Manufacturers and suppliers who spend a lot of time developing their products and business are always keen to protect the market and their products.
Manufacturers and suppliers who spend countless hours developing their products and business’ eagerly protect and guard the market. When dealing with sellers or distributors, suppliers always want to know whether or not they can set the prices. The short answer is no. You cannot require a seller to sell the product at a certain price. But, you can take actions to protect your product and its market. This article will step you through the do’s and don’ts of resale price maintenance.
Resale Price Maintenance
Under the Competition and Consumer Act 2010 (Cth), it is illegal for suppliers to engage in any act that would equate to resale price maintenance including:
- Refusing to supply a seller unless he or she agrees not to sell the product below a certain price;
- Inducing the seller not to sell the product below a particular price;
- Entering into an agreement with a seller stopping him or her selling the product below a given price; or
- Withholding or stopping product supply to a seller who sells the product below a certain price.
Resale price maintenance only applies to minimum prices. A business is free to set a maximum price for reselling products, and enforce any agreement that requires a seller to comply with a maximum resale price. Resale price maintenance applies to both goods and services.
Resale price maintenance attracts penalties up to $10 million, three times the total value of the benefit obtained or 10% of the annual turnover of the body corporate (whichever is higher). It is possible, however, to include a genuine recommended retail price (RRP). Everyday products display RRP including magazines, greeting cards and books.
Defence to Resale Price Maintenance
There is only one defence to resale price maintenance and applies in very limited situations. The ‘Loss Leader’ defence is when a supplier withholds supply to a seller because, in the previous year, he or she sold the goods below cost price to attract customers or promote their business. If you believe your business is in this situation, you should seek legal advice.
When is Resale Price Maintenance Permitted?
Resale price maintenance is permitted in one scenario. A supplier can seek advanced authorisation from the Australian Competition and Consumer Commission (ACCC). The ACCC will only grant approval where the resale price maintenance will result in a public benefit that should be allowed in the circumstances.
In 2014, a power tools supplier (Tooltechnic Systems (Aust) Pty Ltd) obtained authorisation to set a minimum resale price for its complex products that required a pre and post-sale service. A minority of online sellers were undercutting full-service retailers and ‘free riding’ on the supplier and full-service retailers investment.
The ACCC recognised that the public benefit in allowing the supplier to set a minimum resale price under these circumstances outweighed the detriment and consequently granted the authorisation.
If you have any questions about resale price maintenance or require advice on your supply contract, please get in touch! LegalVision’s experienced business lawyers would be pleased to assist with drafting or reviewing your agreement.