for withholding: supply reasons; however if it is accompanied by an intention of creating a recommended minimum price then it is illegitimate. S100: rebuttal presumption. Defence: loss leader supplier

S98(2): only available to suppliers who have withheld supply pursuant to s96(3)(d): 

Kadkhudayan v WD & HO Wills (Aust) Pty Ltd [2001] FCA 645; [2002] FCAFC 110

S98(2) Paragraph 96(3)(d) does not apply in relation to the withholding by the supplier of the supply of goods to another person who, within the preceding year, has sold goods obtained, directly or indirectly, from the supplier at less than their cost to that other person: (a) for the purpose of attracting to the establishment at which the goods were sold persons likely to purchase other goods; or (b) otherwise for the purpose of promoting the business of that other person. (3) For the purposes of subsection (2), there shall be disregarded: (a) a genuine seasonal or clearance sale of goods that were not acquired for the purpose of being sold at that sale; or (b) a sale of goods that took place with the consent of the supplier Issue: what does sell below cost mean 

TPC v Orlane: Full Federal Court held in favour of the ACCC. ‘sell below cost’ means the full price including delivery, which includes insurance

Authorisation: 

Available under s88 for RPM practises.



Public benefit test.

*Cool and Sons Pty Ltd v. O’Brien Glass Industries Ltd (1981) 35 ALR 445; (1983) 48 ALR 625 Commissioner of TP v. Dalgety Australia (1973) 22 FLR 62 TPC v. ICI Australia Petrochemicals Ltd & Anor. (1983) ATPR 40-364 The Heating Centre Pty Ltd v TPC (1986) 9 FCR 153 Heating Centre had issued to its retailers a list of RRP. One retailer had sold heaters below the RRP and was told “if you entertain idea of discounting the product, I’ll find a million ways of stopping supply” Regarding this statement Lockhart and Wilcox JJ held: “The conversation in question must, be viewed in the light of the evidence as a whole, including evidence of prior existence of a published price list by which the appellant notified its RRP. The word ‘discounting’ used by Mr Butterfield is meaningful only as a reference to the prices specified in that price list; and it is clear that Mr Walsh so understood it… a price may be specified by an anterior document, provided that the supplier in performing an act otherwise within sub (3 ) makes it clear that he is referring to that doc”. TPC v Sony (Australia) Pty Ltd (1990) ATPR 41-031 If the manufacturer knows that a particular re-seller, based on their past conduct of being a price discounter, is likely to sell goods supplied to them by manufacturer at a price less than the specified price, then no need for the manufacturer to specify a price to that re-supplier. Their reputation based on past conduct might mean the supplier will refuse to supply in such circumstances and therefore not even specify a price for the goods.

TPC v Mobil Oil (s96(3)(b)) In this case Mobil operated a Temporary Dealer Assistant Rebate Scheme to provide support to its retailers who were encountering intense price competition. However, if a dealer reduced prices more than a certain amount below the “dealer tank wagon price”, support would be withdrawn. Two retailers reduced their price below the permitted level and Mobil’s area manager informed them that they would get no support until they raised their price. Toohey J observed: that ‘The Federal Court has construed the notion of specified price to include a price not specified in precise terms but within a range of a particular figure or otherwise having an element of approximation. Equally, I would suggest, a price may be specified by reference to some standard well known to the parties, from which a price may be ascertained’ ACCC v Dermalogica Pty Ltd (2005) ATPR 42-046 Dermalogica is a wholesaler of skin care products. Its products were manufactured and sold as premium products. Dermalogica also maintained a system of recommended retail prices and communicates those recommended prices to retailers on order forms and price lists provided by Dermalogica from time to time. Two resellers offered its products at a 10% on their website; the other resellers complained to Dermalogica. It got in touch with the reseller and told them to cease the discount or their accounts would be frozen. Held: While the outcome of the threat can be uncertain, the threat itself should convey an unequivocal intention to cease supply. It is not necessary that the supplier or the second person have supernatural foresight in order for the provision to be satisfied, but the threat must unequivocally indicate that withholding of supply is either certain or at least a likely consequence of the second person failing to maintain the specified resale price. It is also not necessary to show that the supplier actually intended to carry through on its threat. There is no need for evidence that a formal agreement is sought. All that must be shown is that the supplier made it known that agreement by the second person not to discount is required to maintain supply; it need not be shown that the supplier was even seeking acknowledgment that it had been made known, let alone any indication of the second person’s intended course of conduct in response to the making-known. The provision requires only communication from the supplier to the second person, and it does not require anything in the nature of a response, nor does it require that the communication from the supplier sought a response. The second person may acquiesce or submit and may do so in complete silence. Australian Competition and Consumer Commission v Jurlique International Pty Ltd (2007) ATPR 42146 ‘Loss Leader’ Defence Kadkhudayan v WD & HO Wills (Aust) Pty Ltd [2001] FCA 645; [2002] FCAFC 110 TPC v. Orlane Australia Pty Ltd (1984) 1 FCR 157 Authorisation for RPM The relevant public benefit test is provided under s90(8)(a)(iv):

Section 90 (8)(a)(iv) provides that in all the circumstances the proposed contract would be likely to result in such a benefit to the public that the contract should be allowed to be made. Possible public benefits: Limit free-riding on services provided by retailers; (see above in the beginning, where it results in pro-competitive inter-brand competition) 

As a means of facilitating market entry;

Where you have a new and complex product, you are going to need to engage trained staff who can explain the product. i.e. what is new about it, how it differs from other products in the market, etc, and in order to provide an incentive to the distributor to provide those services you may need to engage in RPM for a time (at least until the product is established and becomes well known). 

To protect ‘prestige’ goods or services; and



To achieve an optimal number of retail outlets

Questions •

Why would firms wish to engage in resale price maintenance? Could these reasons include legitimate pro-competitive reasons?

•

Do you think that it is appropriate that resale price maintenance is a per se prohibition?...