The impact of competition law on the legality of pricing practices within distribution networks
The positioning of resale prices of products in distribution networks is a major concern for suppliers. However, their intervention with distributors remains strictly regulated.
Indeed, although the supplier can advise a resale price (fixed or minimum) to its distributors, it cannot impose it on them, as this practice is likely to constitute:
- a restrictive practice of competition within the meaning of article L. 442-6 of the Commercial Code. However, this text generates few disputes in practice[1].
- an unlawful agreement, within the meaning of Articles L. 420-1 of the French Commercial Code and 101 of the Treaty on the Functioning of the European Union, and more particularly a hardcore restriction within the meaning of Article 4, a) of Regulation No. 330/2010[2].
- an abuse of a dominant position within the meaning of Article L. 420-2 paragraph 1 of the Commercial Code and Article 102 of the Treaty on the Functioning of the European Union[3].
It is in this context that the Commission d’examen des pratiques commerciales
(Hereinafter “CEPC“) has been questioned on two occasions on the compliance of certain practices within distribution networks with competition law.
Two opinions were issued on May 31, 2021:
- The first opinion[4] concerns the legality of the practice whereby a supplier distributes to resellers catalogs mentioning tariffs for end customers. The CEPC considers that the practice in question is lawful as long as the documents indicate that the prices are recommended or maximum (apparent mention) and that the distributors have the effective possibility to set their prices freely in relation to those indicated in the catalog.
It will be recalled that case law holds[5] that a resale price is imposed, even though it is presented as recommended, when three cumulative conditions are met: (i) the resale prices have been mentioned (ii) the existence of a price policy (threat of retaliation, delisting, etc.) and (iii) the communicated prices are significantly applied within the network.
There are, however, some exceptions to this prohibition:
- When the practice takes place within a cooperative network of retail merchants[6] or within any network of independents grouped under the same banner under certain conditions[7].
- The Guidelines on Vertical Restraints also cite three theoretical situations in which the supplier could impose its resale prices on the distributor (i) the launch of a new product during the introductory period, (ii) a coordinated low-price campaign of short duration, and (iii) to allow for the provision of additional pre-sales services in the case of the distribution of experienced or complex products.
- The second opinion[8], concerns the legality of a practice consisting in imposing on the franchisees of a distribution network the alignment of prices of products advertised on the website of the network. The CEPC made a distinction between several hypotheses:
- When the website managed by the franchisor is a showcase site, not allowing consumers to make purchases, the prices displayed online are considered as recommended prices or maximum prices;
- When the website managed by the franchisor is a merchant site, the price displayed must be set by the seller only (i.e. the franchisor or the franchisee depending on the origin of the products).
- When the franchisee delivers the product sold by the franchisor to the consumer via the “click and collect” system or when he provides a home delivery system, mechanisms must be put in place to preserve the commercial freedom of the franchisee and the respect of his own economic imperatives (for example by allowing him not to accept the order concerned or by putting in place a compensation mechanism)
In any event, the CEPC recalls that these practices must comply with the rules relating to the prohibition of resale at a loss and the setting of a minimum resale price as provided for in Articles L. 442-5 and L. 442-6 of the French Commercial Code, respectively, as well as with the rules of competition law
Although the question of the supplier’s intervention in the pricing policy within a distribution network is central, it is not the only practice that raises questions with respect to competition law. Indeed, restrictions on passive sales are increasingly debated[9], especially with the growth of online sales and the emergence of marketplaces, and non-compete and non-reaffiliation clauses are also the subject of regular litigation.
[1] CA Paris, June 19, 2019, No. 17/05169 (dismissal); CA Paris, February 16, 2021, No. 19/22197 (dismissal).
[2] ADLC, Decision No. 20-D-20 of December 3, 2020 concerning practices implemented in the high-end tea sector.
[3] ADLC, Decision No. 17-D-02 of February 10, 2017 on practices implemented in the competitive pétanque boules sector, paragraphs 50 to 57.
[5] ADLC, decision n°19-D-17 of July 30, 2019, practices implemented in the sector of the marketing of liquid fertilizers for soilless production dedicated to home growing.
[6] Article L. 124-1, 6° of the Commercial Code.
[7] ADLC, Decision No. 10-A-26 of December 7, 2010, on affiliation agreements for independent stores and the terms and conditions for the acquisition of commercial property in the food retail sector, point 36.
[9] ADLC, Decision No. 20-D-20 of December 3, 2020 on practices implemented in the high-end tea sector; Decision No. 18-D-23 of October 24, 2018 on practices implemented in the motorcycle equipment distribution sector, Stihl; CA Paris, July 13, 2018, No. 17/20787.