Antitrust Issues in the Luxury and Fashion Industry

U.S. part by D. Prescott

1.      Introduction

Many fashion and luxury goods brand owners consider the ability to control how their products are distributed to be indispensable to the preservation of the image and economic value of their brands.[2] As a result, fashion and other luxury goods brand owners enter into a variety of programs and agreements to better control their brands and distribution. However, these agreements may expose them to a variety of antitrust risks in the United States, both under federal and state law; in Europe, both under European Union (EU) law and under national laws; as well in a number of other major jurisdictions across the globe.  The level of risk will generally depend on the jurisdictions in which a lawsuit might be brought, the market share of the parties and the nature of the agreement.  However, in most instances, the company’s business goals can be accomplished lawfully with careful counseling.    

It appears intuitively correct that agreements between competitors (so-called horizontal agreements), e.g., to fix prices, should be subject to competition law, given their liability to raise prices for consumers. As such, the application of antitrust/competition law to horizontal agreements, as a matter of principle, is rarely questioned. In contrast, the application of competition law to vertical agreements, i.e., agreements between companies operating at different levels of the distribution chain, such as distribution agreements, is not without controversy.

While vertical agreements may have a negative effect on intra-brand competition, antitrust/competition law is generally more concerned with the protection of inter-brand competition.[3] As a result, a number of jurisdictions take a lenient approach to vertical agreements.[4] Moreover, as regards distribution agreements in particular, many jurisdictions accept that suppliers are best placed to decide how to distribute their products, or only take any real interest in any restrictions contained in distribution agreements where these are entered into by dominant companies.

This chapter contains an overview of the competition law regimes in a number of key jurisdictions across the globe,[5] with a focus on how the relevant regimes apply to distribution agreements. Key enforcement trends in those jurisdictions — in particular, as regards distribution agreements and the fashion and luxury goods sector — are highlighted.

2.      European Union

(a)   The Framework of Competition Law in Europe

Within the EU, competition law is regulated both at EU level and by each of the 28 EU Member States.[6] Both the additional countries forming part of the European Economic Area (EEA)[7] and Switzerland have very similar rules.[8] In principle, compliance with EU competition law will also mean compliance with the relevant national competition laws of the EU/EEA Member States and of Switzerland. However, and as demonstrated below, in some instances practice at the national level diverges in material respects from the approach of the European Commission (EC) or the General Court and the European Court of Justice (together, the EU courts). Awareness of and compliance with the relevant EU rules and their application at the national level is crucial for companies doing business in Europe, as sanctions can be severe.[9]

The rules on vertical agreements in the EU have a component that is absent from other competition law regimes: the single market objective.  The aim of this unique policy objective is to create a single European market, free of any internal barriers to trade, among other things, to allow customers to have complete freedom to purchase products or services from any reseller within the EU. As a result, any restrictions that might hamper that objective, such as resale price restrictions that would reduce or eliminate price competition between competing retailers or territorial restrictions,  have always been viewed critically by the EC and the EU courts.

(i)               The Rules Applicable to Distribution Agreements under EU Competition Law

The key provision of EU competition law governing distribution agreements is found in article 101(1) of the Treaty on the Functioning of the European Union (TFEU), which prohibits all agreements, decisions and practices between undertakings that have as their object or effect the restriction or distortion of competition within the internal market. To be caught by the prohibition in article 101(1), there must be an appreciable effect on competition and an effect on trade between Member States.[10] An agreement that infringes article 101(1) is automatically null and void under article 101(2) of the TFEU, unless the parties can show that the benefits arising as a result of the agreement outweigh any negative effect on competition, in accordance with article 101(3). [11]

The rules of EU competition law governing distribution agreements are complex, and stricter in many respects than those applicable in the U.S. and elsewhere across the globe, given the EU’s single market objective.  Recognizing, nonetheless, that vertical agreements tend to raise concerns only where inter-brand competition is already weak, the EC has adopted legislation[12] that provides a “safe harbor” under which a large number of vertical agreements will be exempt from the application of article 101(1), provided the following cumulative conditions are met:

       i.          the agreement is a vertical agreement; typically, an agreement between a supplier and a retailer;[13]

     ii.          the primary purpose of the agreement is the sale of goods or services;[14]

    iii.          the market share of the supplier on the market on which it supplies the relevant goods or services does not exceed 30 percent;[15]

    iv.          the market share of the buyer on the market on which it purchases the relevant goods or services does not exceed 30 percent;[16] and

      v.          the agreement does not contain any of the so-called “hardcore” restrictions set out in article 4 of the Verticals Regulation.

For the purposes of this chapter, it is worth noting that the list of hardcore restrictions provided in article 4 includes:

       i.          resale price maintenance (RPM);[17]

     ii.          territorial and customer restrictions (unless expressly permitted);[18] and

    iii.          restriction of active or passive sales to end users by members of a selective distribution system; and

    iv.          restriction of cross-supplies between distributors within a selective distribution system, including between distributors operating at different levels of trade.[19]

Agreements containing any hardcore restrictions are null and void under EU competition law, and will likely attract significant fines in the case of an investigation by the EC or national competition authorities.[20]

In addition to the list of hardcore restrictions in article 4, article 5(1) of the Verticals Regulation contains a list of restrictions that, while not considered hardcore, will nonetheless not be covered by the safe harbor provided by the Verticals Regulation.  However, the Verticals Regulation, and thus the safe harbor, may continue to apply to the remainder of the relevant agreement if such restrictions are severable from the rest of the agreement (and the relevant conditions for application of the safe harbor mentioned above are met). These so-called excluded restrictions are (i) non-compete obligations the duration of which exceeds five years or is indefinite; (ii) post-termination obligations on the buyer to continue manufacturing, purchasing, selling or reselling the relevant goods or services; and (iii) obligations on members of a selective distribution agreement not to sell the brands of particular competing suppliers.

(ii)             Recent Trends in Enforcement of Distribution Agreements under EU Competition Law

Despite a generally strict approach to vertical agreements, there has been very little enforcement action at the EC level in relation to distribution agreements in recent years.[21] In fact, to date, enforcement has mainly taken place at the national level, with the unfortunate side effect of, at times, causing varying and potentially inconsistent approaches between enforcement by the EC and the EU courts and enforcement by the national competition authorities. However, very recently, the EC appears to have stepped up enforcement in this area; in particular, as regards restrictions of online sales.[22]

Below is an overview of the most common restrictions that can give rise to potential concerns in distribution agreements, and how such restrictions are typically viewed by the EC and certain national competition authorities.

(b)   Pricing Issues

(i)         Fixing the Resale Price/Distributor Margin

For the purposes of EU competition law, distributors must be free to set their own prices, independently of their suppliers.  As such, any attempts by suppliers to (directly or indirectly) fix the prices at which distributors sell their products, i.e., resale price, are classed as hardcore restrictions. The concept of RPM is interpreted broadly under the applicable EU rules and includes:

       i.          fixing the distribution margin;

     ii.          fixing the maximum level of discount the distributor can grant customers;

    iii.          making the grant of rebates or reimbursement of promotional costs by the supplier subject to the observance of a given price level;

    iv.          linking the prescribed resale price to the resale price of competitors; and

      v.          threats, intimidation, warnings, penalties, delay or suspension of deliveries or contract terminations in relation to observance of a given price level.[23]

Similarly, a supplier’s policy to impose restrictions on the price at which a distributor may advertise a product or service, even where the actual sales price in store is not restricted (a so-called minimum advertised price (MAP) clause), would likely be treated as a hardcore restraint similar to RPM.[24]

Despite its hard-line approach to RPM, the EC recognizes that RPM can give rise to efficiencies in a limited number of circumstances, e.g.:

       i.          new product launches: the Verticals Guidelines explicitly state that “RPM may be helpful during the introductory period of expanding demand to induce distributors to better take into account the manufacturer’s interest to promote the product … RPM may provide the distributors with the means to increase sales efforts and if the distributors on this market are under competitive pressure this may induce them to expand overall demand for the product and make the launch of the product a success, also for the benefit for consumers”;[25] and

     ii.          pre-sales services: in some cases, the extra margin provided by RPM may allow retailers to provide (additional) pre-sales services; in particular, in the case of complex or experience products. Where enough customers take advantage of such services to make their choice but end up purchasing at a lower price with retailers that do not provide such services (and hence do not incur related costs), high-service retailers may reduce or eliminate these services to prevent such free-riding at the distribution level. However, parties will have to convincingly demonstrate that an RPM agreement can be expected to not only provide the means but also the incentive to overcome possible free-riding between retailers on these services and that the pre-sales services benefit consumers.

(ii)             Maximum Prices

Nothing under EU competition law prohibits suppliers from imposing maximum resale prices on distributors (provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties) or from requiring distributors to pass on certain minimum discounts to their customers where the market share of each of the parties to the agreement does not exceed the threshold under the Verticals Regulation.[26]

(iii)           Recommended Retail Prices

Under EU competition law, resale price recommendations are permitted below the 30 percent safe harbor provided for in the Verticals Regulation.[27] Provided a supplier provides its distributor with genuine recommendations or suggestions as to a relevant product or service’s retail price, i.e., the price recommendations may be departed from and do not amount to de facto fixed or minimum prices as a result of pressure from, or incentives provided by, any of the parties, recommended or suggested resale prices are permitted under EU competition law.[28] Above the 30 percent safe harbor, an important factor in the assessment of recommended resale prices is the market position of the supplier — the stronger the market position, the higher the risk that a recommended resale price leads to a more or less uniform application of that price level by resellers.  They may find it difficult to deviate from what they perceive to be the preferred resale price proposed by such an important supplier in the market.[29]

It is important to note in this respect that recommended prices are an area of increasing controversy, with some Member States taking a much stricter approach than that set out in the Verticals Regulation and Vertical Guidelines. In a recent discussion paper, the German Bundeskartellamt (BKA) warned that “recommended prices … could act as a reference point for co-ordination towards a collusive market balance …”[30]. In addition, in recent cases, BKA has treated cases where recommended prices are combined with monitoring of commercial partners or actual pressuring of commercial partners (without any coercion) to comply with the recommended prices (without any coercion) as equivalent to RPM. [31] Moreover, in a recent case, the German Federal Supreme Court held that a single contact commenting on a dealer’s price was not economically comprehensible, even where no pressure was applied on the dealer.[32] Worryingly, in some cases, such findings appear to have been made based on witness evidence alone. [33]A similar strict approach to recommended prices is currently being adopted by the national competition authorities in both Switzerland[34] and France.[35]

(iv)            Minimum Advertised Price

The treatment of MAP clauses for the purposes of EU competition law is addressed above, in “Fixing the Resale Price/Distributor Margin”.

(c)    Vertical Non-price Restraints

Whether certain types of non-price restrictions in distribution agreements are permissible under EU competition law depends on the particular type of distribution model adopted by the relevant undertaking. Generally speaking, three  types of distribution models can be distinguished:

       i.          open distribution refers to a distribution model with no restrictions imposed by the supplier as to the territory into which, and the customers to whom, a distributor may sell;

     ii.          exclusive distribution refers to a distribution model in which a supplier agrees to sell its products only to one distributor for resale in a particular territory or only to a particular customer group. At the same time, the distributor is usually limited in its active selling into other (exclusively allocated) territories. A supplier may also reserve certain territories or customer groups to itself;[36] and

    iii.          selective distribution refers to a distribution model without territorial restrictions in which the supplier decides to sell products to distributors selected according to certain criteria, like quality, number or location.[37]

(i)               Open Distribution

Where a supplier is operating an open distribution model, any kind of territorial or customer restrictions on the distributor are typically treated as hardcore restrictions, subject to the exceptions set out in article 4(b)(i)-(iv) of the Verticals Regulation. The rationale for this is that territorial restrictions, such as export bans, hinder the integration of the single European market and are therefore regarded as per se illegal.[38] Territorial or customer restrictions can be achieved both by direct and indirect means. Indirect means include measures aimed at inducing a distributor not to sell to certain customers or into certain territories, e.g., by refusing or reducing bonuses or discounts, terminating supply, reducing supply or limiting supplies to the demand within the allocated territory or customer group, threat of contract termination, requiring higher prices for products to be exported, limiting the proportion of sales that can be exported or a profit pass-over obligation.[39]

(ii)             Exclusive Distribution

Where a supplier and a distributor are operating in an exclusive distribution model, the supplier can restrict so-called active sales by one distributor into the exclusive territory of another distributor or to the exclusive customer group of another distributor or a territory or customer group reserved to itself. However, the supplier cannot limit passive sales:

       i.          active sales means actively approaching individual customers by, for instance, direct mail, including the sending of unsolicited emails, or visits; or actively approaching a specific customer group or customers in a specific territory through advertisement in media, on the internet or other promotions specifically targeted at that customer group or targeted at customers in that territory. Advertisement or promotion that is only attractive for the buyer if it (also) reaches a specific group of customers or customers in a specific territory, is considered active selling to that customer group or customers in that territory;[40] and

     ii.          passive sales means responding to unsolicited requests from individual customers, including delivery of goods or services to such customers. General (as opposed to targeted) advertising or promotion that reaches customers in other distributors’ exclusive territories or customer groups but is a reasonable way to reach customers outside those territories or customer groups, e.g., to reach customers in one’s own territory, are considered passive selling. Sales over the internet are generally considered to constitute passive sales for the purposes of the EU competition rules.

If a supplier operates a distribution network that includes both exclusive and non-exclusive distributors, the distinction between “active” and “passive” sales can lead to complicated situations. For example, if a supplier has an exclusive distributor in France and a non-exclusive distributor in Germany, the German distributor can be prohibited from actively targeting French customers, but the French distributor cannot be restricted from making any sale, active or passive, to German customers.

(iii)           Selective Distribution

In a selective distribution system, the supplier restricts sales of its product to those distributors satisfying certain criteria. Such admission criteria can be qualitative (e.g., requirements regarding the types of outlets in which the products may be sold or requirements regarding the presence of qualified staff to advise customers, after-sales services, etc.) or quantitative (e.g., limitations on the number of distributors in a given area, a requirement to order a minimum amount of product or to achieve particular level of sales of the supplier’s product). 

