Are minimum resale prices legal in Australia?

LegalVision

8th Jun 2016

By Claudette Yazbek 

Consumers are familiar with products or services displaying a recommend retail price (RRP), with a discounted price alongside. As the beneficiaries of discounted prices, purchasers are unlikely to consider the supplier of the good or service in the equation. But can a supplier stop resellers/retailers from advertising or charging below their recommended retail price? 

What is Minimum Resale Pricing?
Section 48 of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits Resale Price Maintenance (RPM). RPM is where a supplier of a good or service requires the retailer not to sell goods below a minimum price that the supplier specifies. Although suppliers are permitted to set a RRP, it can only be a recommendation – they cannot force retailers to sell above a particular price.

RPM is illegal as it could potentially limit competition, for example, the ability to advertise discounts between retailers of the supplier’s goods. The rationale for the prohibition is to avoid facilitating manufacturers or retailers colluding, and causing significant harm to the competitive process.

What’s not legal?
The CCA prevents suppliers pressuring a business to charge their RRP, for example, by threatening to stop supplying the retailer. Suppliers also cannot stop retailers from advertising, displaying or selling goods below a specified price. Conversely, retailers cannot ask suppliers to use RRP lists to prevent other retailers from discounting their goods or services.

It is also illegal for competitors to work together and make written, informal or verbal agreements regarding minimum prices. A breach of section 48 can attract penalties of up to $10 million for corporations and $500,000 for individuals. Importantly, the prohibition against RPM also applies in digital markets and e-commerce.

What’s legal

Withholding supply due to loss leader selling
Suppliers can withhold goods to a company that engages in ‘loss leader selling’. Loss leader selling is when retailers purchase goods with the intention of selling below cost so as to promote their business, attract customers or sell other products. This differs from a genuine clearance.

Vertical integration of manufacturers and retailers
The prohibition against RPM does not apply when a supplier structures their business as a vertically integrated manufacturer and retailer (i.e. the manufacturer is also the retailer). In these instances, the retailer is free to set its retail price.

Genuine agency agreements
The prohibition against RPM doesn’t apply to manufacturers who sell products through a genuine agency network. An agency network is where the supplier provides retailers with goods who in turn provide them to consumers. For example, a winery sells wine through an agent. Here, the principal, the winery, can set the selling price. A principal differs from a distributor who purchases the wine from the winery and then resells it on its own account

ACCC authorisation
The Australian Competition and Consumer Commission (ACCC) can authorise minimum resale prices if a manufacturer can demonstrate that such action will result in a public benefit. This is likely more difficult where the relevant market is not competitive or the product concerned has a significant market share. Although the ACCC has been able to authorise suppliers using RPM since 1995, it is almost unheard of – with the first (and only) successful application in 2014.

Doing business overseas
In some jurisdictions, including the US, RPM is no longer illegal in all cases. It’s therefore critical multinational companies doing business abroad understand the relevant laws. In the US, the Supreme Court ruled in 2007 that the practice of RPM should be instead tested under a competition analysis whereby conduct is prohibited only when it has, or is likely to, hurt competition in a market. Canada also employs a similar test. The UK, EU and NZ continue to maintain an outright prohibition, with conduct being authorised in certain circumstances. Multinational companies should also familiarise themselves with the CCA as the pricing policies they employ in their countries could be illegal in Australia.

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RPM remains prohibited in Australia, and the onus remains on multinationals choosing to do business in Australia to acquaint themselves with the CCA. If a supplier chooses to stop supplying goods to your business, first discuss the reason for their refusal. Speak with the relevant trade associations or industry bodies, which can help mediate any disputes or suggest improvements to your marketing strategies. 

Claudette Yazbek is LegalVision’s Communications Manager and Lawyer. She has a keen interest in start-ups, and writes extensively about the legal, political and business challenges they face.