Resale Price Maintenance (RPM) continues to be categorized as a hardcore restriction according to the recently updated Vertical Block Exemption Regulation (VBER). However, under the latest ruling of the EU Court of Justice (CJEU) in Super Bock, the competition authorities are not entitled to presume that RPM is a “by object” restriction under Article 101(1) TFEU solely on the basis that RPM does not enjoy the benefit of vertical block exemption. In order to establish a by-object violation of competition, including in the presence of an RPM, the competition authorities must demonstrate, as preliminary matter, that the vertical agreement which includes RPM causes significant degree of harm to competition at first place.
Given that, in the context of ROM, the architecture of the Serbian Vertical Block Exemption Decree is substantially the same as the architecture of Regulation No 330/2010 analysed in Super Bock, the CJEU Judgment could be the basis for the Serbian competition authority to change its the formalistic approach to RPM cases it has exhibited so far.,
Background of Super Bock
Super Bock is a Portuguese company engaged in the production and sale of various beverages, with a primary focus on beer and bottled water markets. To distribute beverages in Portugal’s HoReCa sector, Super Bock has exclusive distribution agreements with independent distributors covering almost the entire country, except for certain regions where Super Bock conducts direct sales.
From 15 May 2006 to 23 January 2017, Super Bock consistently imposed fixed terms of business on all distributors, specifically setting minimum resale prices to maintain a stable and consistent pricing level across the national market. The sales department of Super Bock monthly approved a list of minimum resale prices and communicated them orally or in writing to distributors by network or marketing managers. Distributors generally adhered to these prices, reporting relevant resale data to Super Bock through a monitoring and tracking system. Non-compliance could result in retaliatory measures, including the removal of financial incentives, refusal to supply and replenish stocks, and potential loss of guaranteed distribution margins.
The Portuguese NCA deemed Super Bock’s practice of fixing prices and other terms applicable to resale by independent distributors in the HoReCa sector an infringement of competition rules, which was later confirmed by the first instance court. Super Bock appealed the judgment before the Court of Appeal in Lisbon, Portugal, which referred several questions to CJEU for a preliminary ruling, including the question whether RPMs constitute in and of itself a “by object” restriction of competition.
CJEU lays down a useful break down of the regulation of vertical restraints under the EU law:
(a) Article 101(1) TFEU prohibits agreements which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.
(b) It follows that in order to be caught by the prohibition laid down by that provision, an agreement must have as its ‘object or effect’ the prevention, restriction or distortion of competition within the internal market. It is first necessary to consider the object of the agreement. If the anticompetitive object of an agreement is established, it is not necessary to examine its effects on competition.
(c) The concept of ‘restriction of competition by object’ must be interpreted restrictively – the concept applies only to certain types of coordination between undertakings which in itself presents a sufficient degree of harm to competition so that there is no need to examine their effects.
(d) Even though vertical agreements are, by their nature, often less damaging to competition than horizontal agreements, they can also, in some cases, be restrictive of competition by object, i.e. in themselves.
(e) In order to determine whether an agreement, including the one containing RPM, involves a ‘restriction of competition by object’ the competition authority must take into account the content of the agreement’s provisions, its objectives and the economic and legal context of the agreement. When determining the context, the authority should take into consideration the nature of the goods or services affected, as well as the actual conditions of the functioning and structure of the market(s). Procompetitive effects of the agreement, if any, may be an indication not only that the agreement qualifies for individual exemption but also, if they are relevant, intrinsic to the agreement concerned and sufficiently significant, that the agreement concerned may not pose a sufficient degree of harm to competition at first place.
(f) The fact that a vertical agreement fixing minimum resale prices falls within the category of ‘hardcore restrictions’ for the purposes of Article 4(a) of Regulation 330/2010, is not of itself sufficient to create a presumption that the agreement is harmful to competition, i.e. that RPM is a “by object restriction. That RPM is a “hardcore restriction” solely means that a vertical agreement involving an RPM does not enjoy the benefit of vertical block exemption. In other words, RPM and other restrictions exempted from the benefits of vertical block exemption are not presumed to be harmful to competition. Instead, each such restriction, including RPM, has to be evaluated on a case-by-case basis against the main rule of Article 101 TFEU. (Perhaps it is time to stop calling restrictions exempted from vertical block exemption “hardcore”).
In conclusion, the national competition authority has a duty to demonstrate that a specific RPM is under the circumstances of the relevant case (terms of the agreement, the objectives that it seeks to attain and all of the factors that characterise the economic and legal context of which it forms part) indeed harmful to competition. This preliminary analysis should not be confused with the analysis of the effects of a restriction. If the competition authority concludes, following a comprehensive analysis of the terms, aim and the overall legal and economic context of the agreement in question and the market on which it operates, that the object of the RPM in question is to restrict competition, it does not have to analyse its effects on competition.
RPM cases in Serbia
In the last three years, the Serbian Competition Commission has established competition violations based on RPMs in four proceedings (SF1 Coffee, Comtrade, Roaming, and YUGLOB), making RPM one of the most scrutinized practices of market participants in Serbia. In all of these cases, as well as in its previous RPM cases, the Serbian Competition Commission found infringements solely on the basis of the existence of RPM clauses or practices, treating mere existence of RPM as a per se violation.
Serbia undertook under the Stabilization and Association Agreement to assess restrictive agreements on the basis of criteria arising from the application of the competition rules applicable in the EU and interpretative instruments adopted by the Community institutions. Furthermore, the architecture of the Serbian law on restrictive agreement is substantially the same as in the EU:
- Article 10 of the Serbian Competition Act, much like Article 101 TFEU, prohibits restrictive agreements which have as their object or effect significant restriction, distortion of prevention of competition in the territory of Serbia, unless an exemption applies;
- Article 3 of Serbian Vertical Block Exemption Decree exempts vertical agreements (without referring to vertical restraints, but that goes without saying) from the prohibition under Article 10 of the Competition Act (although it then unnecessarily lists certain types of vertical agreements that are exempted “in particular”);
- Article 5 of the Vertical Block Exemption Decree stipulates that a vertical agreement is disqualified from the benefit of block exemption if it, “directly or indirectly, in isolation or in combination with other factors under the control of the parties, contains a restraint which has as its object”, inter alia, “direct or indirect restriction of the buyer’s right to freely determine its resale price…”,
Given CJEU’s unambiguous clarification in Super Bock that an agreement containing RPM cannot be presumed harmful of competition, it is to be expected that parties under investigations will start relying on such novel RPM cases developed on the EU level and, where appropriate, engage to show context-specific factors which render the agreement under investigation harmless to competition. If the Serbian Competition Act adopts this approach RPM could be, for example, recognised as “by object” restriction of competition in one industry but not necessarily in another. It remains to be seen whether the Serbian Competition Commission will be open to a more substantive analysis of RPMs that is expected to become a norm in the EU following Super Bock.