Purely qualitative selective distribution is, in general, considered to fall outside article 101(1) of the TFEU altogether, provided the following three conditions are met:

       i.          the nature of the product in question requires a selective distribution system, in the sense that such a system must constitute a legitimate requirement having regard to the nature of the relevant product, to preserve its quality and ensure its proper use;

     ii.          resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all and made available to all potential resellers and are not applied in a discriminatory manner; and

    iii.          the criteria laid down do not go beyond what is necessary.[41]

Qualitative and quantitative selective distribution is exempted by the Verticals Regulation as long as the market shares of both the supplier and buyer do not exceed 30 percent.[42] Outside the safe harbor, an individual assessment of quantitative criteria needs to be carried out, and there is a risk that such criteria would infringe article 101(1) of the TFEU and would not be justifiable under article 101(3) of the TFEU.

This relatively flexible attitude to vertical distribution agreements at EU level is in stark contrast with the approach taken by certain national competition authorities. In fact, selective distribution agreements have come under scrutiny by a number of national competition authorities.  In recent years, authorities in Germany and Austria have focused on alleged misuses of selective distribution systems as a means to implement RPM and online sales restrictions. Moreover, the BKA appears to generally call into question the benevolent treatment of selective distribution systems under the Verticals Regulation; in particular, in relation to online sales.[43]  As a result, it cannot be excluded that there may be cases in the future where the BKA decides that a selective distribution agreement is not covered by the Verticals Regulation and should be reviewed under article 101(1) of the TFEU or the equivalent national provision instead (with the accompanying risk of the BKA establishing an infringement of such provision) in circumstances where the EC would have considered the relevant agreement to fall within the scope of the Verticals Regulation.

(iv)            Franchising

Franchising describes an arrangement whereby a franchisee will operate a business that is independent from that of the franchisor but that uses the name and know-how of the franchisor. Franchising can be distinguished from conventional distribution systems as franchises typically involve the franchisor granting a license granted to the franchisee to use the intellectual property rights of the franchisor in return for a fee.

In order for a franchising system to be successful, it is essential that all the franchisees comply with certain uniform common methods imposed by the franchisor. Moreover, given the transfer of intellectual property rights from the franchisor to the franchisee, it is important that the franchisor is able to protect these rights. As such, franchise agreements typically contain a combination of different vertical restraints.

Restrictions in a franchise agreement aimed at protecting the franchisor’s intellectual property rights, or aimed at ensuring that all franchise outlets achieve the same standards, typically do not infringe article 101(1) of the TFEU. As regards other vertical restraints contained in franchise agreements that relate to the purchase, sale and resale of goods and/or services within a franchise agreement, such restrictions are exempted by the Verticals Regulation under the conditions set out above.[44]

(d)   Horizontal Restraints

Distribution relationships can, in some instances, also give rise to horizontal competition concerns.  In particular, there is a risk that a supplier could be found to facilitate the exchange of competitively sensitive information between retailers (so-called “hub and spoke” arrangements).  If a supplier is found to have knowingly acted as a conduit for an exchange of competitively sensitive information between two retailers, both the supplier and the retailers could face high fines, as well as private damages actions from third parties that have suffered harm as a result of such exchanges of information.

While the EC has taken infringement decisions in a number of cases involving hub and spoke information exchanges, e.g., where industry associations or consulting firms facilitated the information exchange,[45] national competition authorities have also dealt, or are dealing, with a number of hub and spoke cases. For example, the UK’s OFT has imposed fines in a number of hub and spoke cases involving retailers.  In 2003, the OFT fined a number of companies, including JJB Sports plc, Manchester United plc and Umbro Holdings plc, for their alleged involvement in fixing the prices of replica football kits manufactured by Umbro.[46] On appeal to the UK Court of Appeal, the court developed a three-limbed test for determining that a hub and spoke arrangement is in breach of the competition rules:

       i.          Retailer A discloses to supplier B its future pricing intentions in circumstances where A may be taken to intend that B will make use of that information to influence market conditions by passing that information to other retailers.

     ii.          B does pass that information to retailer C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B.

    iii.          C does in fact use the information in determining its own future pricing intentions.

It is worth emphasizing that the test applied by other national competition authorities is not as strict. At least for the purposes of the EU competition rules, satisfying the first two limbs of the above test will suffice to establish a breach of article 101(1) of the TFEU in the form of a hub and spoke arrangement, as EU competition law contains a rebuttable presumption that companies will act on competitively sensitive information disclosed to them.[47]

(e)    Issues with Internet Sales

In parallel with the growth of e-commerce in recent years, restrictions on sales over the internet have come under increasing scrutiny both at EU and the national level. As the EC states in the Vertical Guidelines: “the internet is a powerful tool to reach a greater number and variety of customers than by more traditional sales methods … in principle, every distributor must be allowed to use the internet to sell products.”[48]  As a result, the EC takes a very strict view of most types of internet sales restrictions.  Outright bans on internet sales are strictly prohibited under EU competition law.  For example, in Pierre Fabre, a requirement in a distribution agreement that sales of skin care products had to be made in a physical space and in the presence of a qualified pharmacist was held to amount to a de facto prohibition of internet sales and therefore to be a hardcore restriction that could not be justified.[49]  

In addition to restrictions that impose a total ban on internet sales, the EC will regard the following (more limited) restrictions on internet sales as hardcore restrictions for the purposes of the Vertical Guidelines:

       i.          a requirement in the supplier’s agreement with the distributor that the distributor shall prevent customers located in another territory from viewing its website or shall automatically redirect its customers to the manufacturer’s or other distributors’ websites;

     ii.          a requirement in the supplier’s agreement with the distributor that the distributor shall terminate consumers’ transactions over the internet once the credit card data reveals an address that is not within the retailer’s  territory;

    iii.          a requirement in the supplier’s agreement with the distributor that the distributor shall limit its proportion of overall sales made over the internet.  This does not exclude the supplier requiring, without limiting the online sales of the distributor, that the buyer sells at least a certain absolute amount (in value or volume) of the products offline to ensure an efficient operation of its brick and mortar shop. However, it is permitted to impose a requirement for  a minimum percentage of sales to be achieved offline. This means, e.g., that a supplier cannot impose a requirement that a distributor shall not sell more than 20 percent of products online, but the supplier can require a distributor to generate sales of at least, e.g., €75,000 in-store;[50] and

    iv.          dual pricing is strictly prohibited: this means that a supplier cannot charge a higher price for products intended to be resold by the distributor online than for products intended to be resold offline (e.g., charging the same distributor €100 for products sold online and €80 for products sold in-store).  This does not exclude the supplier agreeing with the distributor on a fixed fee (as opposed to a variable fee, where the sum increases with the realized offline turnover, as this would amount indirectly to illegal dual pricing) to support the latter’s online or offline sales efforts. For example, a supplier can offer support fees for in-store demonstrations, for employees that have attended training in relation to a particular product or to support after-sales services.[51]

The EC does, however, permit certain restrictions in relation to internet sales and, in particular, it permits the imposition of quality standards for websites on which a retailer may resell goods (just as a supplier may require quality standards for a brick and mortar shop). For example:

       i.          a supplier can impose a requirement that a dealer must have one or more brick and mortar shops or showrooms before it can become part of the dealer network;[52] and

     ii.          as regards the use of third party platforms, a supplier can require that its dealers only use such platforms to distribute products to the extent that the platform complies with the agreed  standards and conditions regarding use of the internet. For example, if the dealer’s website is hosted by a third party platform, the supplier can require that customers enter the distributor’s website, not via a site carrying the name or logo of that third party platform.[53] However, recent case law at the national level shows sales restrictions regarding third party platforms need to be assessed carefully.  Pursuant to the most recent practice of BKA, a blanket prohibition on third party platform sales will likely not be permitted.[54] However, prohibitions of sales on third party platforms would be permitted where such platforms do not provide sufficient safeguards as to the quality of the products and identity of the sellers, or where such platforms could facilitate sales of counterfeited products and therefore tarnish the supplier’s brand image.[55]

It is important to emphasize that any quality standards imposed on retailers must not be unduly restrictive, in that they must be equivalent to criteria imposed for bricks and mortar sales.  This does not mean that the online and bricks and mortar criteria must be identical, but they must pursue the same objectives and achieve comparable results, with any differences between the criteria justified by reference to the different nature of the two distribution modes.[56]  It is important to be aware that some national competition authorities, particularly in France and Germany, engage in a detailed analysis of any restrictions of internet sales, including a side-by-side comparison of the criteria governing online and bricks and mortar sales, to ensure that any restriction of sales over the internet is justified by the difference in the two distribution models.[57]

In conclusion, restrictions on internet sales are under close scrutiny in many jurisdictions, and national authorities are concerned to ensure that online restriction are not used as a potential mechanism to maintain higher prices for sales over the internet.[58]  While restrictions on internet sales are permissible in certain circumstances, such restrictions need to be carefully assessed on a case-by-case basis and reviewed periodically (and, where necessary, updated) to reflect changes and developments in the retail environment.

3.      Americas

USA

(a)   The Framework of US Antitrust Law

Under federal law, the primary antitrust statute governing agreements in restraint of trade is section 1 of the Sherman Act, 15 U.S.C. § 1.  Section 1 prohibits agreements that unreasonably restrain trade.  A violation of section 1 requires proof of three elements: (i) an agreement; (ii) that unreasonably restrains trade; and (iii) that affects interstate commerce.[59]  A few agreements — including price fixing, bid rigging, territory or customer allocation among competitors, and certain boycotts — once established, are considered per se illegal under section 1.  The per se rule forecloses any analysis of the purpose of the agreement once established or its effect on competition.  Other potentially anti-competitive practices challenged under section 1 are evaluated under the “rule of reason,” which requires weighing any actual or potential anti-competitive effects within a defined relevant market caused by the challenged conduct against its potential pro-competitive benefits.[60]  A lack of market power is often sufficient to find many types of vertical restraints lawful under the rule of reason. 

(b)   Suggested Pricing Issues

In an effort to better control their brands and images, many fashion and luxury goods makers wish to implement price controls to restrict the prices at which retailers may sell their products.  These controls often take the form of a suggested retail price policy or a required minimum price policy.  The law on these restrictions has evolved significantly over time and become more permissive.  However, because the law in this area is still relatively unsettled, companies do expose themselves to the risk of antitrust liability when they implement such programs, especially in certain states in the U.S., or at the federal level if the resale pricing policy is part of a horizontal price restraint among competitors.

Resale price maintenance (“RPM”) is an agreement between a supplier and a reseller about the price the reseller may charge its own resale customers.  Resale price maintenance can take different forms.  It can involve setting a price floor below which sales cannot occur (minimum resale price maintenance), a price ceiling above which sales cannot occur (maximum resale price maintenance), or a fixed price.  Suggested pricing, as the name implies, is the practice of providing a retailer with a suggested retail price for the manufacturer’s product.  Unlike resale price maintenance, in a true suggested pricing arrangement, the retailer is permitted to deviate from the suggested price.   

Minimum resale price maintenance agreements that set minimum resale prices were per se illegal under federal law until 2007.  In 2007, the Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS, Inc.[61] overruled the per se standard, and adopted the rule of reason analysis for minimum resale price maintenance claims, harmonizing the minimum resale price maintenance standard with maximum resale price maintenance, which was given the rule of reason treatment 10 years prior. [62] 

Under the facts of the case, Leegin Creative Leather Products, a manufacturer of leather accessories, implemented a minimum pricing policy under which it would refuse to deal with or would terminate those retailers that did not comply with the policy.  When Leegin discovered that retailer Kay’s Kloset was selling below the set minimum resale price, it terminated the supply relationship.  PSKS, Kay’s parent company, brought suit, claiming that Leegin’s policy was a per se illegal minimum resale price maintenance policy.  The Supreme Court rejected PSKS’s argument and found that minimum RPM policies would now be assessed under the far less stringent rule of reason.  The court held that there could be several pro-competitive rationales for an RPM policy, including promoting inter-brand competition, encouraging non-price competition among retailers, and discouraging free riding. 

Federal courts since Leegin perform a full rule of reason analysis of the pro- and anti-competitive effects of a resale price maintenance arrangement to determine if it unreasonably restrains trade.[63]  This has presented plaintiffs with an often insurmountable barrier to finding an RPM policy illegal under federal antitrust law.[64]  When only a few manufacturers lacking market power adopt resale price maintenance, a court applying federal law is unlikely to find the practice unlawful.  In contrast, where a retailer with a high market share encourages manufacturers to adopt a minimum RPM policy, a court is far more likely to find the practice unlawful.[65]

In addition to courts, federal agencies have also altered their enforcement policies in the wake of Leegin.  For example, in 2008, in light of Leegin, the Federal Trade Commission (FTC) modified a pre-Leegin order against fashion design company Nine West Group to allow the company to engage in resale price maintenance.[66]  The FTC applied Leegin, noting that “Nine West has demonstrated that it lacks market power and that Nine West itself is the source of the resale price maintenance.”[67]  The modified order overruled a previous FTC order that had prohibited Nine West from threatening or penalizing dealers that sold below the company’s designated retail prices.       

Although resale price maintenance is no longer a per se violation under federal law, some states and state attorneys general have taken the position that the Leegin decision does not affect state antitrust law.  For example, in 2009, Maryland passed a law in direct response to the Leegin decision, which declared RPM to be per se illegal under Maryland’s antitrust statute.[68]  This statute is still in force and the attorney general of Maryland filed a complaint against Johnson & Johnson Vision Care, Inc. (“J&J”) in 2016 alleging a violation due to an RPM agreement with Costco.[69]  The attorney general alleged that J&J and Costco agreed to a minimum resale price for contact lenses which then were included in deals with Costco’s fellow retailers Sam’s Club and BJ’s.[70]  In 2008, Illinois, Michigan and New York sued furniture manufacturer Herman Miller, alleging that the company’s RPM policy was a per se unlawful RPM policy under their respective state antitrust statutes.[71]  The parties quickly entered into a consent decree to settle the case.  The California attorney general has aggressively pursued RPM as a per se violation of California’s antitrust statute, the Cartwright Act.  In 2010, the California attorney general filed suit in the state court, alleging that a skin care manufacturer, Dermaquest, committed a per se violation of the Cartwright Act by entering into agreements with sellers prohibiting them from reselling below the firm’s suggested retail price.  The company entered into a consent decree, settling the case.[72]  The California attorney general’s position was boosted in 2013, when a U.S. District Court in California found RPM still to be per se violation under the Cartwright Act.[73]  Kansas is the only state to explicitly follow Leegin by statute, allowing RPM agreements to be subject to the rule of reason.[74] Many states have simply not yet addressed the issue.

In the past, states have pursued RPM claims against fashion and luxury goods companies.  For example, in 2000, Nine West agreed to settle charges from the FTC, as well as several states, accusing the company of implementing per se illegal RPM agreements with its dealers.  Although the FTC modified its order in the wake of Leegin, this modified order did not affect the state settlements.  

