Rethinking RPM in online markets: could industry led workshops work?

The digital economy remains a key focus for both UK and EU competition authorities. One area of significant importance is resale price maintenance (RPM) in online markets. The UK Competition and Markets Authority (CMA) has identified RPM as being of particular concern, as the CMA's research shows that businesses’ understanding of RPM is low. The CMA has therefore written an open letter to businesses alerting them that if suppliers restrict their retailers’ prices, that can break the law. (Available here)

However, allowing online only retailers to sell at any price can result in customers free-riding on retailers with bricks and mortar stores, with so called ‘brick and click’ resellers then forced to obtain a higher margin in order to cover the costs of their bricks and mortar stores. The CMA is aware of this issue, and maintains that there are sufficient options available to avoid RPM, for example selective distribution or affiliated marketing systems. However, these are complicated solutions that require companies to engage external legal and economic advisors, an option that may be too expensive for small and medium sized companies effected by this issue. 

One solution would be for the CMA to hold a series of workshops with companies from a variety of industry sectors to discuss how their business model works, and the type of distribution system that could be applicable for their product. Based on these workshops, the CMA could then draw up general guidance notes on the types of distribution systems that could be applicable across a variety of sectors. This would enable smaller companies to self-assess their distribution systems at limited cost, while ensuring greater compliance across all industries.

The CMA has already used industry led workshops in other areas, such as the current market study into Digital Comparison Tools. The CMA’s recently announced consultation on Market Investigations also sets out a proposal for ‘earlier, more flexible interactions with parties’. This arguably indicates a relatively clear mandate to engage with parties on a more informal basis where this can lead to efficiencies for the CMA and improved outcomes for consumers and competition.

Practical guidance from the top as to what distribution systems should look like, based on industry led discussion, would undoubtedly be of benefit. But the high-level point, which cannot be ignored, is that the Internet is destroying traditional retail and there is very little that manufacturers can do to protect their brand, and their investment in it. The law in this area is muddled by shades of grey, and there remains significant debate as to whether market place restrictions which are not linked to qualitative criteria are (or should be) presumed to be illegal. The European Commission considers there to be some flexibility here, and its Guidance on Vertical Restraints suggests that restrictions on selling through third party platforms (such as Amazon and eBay) may be possible. But different countries have taken different approaches, and to date the issue has not been tested in the European Courts. At the end of this month we will have some guidance from the European Court of Justice on the ability of luxury goods distributors to control online distribution (Case C-230/16 - Coty Germany). But this may not be much help to manufacturers of non-luxury goods to which, arguably, the guidance may not apply. 

And, of course, we cannot ignore the longer-term implications of Brexit in this area. On the one hand, once unshackled from the European courts (and therefore free to ignore any guidance from Coty) the UK may have a greater opportunity to challenge free-riding. Set against a pervasive back-drop of the UK being ‘open for business’, we might see a more economic focus adopted, driven by a desire to support UK manufacturers, their retailers and the investment made in their products and brands. But, on the other hand, will there be any appetite for such an approach or is the concept of ‘brand’ as a guarantee of quality a thing of the past? 

The lack of clarity around this area of the law is mainly due to the speed at which e-commerce and the digital economy has developed. The issuance of non-binding guidance notes specifically focused on distribution systems, and following collaborative, industry-led workshops, could be one way for businesses to self-assess with far greater certainty. 

Sarah Long is a partner at Euclid Law, a boutique competition law firm which provides highly specialised, bespoke and cost effective competition law advice to a wide variety of clients. Views are her own and do not constitute legal advice.  You can follow Sarah on twitter @sarahklong.