Insights

20/08/2012

What is your resale price?

Companies operating in the European Union should also take caution in setting recommended resale price for their goods.

European Union competition rules say that suppliers cannot fix resale prices or set minimum prices for goods. When a supplier breaks these rules, authorities can hold that their actions are prohibited “resale price maintenance”.

While companies generally understand that market forces should dictate the price for their goods, where they sometimes run afoul in understanding how strictly competition authorities and courts may review their business practices in light of the competition rules.

Finnish Market Court decision

In its decision issued on 20 December 2011, the Finnish Market Court found that certain practices developed by Iittala Group Oy Ab* between 2005 and 2007 constituted prohibited resale price maintenance. Iittala is a well-known Finnish design company that specialises in houseware objects.

In its proposal to the Market Court, the Finnish Competition Authority alleged that Iittala had set the minimum price level for some of its household products. Although the Market Court mainly agreed with the competition authority’s proposal and found that Iittala’s resale price recommendations had amounted to retail price maintenance, it reduced the fine originally proposed by the FCA by 25 per cent to a total of EUR 3 million, as it did not find any evidence that Iittala had benefited from its practices. Although Iittala considers the decision unfounded in its press release, it has opted not to appeal.

Flexible resale recommendations

Iittala strongly disagreed with the Finnish Competition Authority’s proposal, which it argued was based largely on circumstantial evidence consisting mainly of Iittala’s internal documents and e-mails. Iittala submitted that its resale price recommendations had been flexible and should thus be permitted. To support this, Iittala presented extensive evidence that showed the prices of its products had varied greatly during the relevant period.

Iittala also demonstrated that it had not imposed any sanctions on those distributors whose pricing had not corresponded to its recommendations. However, the Market Court did not see Iittala’s recommendations as non-binding and found that there was an agreement or a concerted practice between Iittala and some of its distributors.

Iittala also submitted that its resale price recommendations had been essential to protect its prestigious brand in a situation where it extended its distribution network to include also discount stores and supermarkets. 

According to Iittala, the wider availability of its products brought with it the risk of certain distributors free-riding on other distributors’ marketing investments, which was best combated through the use of flexible resale price recommendations. However, while the Market Court recognised that retail price maintenance, in principle, might lead to efficiencies and could thus be permitted, it noted that the burden of proof lies on the party claiming these efficiencies, a burden that was not fulfilled in this case.

Caution in setting resale prices

In light of the Market Court’s decision, companies should be extremely careful in issuing resale price recommendations. Companies should also be very cautious both in their internal and external communications, as the decision demonstrates the low threshold in the presentation of evidence required to establish an infringement.

*Krogerus, together with another law firm, represented Iittala Group Oy Ab in the Finnish Market Court proceedings described in this text.