Due to the inconsistent treatment of RPM policies under state law, companies considering whether to implement an RPM policy should tread cautiously and consider instead implementing a suggested pricing program.  Under the Supreme Court’s decision in United States v. Colgate, a supplier is permitted to make a unilateral decision to deal or not with its resellers and set the terms on which it will deal.[75]  Under the Colgate doctrine, it is lawful for a manufacturer to “suggest” a retail price, and then refuse to deal with resellers who do not sell at the suggested price.  A suggested retail price set by a manufacturer is considered unilateral conduct, and does not run afoul of the Sherman Act’s prohibition on concerted actions that unreasonably restrain trade.[76]  Thus, in such cases, the “agreement” element would not be present for those states that challenge RPM.  For example, in Jeanery, Inc. v. James Jean, Inc., the defendant jean manufacturer was sued by a dealer terminated after not complying with the manufacturer’s minimum price requirements.[77]  The 9th Circuit overturned a District Court opinion that had found that the manufacturer and competing retailers entered into a conspiracy to fix the resale prices of the manufacturer’s jeans.  The 9th Circuit found that there was no agreement, and noted that manufacturers are permitted to announce resale prices and refuse to deal with those retailers who do not comply, without running afoul of the antitrust laws. 

Under Colgate, a manufacturer’s use of a manufacturer’s suggested resale price (MSRP) is not unlawful, so long as the price is actually “suggested” and not coerced.[78]  Coercive conduct by a manufacturer to enforce such a policy is often sufficient evidence for a court to find the policy to be concerted action.  A manufacturer may be vulnerable to the charge that a pricing policy is actually coerced where the manufacturer’s conduct in enforcing the policy goes beyond “exposition, persuasion and argument”.[79]  The line between coercion and mere suggestion is muddy, however, with courts focusing on a variety of factors.  Coercion may include a number of actions, e.g., threats, policing, or the use of sanctions.[80]  In addition, some courts have found requisite concerted action where a manufacturer terminates a non-complying retailer after receiving complaints from other retailers about the non-complying retailer.[81]

In sum, although federal courts now treat RPM under the rule of reason, companies — especially those that sell their products nationwide — seeking to implement an RPM policy should be very cautious.  Implementing an RPM policy may still expose a company to severe penalties under some states' law.  Thus, often a company’s most prudent course of action if it wishes to control retailer prices is to implement a Colgate-style suggested pricing policy.  Companies should consult with counsel in creating such policies, to minimize the risk that they will be characterized as an RPM policy.

(c)    Minimum Advertised Price

Fashion and luxury goods makers may also seek to control the prices at which their products are advertised, but not necessarily sold.  A MAP is a policy restricting the price at which a product or service may be advertised.  This may take the form of a simple prohibition on advertising below a certain price or it may take the form of a cooperative advertising program.  A cooperative advertising program is a program under which a supplier provides subsidies to the retailer to promote the supplier’s product.  In consideration for the subsidy, the supplier may insist that the retailer adhere to a MAP policy.

Under federal law, MAP policies are treated as non-price vertical restraints and governed by the rule of reason.[82]  MAP policies that condition the receipt of advertising funds on adherence to the policy have consistently been upheld by courts.[83]  Where a MAP policy has enough characteristics of an RPM policy, however, a court may analyze the restraint as an RPM policy.  This distinction was more critical before Leegin; however, it remains important in states where RPM is still a per se violation.  Where a MAP policy has the effect of restricting the price at which a retailer may sell the product, then a court is more likely to analyze the policy under an RPM framework.  Policies that impose significant penalties for non-compliance with the policy, or policies that restrict not just external advertising, but also advertising within the stores themselves, may be vulnerable to a charge that they are disguised RPM policies.[84]  Where, however, a MAP policy expressly permits a retailer to set different prices and where discounted sales actually do occur, there is less risk that the policy will be found unlawful.[85]  In order to avoid antitrust liability, retailers seeking to implement a MAP policy should be cautious and ensure that their policies do not have the effect of restricting prices.        

(d)    Vertical Non-price Restraints

Fashion and luxury goods makers may also wish to implement certain non-price vertical restraints.  These can take a number of forms, including exclusive distributorships, point of sale restrictions, territorial and customer restrictions, or channel restrictions.  Since the Supreme Court’s decision in GTE Slyvania Inc. v. Cont’l TV., Inc. courts have generally analyzed these restraints under the rule of reason and found them lawful.[86]    

Territorial and customer restraints restrict a retailer’s ability to sell outside a particular territory or to a particular category of customer.  Territorial and customer restrictions are analyzed under the rule of reason, with few decisions finding the restrictions unlawful.[87]  Point of sale restrictions limit a retailer to selling only from a specified location.  Likewise, channel restrictions, which restrict the channels — e.g., mail order, 800 number, internet, brick and mortar — through which a retailer may sell products, are judged under the rule of reason and almost always found reasonable.[88]  Unless the manufacturer has market power, then the territorial, customer, point of sale or channel restrictions will usually be found lawful.[89]  

Courts have also applied the rule of reason to exclusive dealing arrangements.[90]  Exclusive dealing normally takes the form of an agreement to conduct business with one particular supplier or retailer.  For example, a supplier may insist that a retailer not carry any competing brands in its stores.  In applying the rule of reason, although courts will analyze barriers to entry and the duration of the agreement, courts place particular emphasis in determining whether the agreement substantially forecloses competition.[91]  Where only a small fraction of buyers or sellers are foreclosed from purchasing or selling, and there are ample other outlets for the goods or services, the agreement is likely to be found lawful.[92] 

(e)    Horizontal Restraints

Horizontal restraints refer to competitive restraints between horizontal competitors.  Agreements in restraint of trade among horizontal competitors are generally judged far more harshly than vertical restraints and are a primary target of U.S. antitrust enforcement. 

Many such restraints are analyzed under the per se rule, including agreements among competitors to fix prices, allocate territories/customers or boycott other companies.[93]  Although certain practices may  be legal when agreed to between non-competing companies — e.g., channel, customer or territorial restrictions — when done in concert with a competitor, they expose a company to a high risk of antitrust liability.  To minimize the risk of liability, companies should avoid any implication of agreement and thus avoid sharing competitively sensitive information between competitors. 

Manufacturers also risk liability if they facilitate or encourage a horizontal agreement among retailers to fix prices or allocate territories/customers.  These agreements are better known as  hub and spoke conspiracies.  Usually, individual agreements between a manufacturer and retailers are vertical and analyzed as such.  However, where the manufacturer acts as a hub and enters into a series of vertical agreements with retailers, such agreements may be actionable where the retailers themselves also come to some agreement and use the manufacturer as a conduit for communications.[94]  For example, in Toys “R” Us v. FTC, the 7th Circuit upheld an FTC decision finding that Toys “R” Us acted as a hub for a conspiracy between Toys “R” Us and leading toy manufacturers.[95]  The FTC found that the manufacturers and Toys “R” Us conspired to restrict sales to discount toy stores.[96]  The FTC did, however, modify the Toys “R” Us Order in 2014 because the company had lost significant market share.[97] 

Similarly, the Federal Court for the Southern District of New York found that Apple had engaged in a hub and spoke conspiracy when it agreed with five book publishing companies—including HarperCollins, Penguin and Simon & Schuster—to  raise, fix and stabilize the retail price for newly released and bestselling trade e-books.[98]  The court determined that “Apple played a central role in facilitating and executing that conspiracy,” and that “[w]ithout Apple’s orchestration . . . it would not have succeeded as it did.”[99]  This finding was subsequently affirmed by the Second Circuit.[100]

Manufacturers also need to be conscious of the risks involved in so-called dual distribution arrangements.  Dual distribution refers to a situation where a manufacturer sells both to retailers and also directly to consumers — i.e., where the manufacturer has integrated downstream into its own retail operations.  In such a situation, a manufacturer is competing with the retailers as well as cooperating with them; thus, the arrangement could be characterized as horizontal.  For example, in a dual distribution arrangement, an RPM policy imposed by a manufacturer could arguably be interpreted as a per se illegal horizontal price fixing agreement between retailers.  Most courts, however, have characterized dual distribution arrangements as vertical and applied the rule of reason.[101]  Nevertheless, because the Supreme Court has never ruled on this, manufacturers that also sell directly to consumers should be cautious and consult with counsel when implementing restraints that may pose antitrust issues.

(f)    Issues with Internet Sales

Restraints on internet sales are generally analyzed in the same manner as vertical restrictions on brick and mortar retailers.[102]  As with traditional retailers, non-price vertical restraints on internet distribution are analyzed under the rule of reason.  Likewise, online RPM polices are analyzed under the rule of reason under federal law, but may be analyzed as per se violations under certain state antitrust laws. 

Although internet sales are largely analyzed under traditional antitrust theories, internet distribution does raise some novel issues.  For example, the implementation of MAP policies on the internet is often much different than in traditional brick and mortar stores.  MAP policies on the internet can take a variety of forms, with some more transparent to consumers than others.  On one end of the spectrum are polices that permit an online retailer to advertise a lower price only when a customer places a product into his or her online shopping basket and clicks through to view it. On the other end of the spectrum are policies that prohibit an online retailer from advertising a lower price anywhere on the internet, but may invite consumers to call or email the company for a lower price.  As with traditional MAP policies, the closer an online MAP policy is to an RPM policy, the more antitrust risk arises.  The risk that an internet MAP policy might be characterized as an RPM policy is somewhat greater than with a brick and mortar store; however, because, unlike face-to-face dealing, there is little ability on retailer internet websites to negotiate prices, the price advertised is generally the price paid.     

In Worldhomecenter.com, Inc. v. Franke Consumer Products, Inc., a U.S. District Judge for the Southern District of New York held that an online MAP policy implemented by kitchen products company Franke Consumer Products was not an unlawful RPM policy.[103]  The policy prohibited online retailers from publishing prices below a specified range and allowed Franke to terminate those retailers who did not comply.  Importantly, however, the policy also allowed retailers to notify consumers that they were free to call or email Franke to obtain the retailer’s lowest price.  Worldhomecenter.com, an internet retailer, violated Franke’s MAP policy and was terminated.  Worldhomecenter.com sued, claiming that the policy was a per se illegal RPM policy under New York law.   The court disagreed and found the policy lawful, noting that it provided avenues for the retailer to advertise lower prices and was thus not an RPM policy.  Similarly, in Worldhomecenter.com v. KWC America, a U.S. District Court in the Southern District of New York dismissed an antitrust suit against kitchen supply company KWC America accusing it of having an illegal MAP policy.  In dismissing the claim, the court noted that the policy provided that “actual prices charged to customers may be provided by telephone, email response, and product purchase confirmation webpages or communications.”[104] Thus, the court found that the policy was not akin to an RPM policy.  In contrast, four years earlier, in a case brought by the same online retailer,  a U.S. District Judge for the Eastern District of New York denied a motion to dismiss antitrust claims accusing L.D. Kichler, a lighting manufacturer, of implementing an illegal online MAP agreement.[105]  The court held that, taking Worldhomecenter.com’s allegations as true, “essentially, the advertised price is the retail price for an internet shopper”.  Thus, the MAP policy “[had] the concomitant effect of restricting retail prices for internet retailers.”  The court, however, provided little detail in its opinion to guide future companies in implementing MAP policies on the web.

Chile

(a)   The Framework of Competition Law in Chile

Chile does not have specific laws that address the competition aspects of distribution agreements and the vertical restraints included in such agreements. These matters fall under the general Chilean Antitrust Law, contained in Decree Law Nr. 211 of 1973 (DL 211). Moreover, vertical restraints entered into by companies that do not hold a dominant position[106] fall outside the scope of the Chilean antitrust rules altogether. Vertical restraints entered into by dominant companies are assessed under the rules on abuse of dominance, which are contained in article 3b) of DL 211. In Chile, there are two authorities with jurisdiction to enforce antitrust law, including in relation to agreements containing vertical restraints, the Chilean National Economic Prosecutor’s office (FNE) and the Antitrust Court (Tribunal de Defensa de la Libre Competencia).

The FNE has issued internal guidelines regarding vertical restraints, which shed light as to when they may be considered by the authorities as a breach of antitrust regulation. It is worth noting that these guidelines are not legally enforceable and are non-binding for the market, but provide a useful overview of the criteria applied by the Chilean antitrust authorities when assessing vertical restraints. 

(i)     Recent Enforcement Trends

The Chilean antitrust authorities have not been particularly active in enforcing antitrust law in the luxury goods and fashion industry so far. The most significant example of a judicial case concerning the industry in the last few years is the legal action taken against a cartel formed by a group of travel agencies active in the luxury hotels industry, which ended in 2012.[107]

With respect to distribution and vertical agreements more generally, the main enforcement focus has been on dominant companies that imposed vertical restraints with the aim of foreclosing competitors: e.g., by restricting distributors from selling other brands of the same product (e.g., in the cigarette or matches industries), or by establishing rebates for sales volume, with the aim of excluding competitors (e.g., in the fabric and house cleaning industry).

(b)   Pricing Issues

(i)   Fixing the Resale Price/Retailer Margin

Although Chilean antitrust law does not expressly prohibit resale price restrictions such as RPM, and the Chilean authorities have not been particularly active in this area, there nonetheless appears to be consensus among practitioners, and supported by the Chilean authorities, that the imposition of fixed prices by a producer/seller on a distributor/retailer constitutes a breach of Chilean antitrust law, more specifically of article 3b) of  DL 211, assuming both of the following conditions are met:

       i.          that the restriction is imposed by a producer/seller that has a dominant position in the corresponding market; and

     ii.          that the restriction impedes, limits or hinders competition, or has the capacity of producing such a result, and that such damage to competition is not “countered” or “justified” by any efficiencies that the same may produce.

(ii)        Maximum Prices

Maximum prices imposed by a producer on a distributor/retailer are generally not considered to constitute a breach of Chilean antitrust law (on the basis that setting a maximum limit on prices usually produces benefits for consumers). However, in application of general antitrust principles, the imposition of maximum prices may be considered illegal if they are imposed with the aim of influencing competition (e.g., if imposed by a dominant seller with the aim of controlling or eliminating competition at the distribution level).

(iii)       Recommended Prices

The recommendation of prices by a producer to a distributor/retailer is not considered illegal under Chilean law. However, if such recommendations are in some way “enforced” or “induced” by the seller, then such price recommendations may be considered unlawful, as they may have the same effect as an RPM clause

(iv)       Minimum Advertised Price

Under Chilean consumer protection regulations, it is illegal for a retailer to advertise a product to the general public at a price different than that at which it is actually sold. Therefore, advertised prices of a product are generally equal to its actual selling price (otherwise, the retailer would be in breach of applicable consumer protection regulations). In light of this, MAPs are not normally used in Chile. However, if such restrictions were agreed in practice, they would likely be treated in the same way as fixed minimum resale prices restrictions.

