What is Resale Price Maintenance and How Can I Avoid It?

As a supplier, manufacturer or distributor, you must careful when interacting with retailers. In particular, you must not include terms in your retailers’ agreements that may limit their freedom to set prices. Indeed, these types of terms are known as ‘resale price maintenance’. In Australia, the Competition and Consumer Act prohibits these types of terms. There has been a recent case where a wholesale distributor received a penalty. In this case, the court decided it had engaged in resale price maintenance with retailers. Therefore, this article will explore what resale price maintenance is and what you cannot do as a supplier, manufacturer or distributor to prevent penalties. Furthermore, this article will examine what penalties the court could order and explore a recent case.

What Is Resale Price Maintenance?

Resale price maintenance occurs where a supplier, manufacturer, or distributor prevents, or attempts to prevent, independent retailers from advertising or selling products below a specified price. For example, if a supplier tells their retailer (or specifies in their contract with the retailer) that they must sell the products they have supplied at a specific price and nothing lower.

The Competition and Consumer Act strictly prohibits resale price maintenance. Indeed, it is not subject to the ‘substantially lessening of competition test’ like other conduct under the Competition and Consumer Act. Therefore, there does not need to be proof that the supplier, manufacturer or distributor is substantially lessening competition. The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act. It has initiated proceedings against an array of businesses that have allegedly engaged in resale price maintenance. Furthermore, it has resulted in businesses being awarded significant penalties. 

How Can I Avoid Resale Price Maintenance? 

Notification of Resale Price Maintenance Conduct

Companies may now obtain legal protection to engage in resale price maintenance conduct without breaching the Competition and Consumer Act. To do so, businesses need to lodge a notification of resale price maintenance conduct to the ACCC. Indeed, resale price maintenance is only permitted if the ACCC is satisfied there is a public benefit. This must outweigh any public detriment caused by the conduct.

Penalties

For a company breaching in relation to resale price maintenance, you could attract a penalty of the greater of:

• $10 million;
• If Court can determine “reasonably attributable” benefit obtained, three times the total value of the benefit obtained; or
• If Court cannot determine benefit obtained, 10% of the annual turnover of the body corporate in the preceding 12 months.

For individuals, the maximum penalty is $500,000.

The court has handed down large penalties for resale price maintenance over the past 10 years. Indeed, in 2012, an Australian beauty products wholesaler engaged in various acts of resale price maintenance. This company was ordered to pay $100,000 as a penalty. Furthermore, In 2007 the court issued a penalty of $1.25 million to Navman, the supplier of navigational equipment. Moreso, in the same year, the court issued a $3.4 million penalty to the cosmetic company Jurlique. 

FE Sports

In March 2021, FE Sports was ordered by the court to pay $350,000 following resale price maintenance. FE Sports is a wholesale distributor that provides cycling and sporting products to dealers. FE Sports had agreements for the supply of bicycle accessories and sporting products to their dealers. However, the agreements prohibited the dealer from advertising or promoting certain brands of products online for less than RRP. Therefore, over a period of 2 years, 246 dealers were affected by the terms included in the agreements with FE Sports. As a result, FE Sports was ordered to:

• refrain from seeking to enforce a term in any agreement that a current or prospective dealer not advertise goods for sale below the RRP; and
• write corrective letters to affected dealers to whom the term had been included to notify the dealer that they were free to advertise or offer goods supplied by FE Sports at a price less than the RRP or at a discount.

Key Takeaways

You must be aware of the rules and restrictions around setting prices for your retailers. If you set prices rather than suggest or genuinely recommend them, you could be engaging in resale price maintenance. In these circumstances, you will be subject to large penalties. It is clear from the recent penalties awarded that the court will hand down significant penalties for resale price maintenance. 

If you require assistance in drafting your business contract, contact LegalVision’s contract lawyers on 1300 544 755 or complete the form on this page.

Frequently Asked Questions