Consumer law exists to protect consumers from businesses who engage in potentially harmful practices such as resale price maintenance (RPM). Below, we look at what resale price maintenance is, why the Competition and Consumer Act 2010 (Cth) (CCA) prohibits its practice and how suppliers can legally protect their prices.
What is Resale Price Maintenance?
RPM is where a supplier requires a business not to sell goods below a minimum price that the supplier stipulates. Suppliers typically do so by making it a condition of supply or threatening to withhold/withdraw supply if a business does not:
- Sell a product at a specified price;
- Not sell a product below a defined price;
- Discount the item only to an “agreed” value;
- Not discount the good at all;
- Comply with a recommended retail price; or
- Not price the product below the recommended retail price.
Australia’s consumer law watchdog, the ACCC, takes allegations of RPM seriously and does not hesitate to investigate – and prosecute – suppliers if it believes it necessary.
In 2007, the ACCC successfully prosecuted four companies associated with the Jurlique range of skincare for RPM. The ACCC alleged that the companies had engaged in RPM between 1991 and 2003. Specific allegations included that they had withheld supply from retailers who had sold their products below the supplier’s recommended price and inserted a clause in their supply agreements requiring retailers not to sell the products at a price less than a nominated amount. The Federal Court imposed penalties totalling $3.4 million. Similarly, in 2009 the Federal Court required Telwater, Australia’s largest manufacturer of aluminium boats, to pay over $200,000 in penalties for engaging in resale price maintenance. Moreover, this figure took into account the assistance that Telwater had provided to the ACCC during its investigation.
Australia’s consumer laws do not necessarily prevent commercial entities from acting lawfully to protect their commercial interest if they feel that their brand is under threat from excessive price discounting. Discounting is especially an issue for businesses at the higher end of a market where a substantial price tag often gives a brand exclusivity and prestige. That is the reason that the retailer Louis Vuitton recently moved to increase the price of its bags. The company feels that the widespread accessibility of their bags has lost its prestige as compared to competitors such as Hermes.
In such a case, the law permits a supplier to:
- Withhold products to prevent businesses from engaging in loss leader selling; or
- Providing businesses with a recommended resale price list.
Although a supplier cannot withhold supply to require a business to sell a product at a pre-determined price, it can withhold supplies of a product if it believes that an entity is using its products in a ‘loss leader selling’ strategy. When a business does this, it buys a product or range of products with the express desire and intent to sell them below their cost price. In doing so, it:
- Promotes their business; and
- Potentially attracts more customers into their premises or onto their website who might then purchase another good.
However, a supplier cannot withhold supply in the event of a genuine clearance. Suppliers can also provide businesses with a recommended resale price list – importantly, it can only recommend these prices. If it uses pressure to induce entities to price according to the list, they are engaging in resale price maintenance. Further, a business cannot request that a supplier uses its list to prevent their competitors from discounting the item. In that instance, both the business and supplier would likely fall foul of the Australian Consumer Law.
If you have any questions about RPM, get in touch with our consumer lawyers on 1300 544 755.