(c)    Vertical Non-price Restraints

Vertical non-price restraints, such as territorial or customers restrictions, have generally not been the focus of antitrust authorities in the past years. They are not expressly referred to as an example of anti-competitive conduct in the Chilean antirust law, although vertical non-price restraints may nonetheless be considered in breach of the Chilean antitrust law under the general Chilean antitrust rules. For this to be the case, all the general conditions for an unlawful abuse of dominance have to be met: i.e., that the restriction is imposed with the aim of affecting competition, that the same is imposed by a dominant seller, that the same does not have any positive economic effects (e.g., synergies or other), etc. The same would be true regardless of the industry in which the relevant undertakings imposing such vertical non-price restraints are active. However, there are no precedents for this, whether in the fashion and luxury goods sector or other markets.

(d)   Horizontal Restraints

Horizontal restraints, i.e., agreements between competitors with the aim of affecting competition — e.g. by fixing prices, sharing competitively sensitive information, allocating customers or territories — are generally considered to infringe Chilean competition law, in accordance with article 3a) of DL 211, which governs anti-competitive agreements. This is the case regardless of the industry that the anti-competitive agreement pertains to.

It should be noted that illegal horizontal restraints may exist both where competitors exchange relevant information directly and where they do so indirectly through a third party in a hub and spoke arrangement. There are a number of recent hub and spoke cases in Chile (e.g., the retail pharmacies cartel of 2008-2009, in which the Antitrust Court alleged that the retailers exchanged information through laboratories supplying competing pharmacies).[108]

(e)    Internet Sales

The issue of restrictions on internet sales has not attracted any real attention from the antitrust authorities in Chile (in fact, there are no special laws or soft laws that apply to online sales). However, consumer protection laws stipulate that internet sales should be regarded and treated in the same way as store sales (with the same protections available to consumers), and, therefore, from an antitrust point of view, it is arguable that the principles and criteria applicable to internet sales should not be any different from those applicable to sales via bricks and mortar stores.

Colombia

(a)        Framework of Competition Law

(i)               The Rules Applicable to Distribution Agreements

Colombian laws and regulations regarding the issues of competition, antitrust and pricing are all based on article 333 of the Colombian Constitution, pursuant to which free competition is a right of all Colombian citizens and residents.

Law 155 of 1959 sets out that any action the purpose or effect of which is the restriction of free competition or the maintenance or determination of unfair prices shall be illegal and thus null and void under Colombian regulations. In addition to Law 155 of 1959, Decree 2153 of 1992 sets out the actions and agreements that are considered practices in restraint of trade in Colombia.

Restrictive agreements are defined by Colombian laws as any agreement or arrangement that directly or indirectly has the purpose or effect of limiting activities such as the production, supply, distribution or consumption of foreign or national raw materials, products, merchandise or services; and all kinds of practices, procedures and systems that tend to restrict free competition and/or maintain or fix prices. Such agreements or arrangements are prohibited and will be considered null and void.

Colombia’s antitrust legislation, as a general rule, makes no distinction between horizontal and vertical restraints. Furthermore, the illegality is analyzed from the intent and effects perspectives. Additionally, the law does not explicitly spell out the criteria for illegality per se and the rule of reason. Therefore, certain covenants that may be lawful and frequently used in other jurisdictions, should be analyzed carefully when structuring distribution relationships in Colombia.

The Superintendence of Industry and Commerce (SIC), the Competition Regulator in Colombia, has adopted a very strict approach with respect to the interpretation and validity of non-compete clauses (even where agreed as ancillary obligations in the acquisition of assets or shares). Non-compete covenants effective after the termination of a distribution agreement will be deemed to be null and void and restrictive of trade.[109]

(b)        Pricing Issues

 (i)        Fixing the Resale Price/Retailer Margin

SIC has established that this prohibition is applicable to parties in separate links of a given distribution chain (i.e, wholesaler, distributor and retailer) who must establish their own independent pricing formulae.[110]  Accordingly, the resale price maintenance prohibition is not applicable whenever there is no separate link but the existence of a representative (i.e., agent and broker) of the business charging the prices in the first place.  If the principal is independent of the distributor (which assumes the risk and property over the goods and obtains its profit from the difference between cost of purchase and selling price), it cannot be forced to follow a predetermined price set by the publisher. 

(ii)        Maximum Prices

Any provision or arrangement that is intended (or has the effect of) creating the obligation on independent distributors to follow resale price impositions from the principal, is prohibited, in accordance with SIC’s interpretation of the provision that prohibits agreements to set prices.[111] Under SIC’s current position, RPM, even when it is intended to set maximum prices, is considered to be illegal per se.

(iii)       Recommended Prices

Price suggestions are permitted as long as the principal adopts no retaliation against the distributor when such a suggestion is disregarded. Retaliation for non-compliance with a suggested price is considered an antitrust violation, which may be subject to fines.

(c)        Vertical Non-price Restraints

According to the applicable laws in Colombia, any agreement that directly or indirectly has the purpose of limiting the distribution or consumption of products will be considered illegal.[112] Furthermore, any agreement between manufacturers or distributors that has the purpose or effect of partitioning a market is also illegal.[113]

Notwithstanding the above, SIC has considered that such provisions should be interpreted in conjunction with the laws regarding exclusive distributorship structures, and has suggested in at least one case that territorial allocation in vertical distribution schemes should be analyzed under a rule of reason.

In this regard, SIC has considered in at least one case[114] that the territorial allocation in vertical relationships can be considered to be legal if the efficiencies of the territorial restrictions can be demonstrated. In a different opinion,[115] SIC established that, even where there are efficiencies to vertical territorial allocations (via exclusive territorial arrangements), it is necessary that the agreements define that in no case can the distributor be prevented from selling products to customers that are out of the territory assigned to such distributor. SIC’s opinion thus suggests that active sales out of the designated territory may be prevented but that in no case can the vertical arrangement prevent the seller or distributor from selling to a customer from out of the territory that requests such sale.

(a)             Territorial Allocation

Geographic allocation between the principal and its distributors is permitted under Colombian antitrust regulations.[116] However, the principal is not allowed to restrict the distributor from making passive sales within its territory. This means that the distributor can be prevented from actively pursuing clients outside of its territory but cannot be prevented from selling products to a customer of a territory not assigned to it, if the customer goes to the distributor’s territory.  The same rule will apply with respect to client allocations.

(b)             Non-compete Covenants

Non-compete clauses are valid when reasonable circumstances arise. In general, a non-compete obligation during the term of the agreement will be enforceable in Colombia, as long as it is limited to the same or similar products and limited to the territory described within the distribution agreement. It will be deemed an exclusivity clause. Exclusivity clauses, however, should also be analyzed on a case-by-case basis because, in some circumstances, they could be deemed to be unlawful (e.g., when the exclusivity clause has the purpose or effect of foreclosing the market).

(d)        Horizontal Restraints

Article 47 of Decree 2153 lists the following activities and/or agreements as examples of restrictive agreements:

(c)             Price fixing: i.e., any action or agreement between two or more competitors, the purpose or effect of which is to directly or indirectly fix the price of products or services.

Hence, any agreement or concerted practice between two or more distributors, the purpose or effect of which is to establish or determine the prices of goods or services in Colombia, will be caught by this prohibition.

Exchanges of information between competitors might, in certain cases, raise concerns. For instance, acquiring market studies or accessing information that is not aggregated, and allows identification of competitors, their brands and, in many cases, the specific products commercialized by each competitor, and that includes references to their revenues and volumes (by brand and by product), may trigger competition concerns.

(d)             Creation of discriminatory conditions for sales or trade: i.e., actions or agreements, the purpose or effect of which is the creation of discriminatory sales or trading conditions for third parties.

Thus, any special treatment given to a supplier or a distributor should be on an objective basis, which implies that any market agent that meets the same conditions as that to which the special treatment is given should receive the same treatment. Unjustified discrimination against a sub distributor is illegal.

Hence, any concerted actions the intention or effect of which is blocking the sale of products to a distributor (because, for instance, it is selling products at a lower price or to clients out of an assigned territory)  may be considered illegal under Colombian antitrust regulations.

(e)             Market partition or allocation of territories or clientele.

This means any action or agreement between two or more parties, the purpose or effect of which is to divide certain markets. Sanctions for splitting the market in horizontal agreements will be penalized more severely than in vertical relationships.

Mexico

(a)   The Framework of Competition Law  in  Mexico

(i)               The Rules Applicable to Distribution Agreements

The Mexican Competition Law (MCL) applies to two different kinds of practices that can be deemed anti-competitive: so-called absolute monopolistic practices (horizontal agreements)[117] and so-called relative monopolistic practices (vertical agreements).[118] Monopolistic practices are those performed by an economic agent with substantial market power. [119] Restrictions in distribution agreements can be considered as both absolute and relative monopolistic practices, and therefore fall under the relevant rules applicable to both kinds of monopolistic practices in Mexico.

Under the MCL, any contract, agreement, arrangement or combination between competing economic undertakings is considered to be anti-competitive and an absolute monopolistic practice in breach of the MCL, where the purpose or effect of such contract, agreement, arrangement or combination is any of the following:

       i.          price fixing;

     ii.          restriction of output;

    iii.          market segmentation;

    iv.          bid rigging; or

      v.          exchange of information resulting in any of the above.

Agreements containing these kinds of restrictions/provisions are automatically null and void.

Separately, relative monopolistic practices are those acts, contracts, agreements, procedures or combinations the purpose or effect of which is, or might be, to unduly displace other agents from, or substantially preclude their access to, a market. These practices are:

       i.          vertical price fixing;

     ii.          resale price maintenance;

    iii.          tying;

    iv.          exclusive dealing;

      v.          refusals to deal;

    vi.          boycotts;

  vii.          predatory pricing;

 viii.          loyalty rebates;

    ix.          cross subsidies;

      x.          price discrimination;

    xi.          raising third parties’ costs;

  xii.          denying access to essential facilities (or granting access on discriminatory terms only); or

 xiii.          margin squeeze.

However, these types of practices are not illegal per se but are subject to a rule of reason assessment. In order for these practices to be illegal, it has to be shown that their object or effect was to unduly displace other undertakings from, or substantially preclude their access to, a market.

In addition, even if the conditions referred to in the above paragraph are met, a relative monopolistic practice can nonetheless be permitted under the MCL if efficiency gains are generated, so that the net contribution to consumers’ welfare outweighs any anti-competitive effects resulting from the alleged practice.

The MCL does not set forth specific regulations regarding distribution agreements. As such, distribution agreements are subject to the general rules of the MCL.

(ii)             Recent Enforcement Trends

We are not aware of any recent enforcement action in the luxury goods and fashion industry and/or in relation to distribution agreements. However, it is worth noting that competition enforcement in Mexico has recently been strengthened, with the revised MCL having come into force on 17 June 2014. In particular, the revised MCL grants the Mexican Competition Commission (Cofece) broader powers to investigate anti-competitive conduct than was the case under the previous legislation. For example, Cofece now has the power to arrest individuals that fail to cooperate during an investigation; there are new rules governing dawn raids, granting Cofece wide powers to seize documents; and Cofece now has the power to request additional explanations regarding such seized documents from any company officer or representative.

(b)   Pricing Issues

 (i)        Fixing the Resale Price/Retailer Margin

Fixing the resale price or retailer margin is considered a relative monopolistic practice under the MCL, and, as such, is not illegal per se, but only in the case that (i) the supplier can be considered to have substantial market power; and (ii) the conduct has a negative effect on the market. Additionally, even if (i) and (ii) are met, if it can be demonstrated that the efficiency gains resulting from the alleged conduct outweigh any negative effect on competition, such conduct may nonetheless be considered not to infringe the MCL.

 (ii)       Maximum Prices

The provisions in the MCL applying to relative monopolistic practices in relation to prices cover not only the fixing of resale prices, but any other conditions that distributors must observe while commercializing or distributing products (i.e., minimum or maximum resale prices, obligatory discounts or rebates, including operating hours). For such practices to be considered an infringement of the MCL, the same aforementioned conditions apply (i.e., that such practices must be carried out by a company with market power, and that any negative effect on competition resulting from these practices is not outweighed by any efficiency gains resulting from such practices).

(iii)       Recommended Prices

Recommended prices do not usually give rise to concerns under the MCL, provided the distributors are entirely free to set final prices for their customers.

(iv)       Minimum Advertised Price

So-called MAP clauses are permitted under the MCL, provided they do not result in price fixing — distributors must remain free to set final prices for their customers.

(c)    Vertical Non-price Restraints

All vertical non-price restraints of competition, including territorial, customer and/or channel restrictions, as well as exclusive and selective distribution models, are considered relative monopolistic practices under the MCL and are subject to a rule of reason assessment.

Furthermore, as indicated above, these practices are not illegal per se, but only when performed by an economic agent with substantial market power, and provided the object or effect of the conduct is to unduly displace other agents from, or substantially preclude their access to, the market. As with any other relative monopolistic practice, such practices may nonetheless not fall foul of the MCL, where efficiency gains can be shown that outweigh any negative effect on competition resulting from the alleged practices.

(d)   Horizontal Restraints

As indicated in point 1 above, the following horizontal restraints are considered absolute monopolistic practices and are therefore illegal per se: price fixing, restricting output, market segmentation, bid rigging and exchange of competitively sensitive information. Although hub and spoke type agreements are not expressly covered by the MCL, such arrangements may nonetheless give rise to a breach of the MCL; in particular, where such arrangements facilitate collusion between competing distributors.

We are not aware of any recent enforcement action in the luxury goods and fashion industry and/or in relation to horizontal restraints. However, as mentioned above, competition enforcement has been strengthened generally, with the broader investigative powers granted to Cofece under the revised MCL, and we may therefore see more enforcement action by Cofece in this sector in the future.

(e)    Issues with Internet Sales

The MCL does not include specific provisions governing e-commerce/sales over the internet. Thus, the general provisions on monopolistic practices apply. In any event, e-commerce has not been a particular focus for Cofece, and we are not aware of recent enforcement action in this area.

