As a manufacturer, you may wish to impose strict obligations on your distributors to maintain control over the brand. For example, many manufacturers wish to set out a minimum or maximum resale price in their distribution agreement. However, the Australian Consumer Law (ACL) limits such practices. Failing to comply with the law could result in heavy penalties. This article explains how the ACL limits apply to your distribution arrangement.

Why Would I Want to Impose a Minimum or Maximum Resale Price?

Imposing a maximum resale price can enforce uniform pricing amongst your distributors. If you wish to target a particular market segment, your brand may be misrepresented if it is priced too high for that market segment. 

For example, a consumer may lose interest in your brand if they first see it at a high price and then associate it with this price.

Manufacturers are often more interested in imposing a minimum resale price. In addition to issues similar to those outlined above, a minimum resale price prevents distributors competing on price. 

For example, a consumer may browse a number of websites or shops to purchase your product. In most cases, the deciding factor in where they buy is price. 

You may be particularly concerned about low prices if you are also selling directly to consumers as a distributor. 

Can I Impose a Maximum Resale Price?

Under the ACL, you may impose and enforce maximum resale prices. If a distributor sells at a price above the indicated maximum resale price, you may be allowed to terminate the agreement or take legal action to recover damages for breach of contract.

Can I Impose a Minimum Resale Price?

However, the ACL does not allow you to engage in resale price maintenance by:

  • telling the distributor that you will not provide any goods unless they agree to sell the goods at a minimum resale price;
  • inducing the distributor to sell goods at a minimum resale price (e.g. by providing discounts on the price of the goods or supply additional goods at no additional costs);
  • refusing to sell any further goods to the distributor because they either refused to sell goods at a minimum resale price or sold goods at below the required minimum resale price;
  • refusing to sell goods to a distributor because they plan to sell the goods to a third party who will sell the goods at a price below the required minimum resale price; and
  • providing a price to the distributor which could be understood as a minimum resale price (e.g. by printing a price on the packaging).  

A minimum resale price can either be a:

  • fixed number (e.g. the distributor cannot sell the good for less than $12); or 
  • formula (e.g. the distributor cannot sell the good for less than 120% of the price they paid you).

In addition to excluding such clauses from your distribution agreement, you should make sure you do not impose a minimum resale price through your actions, even unintentionally. You should consider whether any of your practices could fall within these prohibitions.

For breaches of the ACL in relation to resale price maintenance, you could attract a penalty of up to:

  • $10 million;
  • three times the total value of the benefit obtained; or
  • 10% of the annual turnover of the body corporate.

What About Recommended Resale Price?

You can provide a list of recommended resale prices. However, you should make sure that distributors are clear that these prices should be taken as a guide only.

If you:

  • provide a list over email, you should include a statement to the effect of, ‘the price set out or referred to is a recommended price only and there is no obligation to comply with the recommendation’.
  • refer to a list of recommended resale prices in your distribution agreement, you should include the terms ‘to the maximum permitted by law’ to ensure that you comply with the ACL.
  • print a price on the packaging, make sure that you state that the price is the ‘recommended price’.

What About International Distribution Arrangements?

Although the ACL may not apply if you enter a distribution agreement with an overseas distributor, there may be similar restrictions that apply. You should always consider local laws before providing minimum resale prices.

Key Takeaways

As a manufacturer, you may be commercially inclined to impose maximum and minimum resale prices. Doing so can help to:

  • maintain control and uniformity; and 
  • control competition for minimum resale prices. 

You cannot impose minimum resale prices on distributors in a distribution agreement or in practice. You should make sure your acts do not qualify as resale price maintenance and consider alternatives methods for maintaining control, such as providing recommended resale prices. If you have questions about resale price maintenance, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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