Resale price maintenance does not necessarily constitute a restriction of competition by object
Following a dispute between Super Bock Bebidas SA (hereinafter ‘Super Bock’), AN and BQ and the Portuguese Competition Authority, the Court of Justice of the European Union (hereinafter the ‘ECJ’) was recently asked to rule on a number of issues relating to vertical agreements fixing minimum resale prices[1].
In this case, Super Bock, whose main activity is the marketing of bottled beers and waters, and AN and BQ, respectively a member of its board of directors and the director of its on-trade[2] sales department, infringed the competition rules, according to the Portuguese Competition Authority, whose decision was upheld by the Portuguese Competition, Regulation and Supervision Court.
The ECJ found that, according to the facts established by the national court, Super Bock had, at least during the period between 15 May 2006 and 23 January 2017, fixed and imposed on those distributors in the on-trade circuit the commercial conditions which they had to observe when reselling its products; in particular, Super Bock had fixed the minimum resale prices in order to ensure a stable minimum price which was uniform throughout the national market[3].
The main question before the ECJ was whether Article 101 § 1 of the Treaty on the Functioning of the European Union, which prohibits anti-competitive agreements, “must be interpreted as meaning that the finding that a vertical agreement fixing minimum resale prices constitutes a ‘restriction of competition by object’ may be made without first examining whether that agreement raises a sufficient level of harm to competition or whether it may be presumed that such an agreement, of itself, presents such a degree of harm”[4].
The concept of “restriction of competition by object” refers to practices which, by their very nature, may be considered harmful to the proper functioning of normal competition. The competition authorities have a particular interest in this concept because, in the event that a practice is found to be a restriction of competition by object, they do not have to characterise the anti-competitive effects of the practice in order to condemn the perpetrators.
After recalling that the concept of “restriction of competition by object” must be interpreted restrictively[5], the ECJ reaffirms that the essential criterion for determining whether an agreement contains a restriction of competition by object is the finding that such an agreement is sufficiently harmful to competition[6].
In order to determine whether this criterion is fulfilled, it is necessary to analyse the content of the provisions of the agreement, the objectives it seeks to achieve and the economic and legal context in which it operates[7]. If the parties to the agreement claim that it has pro-competitive effects, these effects must also be taken into account “as part of the context of that agreement“[8]. If these pro-competitive effects are “demonstrated, relevant, intrinsic to the agreement concerned and sufficiently significant“, they “may give rise to reasonable doubt as to whether the agreement concerned caused a sufficient degree of harm to competition“[9].
Therefore, according to the ECJ, in order to determine whether a vertical agreement fixing minimum resale prices involves a restriction of competition by object, it is for the competition authorities to determine whether the agreement is sufficiently harmful to competition in the light of the above criteria[10].
In other words, a vertical agreement to fix minimum resale prices is not in itself a restriction of competition by object.
The ECJ also rejected the argument that the fact that the Vertical Block Exemption Regulations classify the practice of resale price maintenance as a “hardcore restriction” automatically makes it a restriction of competition by object. The ECJ points out that the sole purpose of these regulations is to exclude certain vertical restraints from the scope of the block exemption[11]. However, these regulations do not contain any indication as to whether these restrictions should be classified as restrictions of competition “by object” or “by effect”. The concepts of “hardcore restriction” and “restriction by object” are not “conceptually interchangeable and do not necessarily overlap“[12].
This ruling by the ECJ challenges the traditional approach to resale price maintenance. It appears that certain contextual factors (nature of the goods or services; actual market conditions; possible pro-competitive effects) may now make it possible to consider that such agreements do not have an anti-competitive object.
Another interesting contribution of this ruling concerns the ECJ’s analysis of the concepts of “restriction by object” and “hardcore restriction”: the ECJ’s demonstration that a hardcore restriction does not necessarily constitute a restriction by object could be applied to the other hardcore restrictions covered by the Block Exemption Regulations.
Finally, the ECJ has also clarified the concept of “agreement” between the parties in relation to resale price maintenance: in practice, it is sometimes difficult to characterise such an agreement when the supplier imposes resale prices on distributors.
In this case, the ECJ found that Super Bock regularly sent its distributors lists of minimum resale prices and distribution margins, which were applied by the distributors (some went so far as to request such information), and that the indication of these minimum resale prices was accompanied by price monitoring mechanisms, as failure to comply with the prices could lead to retaliation and negative distribution margins[13].
According to the ECJ, the fact that a supplier regularly sends its distributors lists of minimum resale prices and distribution margins and requires them to comply with them under its supervision and on pain of retaliation, are factors likely to lead to the conclusion that the supplier is seeking to impose minimum resale prices on its distributors, reflecting a priori unilateral conduct[14]. However, the fact that the distributors comply with the minimum resale prices (or ask to be informed of them) could be such as to reflect the distributors’ acquiescence in the supplier’s fixing of those minimum resale prices[15].
As regards the proof of the existence of such an agreement, the ECJ stated that it could be established on the basis of “direct evidence” but also on the basis of “consistent coincidences and indicia“, in particular where a supplier invited its distributors to follow such prices and the latter actually applied those prices[16].
By Corinne Khayat and Pierre Sinquin.
[1] ECJ, June 29th, 2023, C-211/22.
[2] In this case, the practices took place on the on-trade channel, corresponding to purchases of drinks by hotels, restaurants and cafés for consumption away from home.
[3] ECJ, June 29th, 2023, C-211/22, para. 13.
[4] ECJ, June 29th, 2023, C-211/22, para. 27.
[5] ECJ, June 29th, 2023, C-211/22, para. 32.
[6] ECJ, June 29th, 2023, C-211/22, para. 34.
[7] ECJ, June 29th, 2023, C-211/22, para. 35.
[8] ECJ, June 29th, 2023, C-211/22, para. 36.
[9] Ibid.
[10] ECJ, June 29th, 2023, C-211/22, para. 37.
[11] ECJ, June 29th, 2023, C-211/22, para. 40.
[12] ECJ, June 29th, 2023, C-211/22, para. 41.
[13] ECJ, June 29th, 2023, C-211/22, para. 46.
[14] ECJ, June 29th, 2023, C-211/22, para. 52.
[15] Ibid.
[16] ECJ, June 29th, 2023, C-211/22, para. 57.