In general, the main issues concerning competition rules governing e-commerce will be to ensure that the chosen distribution model is appropriately dealt with in contracts with dealers.  Any restrictive arrangements in such contracts may raise competition law concerns. Where such arrangements involve an element of selective distribution, care needs to be taken to ensure dealers are treated fairly and consistently, to avoid any concerns relating to the MCL. Any restrictions on internet sales should also be considered carefully; in particular, with regards to how such restrictions are structured. Clear criteria and communication with dealers, as well as careful management to ensure consistent application, are essential to minimize the risk of infringing the MCL.

4.      Asia Pacific

Australia

(a)   The Framework of Competition Law in Australia

(i)               The Rules Applicable to Distribution Agreements

Australia has no specific laws regulating distribution agreements.  They are subject to the general rules against anti-competitive conduct in the Competition and Consumer Act 2010 (Cth) (CCA), the main statute dealing with competition law in Australia. 

Part IV of the CCA sets out the prohibitions against anti-competitive conduct.  It contains two types of prohibitions:  “per se” or absolute prohibitions, which prohibit certain conduct irrespective of its effect on competition; and prohibitions that are dependent on the conduct having the purpose or likely effect of substantially lessening competition (the so-called “competition test”).  The types of conduct that are absolutely prohibited are:

       i.          cartel conduct, price fixing, and exclusionary provisions/collective boycotts;

     ii.          third line forcing (this refers to the situation where two parties enter into a type of exclusive dealing arrangement on the condition that the purchaser buys the relevant goods and/or services from a particular third party, or where a party refuses to supply because the purchaser will not agree to such a condition);

    iii.          resale price maintenance; and

    iv.          misuse of market power (including predatory pricing).

The types of conduct that are subject to the competition test are:

       i.          anti-competitive contracts, arrangements and understandings;

     ii.          exclusive dealing arrangements (other than third line forcing); and

    iii.          secondary boycotts (this refers to situations where one person, together with a second person, engages in conduct that hinders or prevents a third-party supplier from supplying goods and services, or prevents customers from buying goods or services from a third-party supplier, where such conduct will, or is likely to, cause substantial loss or damage to the business of the third-party supplier).

(ii)             Recent Enforcement Trends

The CCA is administered and enforced by the Australian Competition and Consumer Commission (ACCC). ACCC has extensive powers to investigate anti-competitive conduct, and is a proactive and effective regulator.  While cartel conduct is a priority for ACCC, it does actively investigate anti-competitive conduct involving distribution arrangements.  Recent ACCC enforcement activity involving distribution arrangements has focused on resale price maintenance (see section (b) below), as well as cartel conduct issues in relation to dual distribution arrangements.

There have been only a few competition cases involving the luxury goods and fashion industries in recent years, and they have mostly focused on RPM.[120] 

(b)   Pricing Issues

(i)         Fixing the Resale Price/Retailer Margin

Suppliers of goods or services in Australia are prohibited from specifying a minimum resale price, and may not withhold supply on the basis that the reseller has refused to comply with a specified minimum resale price. 

Resale price maintenance is defined broadly in Australia, and extends to inducing or attempting to induce a supplier not to sell or advertise below a minimum resale price.  Further, “withholding supply” for the purpose of the prohibition against resale price maintenance includes refusing to supply except on disadvantageous or less favorable terms.

Recent enforcement action for resale price maintenance against companies supplying luxury or premium goods includes:

       i.          a supplier of household electrical goods was fined A$2.2 million when it was found to have engaged in resale price maintenance when it attempted to induce a dealer not to sell its air conditioning products below a certain price, and subsequently withheld the supply of goods to the dealer (by reducing the level of discount provided to the dealer); [121]

     ii.          an Australian cosmetics company was fined A$3.2 million (and a fine of A$200,000 was imposed against its managing director) for engaging in resale price maintenance over an extended period of time, as well as for engaging in price fixing conduct with a number of its franchisees; and[122]  

    iii.          a supplier of GPS devices was fined A$1.25 million, and fines of A$80,000 and A$30000 respectively were imposed on a former director and sales manager, for resale price maintenance conduct, which included seeking to prevent internet resellers from discounting its products. [123]

In addition, smaller penalties have also been imposed against a number of companies for resale price maintenance, including a penalty of A$90,000 against a supplier of skin care products for engaging in resale price maintenance, by inducing or attempting to induce two retailers not to sell products online at prices less than those specified by the supplier;[124] and a penalty of A$134,000 against a supplier of sportswear for engaging in resale price maintenance, by inducing or attempting to induce retailers not to advertise their products at prices less than the recommended retail price. [125]

(ii)        Maximum Prices

It is permissible for a supplier to specify a maximum resale price, provided that it is a genuine maximum and does not amount to a de facto actual price at which the reseller must resell the goods.  The reseller must be free to sell below the maximum resale price.

(iii)       Recommended Prices

It is permissible for a supplier to issue a recommended resale price, provided that the price is a recommendation only and there is no obligation to comply with the recommended resale price.  This should be made clear at the time the recommended price is provided.

(iv)       Minimum Advertised Price

The prohibition against resale price maintenance in Australia also extends to advertised prices.  Accordingly, suppliers are prohibited from specifying a MAP.

(c)    Vertical Non-price Restraints

In Australia, vertical restraints (such as prohibitions on distributors selling outside a particular territory or selling to particular customers, and non-compete/single branding clauses), and point of sale or sales channel restrictions, are generally lawful, unless they:

       i.          have the purpose, effect or likely effect of substantially lessening competition in a market in Australia; or

     ii.          constitute a misuse of market power.

Section 47 of the CCA prohibits exclusive dealing restrictions if they have the purpose, effect or likely effect of substantially lessening competition in a relevant market.  In addition, there is a general prohibition against contracts, arrangements or understandings that have the purpose, effect or likely effect of substantially lessening competition in a market.

Section 46 of the CCA prohibits a corporation with a substantial degree of power[126] from taking advantage of that power for the purpose of eliminating or damaging a competitor, preventing market entry, or deterring or preventing a person engaging in competitive conduct. 

If the supplier competes in downstream markets with its distributors, then vertical non-price restraints can also potentially constitute cartel provisions in breach of the CCA.  In such cases, care needs to be taken to ensure that the restrictions do not breach the per se prohibitions against cartel conduct.

Vertical non-price restrictions are actively investigated by ACCC, although there has not been any recent enforcement action concerning non-price vertical restraints in the fashion or luxury goods industry.  The last significant penalty imposed for non-price vertical restrictions was in the life sciences industry, in 2010, where a A$4.9 million penalty was imposed on a major pharmaceutical company for conduct that involved bundling and exclusivity restrictions on the supply of its products.[127]  This conduct was found to constitute unlawful exclusive dealing and a misuse of market power. 

(d)   Horizontal Restraints

In Australia, the prohibitions in relation to horizontal restraints are the prohibitions in the CCA against cartel conduct and exclusionary provisions.  The CCA lists  parallel criminal and civil offenses against competitors making or giving effect to a contract, arrangement or understanding that contains a “cartel provision”.  A “cartel provision” is a provision of a contract, arrangement or understanding that has:

       i.          the purpose or effect, or likely effect, of fixing, controlling or maintaining prices;

     ii.          the purpose of restricting outputs in the production or supply chain;

    iii.          the purpose of allocating customers, suppliers or territories; and/or

    iv.          the purpose of rigging bids or tenders.

The CCA also contains a per se prohibition against exclusionary provisions (or “collective boycotts”), which are provisions of a contract, arrangement or understanding between competitors that have the purpose of preventing, restricting or limiting the supply of goods or services to a particular person or group, or have the purpose of preventing, restricting or limiting the acquisition of goods or services from a particular person or group.

While there are specific prohibitions against price signaling in Australia, these currently only apply to the banking industry.  Accordingly, the mere exchange of information by competitors is not of itself likely to breach the CCA.  An exchange of information between competitors is prohibited only if it has the purpose, effect or likely effect of substantially lessening competition. 

Cartel conduct is an ongoing enforcement priority for ACCC, and it will actively investigate and prosecute cartel conduct. ACCC’s enforcement activity against cartel conduct is supported by an effective immunity policy.  While, with the exception of the cosmetics case referred to above, there have been no recent enforcement cases involving companies in the luxury goods industry, ACCC is very active in prosecuting cartel conduct.  Recent enforcement cases include: 

       i.          penalties of A$11 million were imposed against a travel agent for attempting to fix prices with two of its airline principals in relation to online sales of airfares;[128]

           ii.               total penalties of A$98.5 million were imposed on a number of airlines for price fixing surcharges for air cargo, including a penalty of A$20 million against Qantas;[129] and

    iii.          total penalties of A$8.3 million were imposed against two suppliers of forklift gas, and three former senior managers of those suppliers, for price fixing and market sharing — in addition, a three-year disqualification order was imposed on one manager, barring that individual from managing a corporation for that period.[130]

(e)    Issues with Internet Sales

Australia has no specific competition laws regulating e-commerce.  The prohibitions contained in Part IV of the CCA apply to internet sales.  Accordingly, a restriction preventing a reseller from making internet sales will contravene the CCA if it:

       i.          constitutes a misuse of market power; or

     ii.          has the purpose, effect or likely effect of substantially lessening competition in a market in Australia.

ACCC has recently identified the online marketplace as an enforcement priority and there have been a number of recent cases involving online sales. ACCC obtained penalties of A$2.5 million against a ticketing agency for taking advantage of its market power to deter or prevent a newly established online competitor from supplying its services, by refusing to grant a competing ticket supplier access to discounts in its ticketing system.[131]  As noted above, ACCC has also taken enforcement action for resale price maintenance conduct where a supplier has sought to restrict online retailers from selling goods below a specified price.

China

(a)   The Framework of Competition Law in China

(i)               The Rules Applicable to Distribution Agreements

The main antitrust regulation in the People’s Republic of China is the Anti-Monopoly Law of China (Anti-Monopoly Law), which came into effect on 1 August 2008. The Anti-Monopoly Law prohibits monopolistic conduct, which is defined as any of the following activities: (a) anti-competitive agreements; (b) the abuse of a dominant market position; or (c) mergers and acquisitions that may have the effect of eliminating or restricting competition. This section focuses on the rules relating to anti-competitive agreements and the abuse of a dominant market position.

In addition to the Anti-Monopoly Law itself, various implementing rules and guidelines exist that assist in the application and interpretation of the Anti-Monopoly Law.

Anti-Competitive Agreements

Anti-competitive agreements (referred to as “monopoly agreements” under the Anti-Monopoly Law) are defined as agreements, decisions or concerted practices between business operators that restrict or eliminate competition. [132] The following horizontal agreements are considered to be anti-competitive and are prohibited: [133]

       i.          agreements to fix or change the price of goods;

     ii.          agreements to restrict the quantity of goods produced or sold;

    iii.          agreements to divide a sales market or a raw materials procurement market;

    iv.          agreements to restrict the purchase of new technology or new equipment, or to restrict the development of new technology or new products; and

      v.          concerted refusals to deal.

The following vertical agreements are considered to be anti-competitive and are prohibited:[134]

       i.          fixing the prices at which goods are resold to third parties; and

     ii.          setting a minimum price for the resale of goods to third parties.

The lists of horizontal and vertical agreements above are non-exhaustive, and additional types of anti-competitive agreements may be added by China’s competition authorities at any time.

An exemption from the prohibition on horizontal and vertical agreements is available, if the business operator can demonstrate that:[135]

       i.          the agreement will not substantially restrict competition in the relevant market;

     ii.          consumers will receive a fair share of the resulting benefits; and

    iii.          the agreement has a qualifying purpose, such as technological advancement and/or product development, improvement in product quality, increases in efficiency and reduction in costs.

Abuse of a Dominant Market Position

A dominant market position is defined as the ability of one or several business operators to control the price, volume or other trading terms in the relevant market, or to otherwise affect conditions of a transaction, so as to hinder or influence the ability of other business operators to enter the market.[136]

The dominance assessment is based on a number of factors, including the relevant business operator’s market shares, the ability of the business operator to control the sale or input market, the financial and technical resources of the business operator, competitiveness of the relevant market, the extent to which other business operators rely on the relevant business operator, and barriers to market entry.[137]

A dominant market position is presumed where a business operator’s market share exceeds 50 percent. Moreover, a dominant market position is presumed where a business operator’s market share is 10 percent or greater and:[138]

       i.          the combined market share of the business operator and one other business operator exceeds 66.6 percent; or

     ii.          the combined market share of the business operator and two other business operators exceeds 75 percent.

A business operator can rebut the presumption of dominance by providing evidence to the contrary.

Under the Anti-Monopoly Law, a business operator with a dominant market position is prohibited from carrying out any of the following types of conduct as an abuse of a dominant market position:[139]

       i.          selling goods at prices that are unfairly high or purchasing goods at prices that are unfairly low;

     ii.          without a legitimate reason, selling goods at below-cost price;

    iii.          without a legitimate reason, refusing to deal with a business operator;

    iv.          without a legitimate reason, restricting a trading partner by requiring it to deal only with the dominant operator(s) or with other designated operators;

      v.          without a legitimate reason, tying goods or attaching other unreasonable conditions to a transaction; and

    vi.          without a legitimate reason, treating equivalent trading partners in a discriminatory manner with respect to price or other trading conditions.

This list is non-exhaustive and may be amended by China’s competition authorities at any time.

(ii)             Recent Enforcement Trends

In recent years, Chinese competition authorities have significantly increased investigations of both Chinese and foreign companies for alleged violations of competition law.

The National Development and Reform Commission (NDRC), China’s competition authority responsible for price-related offenses, has imposed significant fines on companies for breaches of competition law: in particular, on companies found to have participated in hardcore cartel agreements (i.e., price-fixing agreements, see section (d) on horizontal restraints below). Since 2013, NDRC has also prioritized investigations concerning RPM, and large fines have been imposed (see section (b) on pricing issues below). NDRC reportedly imposed a record total fine of RMB1.58 billion in 2014.

The State Administration of Industry and Commerce (SAIC), China’s competition authority responsible for non-price related offenses, has also significantly increased investigations into alleged  abuses of dominance (see section (c) on vertical non-price restraints below). SAIC reportedly imposed a record total fine of RMB14.5 million in 2014, almost triple the level of fine imposed in 2013.

To date, Chinese competition authorities have largely focused their investigations on consumer-oriented sectors, such as the automotive, electronics, eye care, milk powder, pharmaceutical, premium liquor and tobacco sectors. Recently, NDRC imposed a fine of RMB449 million on two Chinese premium liquor companies found to have signed agreements with their distributors restricting the minimum resale price of their liquors, and imposed punitive measures on distributors that did not adhere to the RPM restrictions.

