Guest Contribution by Rosalyn Gladwin
In December 2014, the Australian Competition and Consumer Commission (ACCC) made a landmark decision under the Australian Competition Law. For the first time, the ACCC authorised resale price maintenance (RPM) conduct to a power tool supplier called ToolTechnic. This decision was made on the grounds that the resulting public benefit would outweigh public detriment.
What is RPM?
Resale Price Maintenance is when a supplier sets a limit on the price that their product can be sold at. For example, RPM conduct would occur if a Supplier sells its product to Retailer and either induces the Retailer, attempts to induce the Retailer or requires that the Retailer will not sell the Suppler’s product below the a specific price. Additionally, if the Supplier withheld supply because the Retailer does not want to abide by the proposed price floor, then the Retailer would be deemed to be engaging in prohibited RPM conduct.
Impact of the ToolTechnic Case
RPM conduct is illegal under section 48 of the Competition and Consumer Act 2010, with companies such as Mitsubishi Electric Australia paying monetary penalties of $2.2 million in 2013 for engaging in such conduct. As seen in the ToolTechnic case, however, there are now certain instances where the ACCC will authorise RPM conduct; where the ACCC is reasonably satisfied that the prevailing conduct’s public benefit will outweigh any detriment.
Does your business require RPM authorisation?
First, it is important to understand that acquiring RPM authorisation is a rather timely and expensive process that can take up to 6 months.
Second, RPM conduct is more likely to be authorised if your products are being sold in a competitive market. This is because there is less incentive to raise prices in markets where a number of similar products are being offered. As to the ‘market’ for your product, it can be a complicated process to determine the market within which your product operates (for example, the price point, target audience, product and geography all can be taken as relevant factors).
If you believe that RPM conduct authorisation may be necessary for your business, next consider the public benefit of the conduct in your business setting.
In the case of ToolTechnic Systems, authorisation for RPM conduct was sought for the sale of their ‘Festool’ power tool products. This was done largely because their dealers were under-investing in the array of associated retail services that ToolTechnic offered with the product itself (demonstrations, training, explanations, repairs and support, for example). In essence, dealers were selling the stripped down product by omitting these associated services and offering them at discounted prices.
Therefore, the setting of a minimum price floor became necessary to ensure that the consumer obtained the full benefit of the product. The ACCC determined that permitting RPM conduct in this instance would produce a range of public benefits, such as:
- An increase in the associated services of ToolTechnic products: this would increase the amount of relevant information that reaches the public, thus resulting in more informed purchasers and fewer product grievances.
- An improvement in the overall quality and range of products and services available to the public.
- Higher competition amongst competitors, giving the public a wider range of choice.
On the other hand, the ACCC considered that in this case the detriments were deemed to be rather limited and insignificant. For example, dealers and consumers may need to pay higher prices for Festool products, however, the aforementioned benefits were deemed to outweigh this detriment,thus forming the basis for the ACCC’s final decision.
Rosalyn Gladwin is a corporate and commercial lawyer, and the principal of Gladwin Legal.