CN06 - ACCC accepts court enforceable undertaking

Nero Bathrooms International Pty Ltd (trading as Nero Tapware) ("Nero"), a national supplier of bathroom-ware products, admitted it likely engaged in resale price maintenance by withholding supply of its products from a retailer when that retailer refused to raise its advertised prices.

Key takeaways

• In Australia, resale price maintenance is prohibited outright regardless of whether it has the purpose or likely effect of substantially lessening competition.
• Serious breaches of the prohibition on RPM expose companies to a range of court ordered penalties including substantial financial penalties.
• Businesses should ensure resale price maintenance obligations remain top of mind in their day-to-day business practices, including ensuring that retailers are aware that recommended retail prices are a guide only.

Resale price maintenance

Resale price maintenance ("RPM") occurs when a supplier of goods or services specifies a minimum price below which a reseller must not resell or advertise those goods or services for sale.  RPM may prevent retailers from competing on price, resulting in consumers paying more for goods and services.  RPM is prohibited outright regardless of whether it has the purpose, effect or likely effect of substantially lessening competition.

RPM conduct arises where it is a condition of supply that the retailer must (or the supplier threatens to withdraw supply if the retailer does not):

• sell at a certain price;
• not sell below a certain price;
• only discount to an agreed extent or not discount at all; or
• comply with a recommended retail price ("RRP") or not price a certain percentage below it.

RPM may only be permitted where the Australian Competition and Consumer Commission ("ACCC") is satisfied that the likely benefits from the RPM conduct outweigh the likely public detriments. ACCC approval may be obtained by lodging a notification or applying for authorisation, before engaging in the conduct.

Nero's conduct

Nero admitted that it made the following statements to a retailer in March 2020 about the Nero bathroom products being re-sold by that retailer:

• the retailer's prices were too low;
• the retailer should not advertise Nero products at a price lower than 15% below the RRP; and
• the retailer should amend its online advertised prices so those prices were not lower than 15% below the RRP.

As a result of the retailer's failure to raise its prices, Nero significantly reduced the retailer's discount on the wholesale price of Nero products, and then ceased supplying the retailer altogether.

The ACCC considered that this conduct contravened the prohibition on RPM by:

• informing the retailer that Nero would cease supply if it did not raise its prices;
• inducing or attempting to induce the retailer to not sell Nero products at a price lower than a price specified by Nero;
• withholding supply to the retailer for not raising its prices; and
• stating a price to the retailer that was likely to be understood as the price below which products must not be sold.

Penalties

Serious breaches of the prohibition on RPM expose companies to a range of court ordered penalties including financial penalties of up to $10,000,000, three times the benefit obtained from the conduct, or 10% of annual turnover.  Most recently, in March 2021, the Federal Court ordered FE Sports to pay a $350,000 penalty after finding it had engaged in RPM in relation to cycling and sporting products.

In appropriate cases, the ACCC may instead use other enforcement powers to remedy breaches, including issuing infringement notices and accepting court enforceable undertakings.  The ACCC said about Nero's conduct that "[i]n this case, the conduct was limited to a single retailer, and there was no direct consumer harm because that retailer did not comply with Nero's pricing directions".

The ACCC accepted a court enforceable undertaking from Nero that it will:

• not engage in resale price maintenance for three years;
• implement and maintain a compliance program for sales staff to minimise risk of future breaches of RPM; and
• communicate to its retail customers that the RRPs are a guide, and resellers are free to set prices above or below the RRP.

Comment

RPM continues to be an enduring priority for the ACCC as it is considered significantly detrimental to consumer welfare and the competitive process.  While the ACCC accepted a court enforceable undertaking in this case due to the limited consumer harm arising, the potential exposure for breaches of the prohibition on RPM can be substantial.  Businesses should ensure resale price maintenance obligations remain top of mind in their day-to-day business practices, including ensuring that retailers are aware that recommended retail prices are a guide only.

With thanks to Alicia Gormly of Ashurst for her contribution.