(b)   Pricing Issues

(iii) Fixing the Resale Price/Retailer Margin

The Anti-Monopoly Law expressly prohibits a business operator from fixing or setting a minimum resale price (i.e.,RPM).[140]

It is currently unclear whether RPM is illegal “per se” (automatically deemed illegal) in China. NDRC appears to apply a “per se” test and has not been inclined to accept “effects-based” arguments that RPM does not have anti-competitive effects. In contrast, the Chinese courts appear to favor a “rule of reason” analysis, where positive and negative effects of RPM are considered. Given NDRC’s stance, in terms of compliance with Chinese competition law, business operators should regard RPM as “per se” prohibited in China.

Since 2013, NDRC has vigorously investigated and imposed large fines on companies found to have taken part in RPM. Below are examples of recent cases:

       i.          In August 2013, NDRC imposed a fine of RMB670 million on six baby milk formula manufacturers found to have had agreements in place with their distributors to restrict the resale prices of their products.

     ii.          In September 2014, NDRC imposed a fine of RMB249 million on an automotive  joint venture found to have organized several meetings with 10 of its dealers to sign and implement an agreement that restricted the resale price for automotive sales and repair services.

    iii.          In September 2014, NDRC imposed a fine of RMB 33.8 million on an international car maker found to have entered into dealership agreements that contained RPM clauses, and imposed punitive measures, such as fines, on dealers that did not adhere to the RPM clauses.

In addition to fines, the NDRC is also known to impose “unofficial” penalties on companies under investigation (akin to a settlement or commitment decision). For example, companies in the milk powder and automotive sectors that were under investigation by NDRC for alleged RPM unilaterally announced they were lowering prices in China. Such actions are reflective of NDRC’s role as a pricing regulator under the Price Law.

There have been signals from the NDRC that it will continue to focus its investigations on alleged RPM in the near future. This appears consistent with the Chinese Government’s broader goal of reducing prices and costs in consumer-oriented sectors.

(iv)  Maximum Prices

There is no indication under the Anti-Monopoly Law that the setting of maximum resale prices is prohibited. Such conduct has, so far, not been tested in any publicly available cases or decisions. However, given that the Anti-Monopoly Law specifically prohibits a business operator from fixing or setting minimum resale prices but makes no mention of setting maximum resale prices, it could be inferred that such conduct is unlikely to be problematic from a Chinese competition law prospective.

(v)   Recommended Prices

There is no indication under the Anti-Monopoly Law that the setting of recommended resale prices is prohibited. Setting recommended resale prices is a common practice in China, and is likely to be considered permissible by Chinese competition authorities, provided that they do not amount to a fixed or minimum resale price, due to pressure from, or incentives offered by, the upstream business operator.

(vi)  Minimum Advertised Price

There is no guidance under the Anti-Monopoly Law on whether a business operator is prohibited from setting MAPs. Chinese competition authorities have, so far, not made any distinction between a MAP and a minimum resale price. On this basis, and given the NDRC’s tough stance on RPM, it is likely that NDRC will consider a MAP to be illegal.

(c)    Vertical Non-price Restraints

The Anti-Monopoly Law does not expressly address non-price related vertical restraints, such as exclusive distribution, non-compete obligations, territorial or customer restrictions. There is no guidance on the choice of distribution model and whether such a choice has any impact on non-price related vertical restraints. However, non-price related vertical restraints could be considered as “other” prohibited anti-competitive agreements, as determined by Chinese competition authorities, at any time.[141] Further, where such restrictions are imposed by a business operator with a dominant market position, they may be considered an abuse of a dominant market position. The State Administration of Industry and Commerce Rules on Prohibition of Monopoly Agreements (SAIC Rules) indicate that non-price related vertical restraints are analyzed under a rule of reason analysis.[142]

To date, other than cases involving abuse of a dominant position, Chinese competition authorities are not known to have issued any infringement decision for imposing non-price related vertical restraints. In recent years, SAIC has actively investigated and fined business operators for abuses of dominance. Examples include:

       i.          The SAIC has been investigating Tetra Pak for alleged abuse of its market dominant position, by tying the sale of packaging materials to the purchase of packaging equipment, and price discrimination in favor of large diary companies.

     ii.          Microsoft has been under investigation by SAIC in relation to the compatibility of its Windows operating system and Office software with some Chinese software.

    iii.          In November 2014, SAIC imposed a fine of RMB1.7 million on a Chinese tobacco company based in Jiangsu. The company, being the only tobacco wholesaler licensed in Pizhou city, was found to have imposed discriminatory conditions on retailers, by providing more frequent deliveries and a larger quantity of popular cigarettes to certain retailers.

(d)   Horizontal Restraints

The Anti-Monopoly Law expressly prohibits (i) price-fixing agreements; (ii) agreements to restrict output; (iii) market allocation agreements; (iv) agreements to restrict the purchase of new technology or new equipment; and (v) concerted refusals to deal, entered into between competing business operators.[143] Chinese competition authorities may, at any time, deem other types of horizontal agreements anti-competitive and prohibited.[144]

Since the inception of the Anti-Monopoly Law, NDRC has aggressively investigated and fined participants in hardcore cartel agreements. For example:

       i.          In December 2012, NDRC imposed a fine of  RMB353 million on six LCD manufacturers found to have held 53 meetings in a five-year period to exchange market information and discuss price fixing on LCD panels in the Chinese market.

     ii.          In August 2014, NDRC imposed a fine of RMB832 million on seven automotive spare parts manufacturers found to have fixed the prices of spare parts covering 13 product categories, including starters, alternators, throttle bodies and wire harnesses. The companies were found to have held meetings from January 2000 to February 2010 to discuss product prices and implemented agreements over quoted prices for order in the Chinese market.

    iii.          In August 2014, NDRC imposed a fine of RMB403 million on three automotive bearing manufacturers found to have participated in conferences from 2000 to June 2011. During the conferences, discussions of the timing and range of increase in the prices of bearings for the China and Asia markets were held, and relevant information was exchanged. The companies were also found to have increased the prices of bearings for the Chinese market, in accordance with the plans made at these conferences.

To date, Chinese competition authorities are not known to have issued any infringement decision for “pure” information exchange among competing business operators, either directly or indirectly through a third party (i.e., in the absence of an express agreement among the participants). However, recent comments by officials of Chinese competition authorities suggest they are concerned that information exchange in certain industries may lead to anti-competitive effects and have begun to examine such activities.

(e)    Issues with Internet Sales

There is no indication under the Anti-Monopoly Law that restricting internet sales conducted by a reseller is prohibited “per se”. Such a restriction has so far not been tested in any publicly available cases or decisions. However, a restriction on internet sales by a reseller imposed by a business operator with a dominant market position may be deemed to be attaching an unreasonable condition to a transaction, and considered an abuse of a dominant position, if carried out without a legitimate reason.

Hong Kong

(a)   The Framework of Competition Law in Hong Kong

(i)         The Rules Applicable to Distribution Agreements

Hong Kong’s competition law, the Competition Ordinance (Cap. 619) (the Competition Ordinance), is not yet in force. The Competition Ordinance is anticipated to come into force in the second half of 2015. Companies will have to comply with the Competition Ordinance from the date it comes into effect, and any continuing conduct at that point in time will be subject to the law and at risk (i.e., there are no grandfathering provisions).

The Competition Ordinance has two key prohibitions: (i) the First Conduct Rule, which prohibits anti-competitive agreements, arrangements and concerted practices (applying to both horizontal and vertical arrangements); and (ii) the Second Conduct Rule, which prohibits abuse of a substantial degree of market power.

The text of the law is drawn from a number of sources, including EU and other competition laws. At the time of writing (January 2015), draft guidelines were under public consultation, which leads to some uncertainty as to how the law will be applied. However, the draft guidelines and various comments prepared by the Competition Commission (the Commission) give some sense of how the law is to be interpreted and enforced when the prohibitions are brought into force. That commentary forms the basis of the views expressed in the following sections.

The commission  has been established to investigate and bring proceedings in relation to alleged breaches of the Competition Ordinance. A specialist division has been established within the Hong Kong High Court, called the Competition Tribunal (the Tribunal), with primary responsibility to hear competition cases and issue decisions on breaches, penalties and other relief. There are no stand-alone rights of action. However, persons who have suffered loss or damage as a result of anti-competitive conduct may bring follow-on claims in the Tribunal, to claim damages and other relief.

First Conduct Rule

The First Conduct Rule prohibits any agreement, concerted practice or decision the object or effect of which is to prevent, restrict or distort competition in Hong Kong.  Within this, two types of conduct are identified:

       i.          serious anti-competitive conduct (price fixing, bid rigging, market sharing and output restrictions); and

     ii.          other anti-competitive conduct, which comprises any agreement, concerted practice or decision that is not serious anti-competitive conduct, but that nevertheless has the object or effect of preventing, restricting or distorting competition in Hong Kong.

Where conduct falls within the category of “serious anticompetitive conduct”, the Commission may take enforcement action against it without warning. Where conduct is not serious anti-competitive conduct, a warning notice must be issued before enforcement action can be taken. If the undertaking complies with the warning notice, it is protected from prosecution. If the undertaking does not comply with the warning notice within the specified time, the Commission may begin enforcement proceedings and the undertaking may be held liable if found to be in breach of the Competition Ordinance, but only for conduct that continued as from the date of the warning notice. The distinction between serious anti-competitive conduct and other anti-competitive conduct under the First Conduct Rule therefore has important ramifications for businesses. 

The draft guidelines state that the commission will consider the following conducts typically to have the “object” of harming competition:

       i.          directly or indirectly fixing prices or any other trading conditions;

     ii.          limiting or controlling production, markets, technical development or investment;

    iii.          sharing markets or sources of supply;

    iv.          big rigging;

      v.          exchanging of future price and quantity information;

    vi.          group boycotts; and

  vii.          RPM.

Where conduct falls into these categories, it will be regarded by its very nature to be so harmful to the proper functioning of normal competition in the market that there will be no need to examine its effects. In other words, such conduct will be presumed to be anti-competitive. It is important to note that the Commission reserves the right to supplement the above list.

Other conduct may be considered by the Commission to have the effect of harming competition. For such conduct, a warning notice will be issued and the Commission will apply a rule of reason analysis to assess whether, in the circumstances, such arrangements are anti-competitive. The draft guidelines give the following examples of conduct that might fall into this category (although this list is not exhaustive):

       i.          joint purchasing agreements;

     ii.          exchange of information other than future price and quantity information;

    iii.          standard terms and standardization agreements;

    iv.          membership and certification restrictions;

      v.          certain joint ventures;

    vi.          exclusive distribution or customer allocation agreements; and

  vii.          recommended and maximum resale price restrictions.

It is important to assess the risks in distribution agreements to determine the extent to which vertical agreements (particularly restrictions on distributor pricing and territories) might be regarded as serious anti-competitive conduct and/or as having the object of harming competition. The draft guidelines are not clear on this, except to the extent that they express a view on the current list of by object infringements and state that, with the exception of RPM, which may amount to serious anti-competitive conduct in certain cases, vertical agreements are generally not going to be regarded as falling into the category of serious anti-competitive conduct.

In a departure from the practice in a number of established competition law jurisdictions, the Commission is not proposing any “safe harbors” or block exemptions for companies with low market shares. Accordingly, undertakings generally need to self-assess the potential competition impact of agreements where they are concerned that they might have an anti-competitive effect, and they can, in certain circumstances, seek decisions from the Commission to get some clarity.

Second Conduct Rule

The Second Conduct Rule prohibits the abuse of a substantial degree of market power where the object or effect is to prevent, restrict or distort competition in Hong Kong. 

The draft guidelines provide that, in general, an analysis of market share may be useful as an initial screening device for an assessment of whether an undertaking has a substantial degree of market power, and that undertakings are more likely to have a substantial degree of market power where they have high market shares. However, there has been no guidance from the commission as to a specified market share safe-harbor or presumptive threshold over which a substantial degree of market power might be presumed. 

The Competition Ordinance provides that the following (among other relevant matters) may be taken into consideration when making a determination:

       i.          the market share of the undertaking;

     ii.          the undertaking’s power to make pricing and other decisions; and

    iii.          any barriers to entry to competitors into the relevant market;

The Competition Ordinance and the draft guidelines expressly refer to the below non-exhaustive examples of what kinds of conduct might be regarded as an “abuse”:

·        behavior to exclude competitors (such as predatory pricing, refusal to supply, exclusive dealing, margin squeeze conduct, or tying/bundling of products); and

·        behavior that harms consumers (such as limiting production, markets or technical development).

Exclusions and Exemptions

The Competition Ordinance contains a number of exclusions and exemptions.  The most relevant in respect of distribution arrangements is an exclusion from the First Conduct Rule for agreements enhancing overall economic efficiency. To benefit from the exclusion, it must be demonstrated that overall economic efficiency is enhanced either by improving production or distribution, or by promoting technical or economic progress, provided that these agreements do not impose unnecessary restrictions and do not eliminate competition in respect of a substantial part of the market in question.  The Commission may grant block exemptions for categories of agreement that enhance overall economic efficiency.  Such block exemptions are limited in duration and scope.

The Competition Ordinance also contains a general exclusion for agreements of lesser significance, which excludes from the First Conduct Rule all agreements between business operators with a combined annual turnover not exceeding HK$200 million in the preceding financial year.  This exclusion does not apply to infringements involving “serious anti-competitive conduct”.  Undertakings with an annual turnover of less than HK$40 million are excluded from the Second Conduct Rule.

(ii)        Recent Enforcement Trends

The prohibitions have not yet come into effect and, accordingly, there has not been any competition enforcement action taken to date in the luxury goods and fashion industry in Hong Kong. Press reports suggest that a wide range of sectors could potentially come under scrutiny by the commission and it has not ruled out the possibility of enforcement action in any sector.

(b)   Pricing Issues

(i)         Fixing the Resale Price/Retailer Margin

The draft guidelines state that the Commission will consider RPM (including indirect RPM, such as fixing the distributor’s margin or the maximum level of discount the distributor can grant from a prescribed price level) to have the object of harming competition in violation of the First Conduct Rule, and that such conduct may amount to serious anti-competitive conduct. The Commission’s tough stance on RPM is reiterated in the “The Competition Ordinance and SMEs” brochure published in December 2014, which states that RPM is likely to contravene the First Conduct Rule, unless there is a sufficient efficiency justification for the arrangement.

(ii)        Recommended or Maximum Prices

The draft guidelines indicate that recommended or maximum resale prices will be subject to effect-based analysis by the Commission to determine whether they have the effect of harming competition. Recommended or maximum resale price agreements may give rise to concern where they serve to establish a “focal point” for distributor pricing (i.e., where the distributors generally follow the recommended or maximum price), and/or where they soften competition between suppliers or otherwise facilitate coordination between suppliers. The draft guidelines indicate that an important factor in the analysis is the market position of the supplier — the more market power the supplier has, the more likely it is that the conduct will have the effect of harming competition.

(iii)       Minimum Advertised Price

There is no guidance under the Competition Ordinance or the draft guidelines on whether the setting of a MAP will be considered to have the effect or object of harming competition. Given the Commission’s strict approach to RPM, a conservative approach would be to assume that it will consider MAP a form of RPM and that it has the object of harming competition, in violation of the First Conduct Rule.

(c)    Vertical Non-price Restraints

The Commission has indicated in the draft guidelines that exclusive distribution or customer allocation agreements will generally be subject to effect-based analysis by it to determine whether they have the effect of harming competition. In making the assessment, the Commission will consider factors including how intra-brand and inter-brand competition is affected, the extent of the territorial and/or customer sales limitations, and whether exclusive distributorships are generally common in the markets impacted by the agreements.

To date, the Commission has not provided any specific guidance on other types of non-price related vertical restraints. There is no guidance on the choice of distribution model and whether such a choice has any impact on non-price related vertical restraints. However, the draft guidelines provide that for vertical agreements, as a general matter, competition concerns will only arise where there is some degree of market power at either the level of the supplier, the buyer or at the level of both. Based on these comments, one would expect the Commission to take the view that vertical agreements between small and medium-sized enterprises would rarely be capable of harming competition. Based on the language of the draft guidelines, it is likely that other types of non-priced related vertical restraints will be subject to effect-based analysis on a case-by-case basis. To date, the commission has taken the position that it will not be issuing any safe harbors or a vertical block exemption.

(d)   Horizontal Restraints

The draft guidelines state that horizontal agreements may be particularly liable to harm competition, and that the Commission has a strong interest in ensuring illegal practices, such as cartel arrangements, are brought to an end and sanctioned proportionately. Accordingly, strict enforcement against horizontal anti-competitive practices is expected. The draft guidelines set out a list of examples of horizontal conduct that the Commission will consider (a) typically to have the object of harming competition; or (b) may have the effect of harming competition (see section 1(i) above).

The draft guidelines state that the Commission will consider (i) information exchange intended to allow parties to a cartel to monitor whether other parties are complying with the cartel agreement; and (ii) information exchange on future pricing (or elements of pricing) or quantities information, as having the object of harming competition. This includes information exchange via a third party supplier or distributor as a “conduit”. Other forms of information exchange generally are expected to be assessed applying an effect-based analysis on a case-by-case basis.

(e)    Issues with Internet Sales

There is no guidance under the Competition Ordinance or the draft guidelines on internet sales restrictions. In this respect, it remains to be seen what approach the Commission will take. It has previously indicated e-commerce is one of the sectors potentially subject to scrutiny.

5.      Conclusion

Fashion and luxury goods makers expose themselves to a number of risks under the antitrust and competition laws of jurisdictions across the globe when they attempt to control pricing and distribution.  The level of these risks depends greatly on the jurisdictions where lawsuits may be brought and the type of conduct that is at issue. Vertical restrictions on price are generally riskier than non-price vertical restrictions, and horizontal restrictions are almost always the most legally risky.  In particular, restrictions regarding online sales are increasingly being scrutinized, especially under the competition rules of the EU and its Member States (and certain Member State authorities take a very strict view of e-commerce restrictions). Where the relevant rules are infringed, high fines may be imposed. However, fashion and luxury goods makers can generally reduce this risk and achieve their business objectives by consulting with counsel to structure their distribution systems to comply with the applicable legal restrictions.

[1] Kurt Haegeman and Sophia Real of the Brussels office are the principal authors and editors of this chapter. The country-specific sections of this chapter were prepared by Georgina Foster and Rowan McMonnies (Australia), José Joaquín Ugarte, Santiago Ried (Chile), Stephen Crosswell, Eva Crook-Santner (China and Hong Kong), Carolina Pardo (Colombia), Gerardo Villegas-Calderon, Mayte Garcia Bulle (Mexico) and Darrell Prescott (U.S.).

[2] Cleary Gottlieb Steen & Hamilton, CRA International, Internet Sales of Luxury Products — White Paper Submitted to the European Commissioner for Competition on Behalf of LVMH, September 2008. Available here: http://ec.europa.eu/competition/sectors/media/lvmh_contribution.pdf

[3] Intra-brand competition refers to competition that takes place among retailers or distributors of the same brand.  In contrast, inter-brand competition refers to competition among different brands.

[4] In, e.g., Chile, vertical restraints do not give rise to any concerns under competition law below the level of dominance.

[5] Australia, Chile, China, Colombia, the EEA, Hong Kong, Mexico and the U.S..

[6] The 28 Member States are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. 

[7] The EEA comprises the EU Member States, as well as Iceland, Liechtenstein and Norway.

[8] Switzerland is not an EEA country and maintains its own competition law, which is closely modeled after the EU rules.

[9] The EC has the power to impose fines of up to 10 percent of the annual worldwide group turnover on the infringing undertakings.  In addition, relevant clauses, or even entire agreements, that fall foul of the applicable rules may be invalid and unenforceable (article 101(2) of the Treaty on the Functioning of the European Union (TFEU)). National authorities have similar powers to impose sanctions (and most enforcement in this area takes place at the national level). Moreover, resellers or customers harmed by any infringement of competition law may seek damages from the infringers in national courts. 

[10] The EC has published a notice on when an agreement has an appreciable effect on competition (Commission Notice on agreements of minor importance — available here: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014XC0830(01)&from=EN).  The EC has also published guidance on when agreements may fall under the Notice on agreements of minor importance —  a copy of the EC guidance is available here: http://ec.europa.eu/competition/antitrust/legislation/de_minimis_notice_annex.pdf. The EC has also published guidance on the circumstances in which an agreement will or will not have an effect on trade between Member States (Guidelines on the effect on trade concept — available here: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52004XC0427(06)).

[11] Article 101(3) of the TFEU provides that the prohibition in article 101(1) may be set aside in the case of agreements that “contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which [do] not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

[12] EC Regulation (EU) No 330/2010 of 20 April 2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (the Verticals Regulation) — available here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF.

[13] Vertical agreements are defined as follows in the Verticals Regulation: an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services (see article 1(1)(a) of the Verticals Regulation).

[14] Article 1(1) of the Verticals Regulation.

[15] Article 3 of the Verticals Regulation.

[16] Article 3 of the Verticals Regulation.

[17] Article 4(a) of the Verticals Regulation.

[18] Article 4(b) of the Verticals Regulation.

[19] Article 4(a)-(d) Verticals Regulation. In addition, the restriction, agreed between a supplier of components and a buyer who incorporates those components, of the supplier’s ability to sell the components as spare parts to end users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods is also considered a hardcore restriction of competition under the Verticals Regulation (article 4(e)).

[20] It is possible to justify restrictions under article 101(3) of the TFEU, provided that the agreement containing such restrictions gives rise to sufficient benefits to outweigh any negative effect on competition arising from the agreement. This applies to any type of restrictions, including hardcore restrictions.  However, in the case of hardcore restrictions, this is very much a theoretical possibility. The guidelines accompanying the Verticals Regulation state explicitly that “it is … presumed that the agreement is unlikely to fulfill the conditions of Article 101(3)” (paragraph 47, Commission Notice Guidelines on Vertical Restraints, 10 May 2010 (Guidelines on Vertical Restraints)).

[21] In fact, the last time the EC imposed a fine in a case involving vertical restrictions was in 2003, when it imposed a fine of €149 million on Nintendo, for taking action to prevent exports of games consoles from the UK to the Netherlands and Germany. On appeal, the fine imposed on Nintendo was reduced to €119 million (Case T-13/03 Nintendo v Commission [2009] ECR II-975, [2009] 5 CMLR 1421.

[22] At the beginning of December 2013, the EC conducted a string of dawn raids targeting consumer electronics manufacturers suspected of restricting online sales  (http://europa.eu/rapid/press-release_MEMO-13-1106_en.htm). It remains to be seen to what extent this investigation signals the start of more active enforcement efforts by the EC in this area.

[23] Paragraph 48 of the Vertical Guidelines.  See also below in relation to recommended prices.

[24] Paragraph 48 of the Vertical Guidelines.  The guidelines state that price fixing may be made more effective when “combined with measures which may reduce the buyer's incentive to lower the resale price, such as the supplier printing a recommended resale price on the product”. While there is limited enforcement of so-called MAP clauses in the EEA, the UK competition regulator recently adopted an infringement decision in relation to such a clause. Following a 2011 market study in the mobility aids sector, the UK competition regulator issued an infringement decision to UK-based mobility aids manufacturer Pride Mobility Products Limited for entering into vertical agreements in breach of UK competition law with some of its retailers, which prevented the retailers from advertising below Pride’s recommended retail prices. The Office of Fair Trading (OFT) was concerned that, by limiting web discounting, the agreements prevented consumers from obtaining the best prices. No fines were imposed, as the parties’ combined turnover was less than £20 million in the year preceding the infringement and the parties thus fell within the immunity given for “small agreements” under UK competition law. A copy of OFT’s decision is available here: https://www.gov.uk/cma-cases/investigation-into-agreements-in-the-mobility-aids-sector.

[25] Paragraph 225 of the Vertical Guidelines.

[26] Article 4(a) of the Verticals Regulation. See also paragraph 226 of the Vertical Guidelines.

[27] Article 4(a) of the Verticals Regulation, paragraphs 48 and 226 of the Vertical Guidelines.

[28] For example, in 2001, Volkswagen was fined €30.96 million by the EC for trying to stop dealers from departing from its non-binding price recommendations (Volkswagen II, EC Decision of 29 June 2001, OJ [2001] L 262/14. While the EC’s decision was eventually annulled on appeal to the European Court of Justice, this was unrelated to whether or not price recommendations fall foul of the EU competition rules but was on the basis that the EC had incorrectly concluded that there had been an agreement between the parties to the case (see Case C-74/04 P European Commission v Volkswagen [2006] ECR I-6585, [2008] 4 CMLR 1297).

[29] Paragraph 228 of the Vertical Guidelines.

[30] Tagung des Arbeitskreises Kartellrecht, 10 Oktober 2013, Vertikale Beschränkungen in der Internetökonomie, p.9. 

[31] Ciba Vision: follow-ups on price recommendations combined with an internal monitoring system were treated as RPM (Activity Report of the Bundeskartellamt 2009/2010, documentary volume, p. 98); WALA Heilmittel GmbH: the BKA imposed a fine of €6.5 million for RPM (pressuring resellers to follow RRPs) (BKA press release of 31 July 2013).

[32] BGH, 06.11.2012 - KZR 13/12 (a copy of the judgment is available here: http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=62438&pos=0&anz=1).

[33] TTS Tooltechnic case: BKA fined TTS €8.2 million for encouraging resellers to respect the recommended resale price and for making threats that failure to observe the recommended retail price would lead to less advantageous contract conditions or termination of distribution contracts. Note that the BKA did not find any written evidence of RPM but established RPM solely on the basis of evidence obtained from witness interviews (BKA press release of 20 August 2012).

[34] For example, where a sufficient number of dealers (e.g., 30 percent) follow a recommended resale price, this could be construed as evidence of RPM, even in the absence of any evidence of pressure or threats imposed on distributors.

[35] Similarly, in France, a recommended price will amount to a de facto fixed price (and thus RPM) imposed by a supplier where the price recommendation is combined with a monitoring mechanism and customers in fact adhere to the recommendation. 

[36] Paragraph 151ff of the Vertical Guidelines.

[37] Article 1(e) of the Verticals Regulation, paragraph 174ff of the Vertical Guidelines. In fact, it is the existence of an obligation on authorized dealers not to make sales to unauthorized resellers that turns an open distribution system into a closed distribution system.

[38] Article 4(b) of the Vertical Regulation, paragraph 50 of the Vertical Guidelines.

[39] Paragraph 50 of the Vertical Guidelines.

[40] Paragraph 51 of the Vertical Guidelines.

[41] Paragraph 175 of the Vertical Guidelines.

[42] Paragraph 176 of the Vertical Guidelines.

[43] 42. Brüssler Informationstagung des FIW, 7 November 2013, Dr. Gunnar Kallfass: Internetvertrieb und vertikale Wettbewerbsbeschränkungen.

[44] Paragraph 190 of the Vertical Guidelines.

[45] See e.g., Case T-99/04 AC-Treuhand AG v Commission [2008] ECR II-01501).

[46] The OFT’s decision was upheld on appeal to the UK Competition Appeal Tribunal and the UK Court of Appeal (JJB Sports v OFT (Case 1102/1/1/03). See also Tesco v Office of Fair Trading [2012] CAT 31, judgment of 20 December 2012.

[47] See e.g., paragraph 62 of the Commission’s Guidelines on the applicability of article 101 of the TFEU to horizontal co-operation agreements (OJ 2011 C11/1, as corrected by OJ 2011 C33/20) and Case C-8/08 T-Mobile Netherlands and Others v Raad van bestuur van de Nederlanse Medeingingsautoriteit [2009] ECR I-04529.

[48] Paragraph 52 of the Vertical Guidelines.

[49] Case C-439/09 Pierre Fabre Dermo-Cosmétique, 13 October 2011, French Court of Appeal, decision of 5 January 2013 in RG nº 2008/23812.

[50] Such an absolute amount of required offline sales can be the same for all buyers, or determined individually for each buyer on the basis of objective criteria, such as the buyer’s size in the network or its geographic location.

[51] Paragraph 52(a)-(d) of the Vertical Guidelines.

[52] Paragraph 54 of the Vertical Guidelines.  As such, a supplier is in fact able to exclude pure online retailers from its network.

[53] Paragraph 54 of the Vertical Guidelines.

[54] There are currently a number of ongoing investigations into restrictions of third party platform sales in Germany.  In September 2013, the Berlin Court of Appeal confirmed that a prohibition of third party platform sales may be permitted where there is a need to protect brand image, recognizing that eBay tends to have a reputation as a “flea market” and that sales via eBay negatively impact brand image.  However, a restriction of sales on eBay’s platform would not be permissible if a supplier sold the same products on other discounter websites.

[55] Ibid.

[56] Paragraph 56 of the Vertical Guidelines.  For example, specific guidelines may have to be formulated to ensure secure online payments or to set up sales helpdesks for online sales (paragraph 56 of the Vertical Guidelines).

[57] Tagung des Arbeitskreises Kartellrecht, 10 Oktober 2013, Vertikale Beschränkungen in der Internetökonomie, p. 23

[58] For example, the German BKA recently stated that it wanted the BKA to become a “pioneer” in regulating online commerce. In addition, in December 2012, the French competition authority imposed a fine of €900,000 on Bang & Olufsen for restricting the distributors in their selective distribution system from selling Bang & Olufsen products online. The French competition authority underlined that one of the harmful effects of banning online sales was that customers were deprived of lower sales and saw their choices limited. A copy of the decision is available here: http://www.autoritedelaconcurrence.fr/user/avisdec.php?numero=12-D-23

[59] Realcomp II, Ltd. v. FTC, 635 F.3d 815, 824 (6th Cir. 2011); see also, Santana Products v. Bobrick Washroom Equipment, 401 F. 3d 123, 131-32 (3d Cir.), cert. denied, 126 S. Ct. 734 (2005).

[60] See, e.g., National Society of Professional Engineers v. United States, 435 U.S. at 692 (1978); Geneva Pharms. Tech. Corp. v. Barr Labs., 386 F.3d 485, 507 (2d Cir. 2004).  There are two less common means of antitrust analysis.  “Quick look” analysis is a truncated rule of reason analysis — it is used where there is an obvious adverse effect on competition and no pro-competitive benefits.  It does not require a plaintiff to establish every aspect of anticompetitive effects before the burden shifts to the defendant to prove offsetting procompetitive effects.  See, e.g., Indiana Fed’n of Dentists, 476 U.S. 447, 459-61 (1986).  Separately, an affirmative demonstration that the challenged restraint caused actual competitive harm may obviate the need for a full rule of reason analysis.  See, e.g., Toys “R” Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000).

[61] See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

[62] See State Oil Co. v. Khan, 522 U.S. 3, 18 (1997) (ruling that there is insufficient economic justification for per se invalidation of vertical maximum price fixing).

[63] The court in Leegin identified specific factors relevant to the inquiry, including: (1) the number of manufacturers engaged in the practice in the market; (2) whether the restraint comes at the behest of retailers or the manufacturer; and (3) whether the manufacturer or retailer driving the practice possesses market power.

[64] See e.g., Bel Canto Design, Ltd. v. MSS HiFi, Inc., 2012 U.S. Dist. LEXIS 86628 (S.D.N.Y.  20 June 2012) (granting a motion to dismiss because the plaintiff had failed to establish market power); Spahr v. Leegin Creative Leather Products, Inc., No. 2:07-CV-187, 2008 WL 3914461 (E.D.Tenn. 2008) (dismissing a retailer’s complaint because the retailer had failed to show anti-competitive effects). 

[65] See e.g.,Babyage.com, Inc. v. Toys "R" Us, Inc., 2008 U.S. Dist. LEXIS 53918 (E.D.Pa. 15 July 2008) (Online retailers of high-end baby products sued Toys “R” Us, alleging that the company used its market dominance to force baby product manufacturers to impose RPM polices).

[66] Nine West Grp. Inc., 2008 FTC LEXIS 53 (FTC 2008).

[67] Id.

[68] MD. COMM. CODE § 11-204.

[69] Jeff Zalesin, Md. Hits J&J with Contract Lens Pricing Antitrust Suit, Law360 (March 7, 2016), https://www.law360.com/articles/768071/md-hits-j-j-with-contact-lens-pricing-antitrust-suit.

[70] Zalesin, supra note 70.

[71] New York v. Herman Miller Inc., No.08 CV-02977, 2008-2 Trade Cases (CCH) ¶ 76,454 (S.D.N.Y., filed 21 March 2008).

[72]  California v. DermaQuest Inc., No. RG10497526 (Cal. Super. Ct., Alameda Cty., 23 February 2010); see California v. Bioelements, Inc., No. 10011659 (Cal. Super. Ct., Riverside Cty., 11 January 2011) (the California attorney general obtained a settlement that required a company called Biolelements to permanently refrain from fixing resale prices for its merchandise, after it filed a complaint alleging that the company engaged in vertical price fixing in per se violation of state law by having written contracts with resellers prohibiting accounts from charging more or less than the manufacturer’s suggested resale price (MSRP). 

[73] Alan Darush MD APC v. Revision LP, et al., CV 12-10296 (C.D.Cal. 10 April 2013).

[74] McDavid and Rissmiller, supra note 73.

[75] 250 U.S. 300 (1919).

[76] See United States v. Colgate & Co., 250 U.S. 300 (1919) "In the absence of any purpose to create or maintain a monopoly, the Act does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal; and, of course, he may announce in advance the circumstances under which he will refuse to sell.”).

[77] Jeanery, Inc. v. James Jean, Inc., 849 F.2d 1148, 1159  (9th Cir. 1988).

[78] See e.g., id. 

[79] See e.g., Ezzo’s Invs. v. Royal Beauty Supply, 94 F.3d 1032, 1035-36 (6th Cir. 1996) (reversing summary judgment for the defendant where the plaintiff introduced sufficient evidence that the defendant threatened the plaintiff with termination if it continued discounting).

[80] Reebok Int’l, 120 FTC 230 (1995) (FTC consent order that barred the manufacturer from warning dealers that they were subject to termination or other sanctions if they sold below the minimum resale price). 

[81] See e.g., Consol. Credit Agency v. Equifax, Inc., 2004 U.S. Dist. LEXIS 31061, at *22-23 (C.D.Cal. 5 August 2004).

[82] See e.g., Lake Hill Motors, Inc. v. Jim Bennett Yacht Sales, Inc., 246 F.3d 752, 757 (5th Cir. 2001); Cranfill v. Scott & Fetzer Co., 773 F. Supp. 943, 951 (E.D.Tex. 1991). 

[83] E.g., In re Nissan Antitrust Litigation, 577 F.2d 910 (5th Cir. 1978), cert. denied, 439 U.S. 1072 (1979); Clinique Lab., Inc.,

116 F.T.C. 126 (1993).

[84] See Sony Music Entm’t, No. 971-0070, 2000 FTC LEXIS 40 (10 May 2000) (FTC challenged the MAP programs of several distributors of music. FTC noted that the programs applied to external and in-store price advertising and included severe penalties for non-compliance).   

[85] See U.S. Pioneer Elecs. Corp., 115 F.T.C. 446 (FTC 1992).

[86] Continental Television v. GTE Sylvania, 433 U.S. 36 (1977).  See, e.g., Ezzo’s Invs. v. Royal Beauty Supply, 243 F.3d 980, 987 (6th Cir. 2001) (finding distribution limitation was a vertical nonprice restraint subject to the rule of reason).

[87] See, e.g., Glacier Optical v. Optique du Monde, 46 F.3d 1141 (9th Cir. 1995) ( the court applied the rule of reason to vertical allocation of territories).  

[88] See, e.g., H.L. Hayden Co. v. Siemens Med. Sys., 879 F.2d 1005 (2d Cir. 1989); Parkway Gallery Furniture v. Kettinger/Pennsylvania House Group, 878 F.2d 801 (4th Cir. 1989). 

[89] See, e.g., Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 (8th Cir. 1987).

[90] See, e.g., Omega Envt’l. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997); Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 (8th Cir. 1987). 

[91] See, e.g., Toys “R” Us, Inc. v. Fed. Trade Comm’n, 221 F.3d 928 (7th Cir. 2000).

[92] Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45 (1984) (“the proper focus is on the structure of the market for the products or services in question — the number of sellers and buyers in the market, the volume of their business, and the ease with which buyers and sellers can redirect their purchases or sales to others.  Exclusive dealing is an unreasonable restraint on trade only when a significant fraction of buyers or sellers are frozen out of a market by the exclusive dealing”). 

[93] See, e.g., Fashion Originators Guild v. FTC, 312 U.S. 457 (1941) (the Supreme Court upheld an FTC cease and desist order against the Fashion Guild. The member manufacturers had organized a boycott of retailers that they found to be selling copied items). 

[94] See, e.g., In re Microsoft Corp., 309 F.3d 193 (4th Cir. 2002).

[95] Toys “R” Us v. FTC, 221 F.3d 928 (7th  Cir. 2000).

[96] Hub and spoke issues may also arise where a retailer enters into a series of most favored nation (MFN) agreements with suppliers.  

[97] In the Matter of Toys “R” Us, FTC 941 0040 (Apr. 15, 2014).

[98] United States v. Apple, Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013).

[99] Apple, 952 F. Supp. 2d at 647.

[100] See United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015).

[101] See Spahr v. Leegin Creative Leather Prods., Inc., 2008 WL 3914461, **6-7 (E.D.Tenn. 2008) (the court rejected a claim that the manufacturer’s dual distribution system transformed its RPM policy into a per se unlawful horizontal price-fixing scheme); PSKS, Inc. v. Leegin Creative Leather Products, 615 F.3d 412, 420-21 (5th Cir. 2010); AT&T Corp. v. JMC Telecom, 470 F.3d 525, 531 (3d Cir. 2006); Jacobs v. Tempur-Pedic Int’l, 626 F.3d 1327 (11th Cir. 2010) (finding that the recent trend has been “to view the primary relationship between a dual distributor and an independent franchisee as vertical where the restrictions do not lessen interbrand competition or decrease the availability of goods or services”). 

[102] See, e.g., Coffee.org, Inc v. Green Mountain Coffee Roasters, Inc., 2012 U.S. Dist. LEXIS 18577 (W.D. Ark. 15 February 2012) (rejecting a monopolization claim where a manufacturer refused to distribute through an online seller that did not have “brick and mortar” presence); MD Products, Inc. v. Callaway Golf Sales Co., 459 F. Supp. 2d 434 (W.D.N.C. 2006) (the court relied on traditional antitrust analysis to find that a manufacturer’s restrictions on internet sales were unilateral and thus not unlawful under the antitrust laws);  Worldhomecenter, Inc., v. L.D. Kichler Co., 2007 U.S. Dist Lexis 22496 (E.D.N.Y. 28 March 2007) (the court relied on traditional antitrust methods to assess minimum advertising policies on the internet).

[103] Worldhomecenter.com, Inc. v. Franke Consumer Products, Inc., No. 10 Civ. 3205 (S.D.N.Y. 22 June 2011). 

[104] Worldhomecenter.com, Inc. v. KWC America, Inc., 2011 WL 4352390 (S.D.N.Y. 15 September 2011).

[105] Worldhomecenter.com Inc. v. L.D. Kichler Co., 2007 WL 963206 (E.D.N.Y. 28 March 2007).

[106] It is worth noting that, under the Chilean competition rules, there is no market share threshold above which dominance is presumed.

[107] FNE against Abercrombie & Kent S.A. and others, Sentence Nr. 113 of the Antitrust Court dated 19 October 2011, sentence by the Supreme Court dated 20 September 2012, 

[108] FNE against Farmacias Ahumada S.A. and others, Sentence Nr. 119 of the Antitrust Court dated 31 January 2012, sentence by the Supreme Court dated 7 September 2012.

[109] In Ruling 46325 of August 2010, the SICe expressly said that: “...any clause or agreement disallowing a merchant to compete may be considered, in abstract, a restriction to competition, because, even though seller transferred a number of assets, it would always have the possibility of beginning a new business, which would ultimately favor the consumer (which would have an additional source of offer)”.

[110] Superintendence of Industry and Commerce; Opinion No. 99041220-02 of 1999.

[111][111] Decree 2153 of 1992, article 47(1).

[112] Article 1, Law 155, 1959 and article 7b, Decision 608 from the Andean Community.

[113] Article 47.3, Decree 2153, 1992 and article 7c, Decision 608 from the Andean Community.

[114] Resolution 1382 of 1995.

[115] Opinion 96062308 of 1996.

[116] Namely, Law 155 of 1959, Law 1340 of 2009, Decree 2153 of 1992.

[117] Absolute monopolistic practices are regulated by article 53 of the MCL.

[118] Relative monopolistic practices are regulated by articles 54 to 56 of the MCL.

[119] Substantial market power can be defined as the capacity to fix prices, or substantially restrict the supply or provision to the relevant market, without competing agents being actually or potentially capable of counteracting such capacity. Under the MCL, there is no market-share threshold above which a company is presumed to be dominant. The analysis to assess whether or not an economic agent has substantial market power must be made on a case-by-case basis.

[120] However, it is worth noting that, outside the area of competition law, ACCC has been very active in recent years in relation to enforcing consumer protection legislation and has brought a number of proceedings against companies in the luxury goods industry.

[121] http://www.austlii.edu.au/au/cases/cth/FCA/2013/1413.html

[122] http://www.austlii.edu.au/au/cases/cth/FCA/2007/79.html

[123] http://www.austlii.edu.au/au/cases/cth/FCA/2007/2061.html

[124] http://www.austlii.edu.au/au/cases/cth/FCA/2012/1124.html

[125] http://www.austlii.edu.au/au/cases/cth/FCA/2009/710.html

[126] The threshold for establishing substantial market power is lower than for establishing dominance.

[127] http://www.austlii.edu.au/au/cases/cth/FCAFC/2008/141.html (Full Federal Court decision on sections 46 and 47); http://www.austlii.edu.au/au/cases/cth/FCA/2010/929.html (penalty judgment).

[128] http://www.austlii.edu.au/au/cases/cth/FCA/2013/1313.html (judgment on liability); http://www.austlii.edu.au/au/cases/cth/FCA/2014/292.html (judgment on penalty).

[129] http://www.austlii.edu.au/au/cases/cth/FCA/2008/1976.html

[130] http://www.austlii.edu.au/au/cases/cth/FCA/2014/1135.html

[131] http://www.austlii.edu.au/au/cases/cth/FCA/2011/1489.html

[132] Article 13 of the Anti-Monopoly Law.

[133] Article 13 of the Anti-Monopoly Law.

[134] Article 14 of the Anti-Monopoly Law.

[135] Article 15 of the Anti-Monopoly Law.

[136] Article 17 of the Anti-Monopoly Law.

[137] Article 18 of the Anti-Monopoly Law.

[138] Article 19 of the Anti-Monopoly Law.

[139] Article 17 of the Anti-Monopoly Law.

[140] Article 14 of the Anti-Monopoly Law.

[141] Article 14(3) of the Anti-Monopoly Law.

[142] Article 8 of the SAIC Rules.

[143] Articles 13(1) to (5) of the Anti-Monopoly Law.

[144] Article 13(6) of the Anti-Monopoly Law.