Serbian Competition Commission shows no mercy to resale price maintenance

The Serbian Commission for the Protection of Competition (“Commission“) on 28 January 2016 imposed fines for resale price maintenance (“RPM“) on a supplier of electronic cigarettes and e-liquids, Umbrella Corporation Ltd (“Supplier“), and two of its retail distributers.

The smoking gun was a clause in a template agreement prohibiting the distributor from setting a resale price lower than recommended by the Supplier.

Parties claimed that the notorious clause was a result of their negligence, rather than malevolence. The Supplier explained that the template agreement was “downloaded from the Internet” at the time when it was short of adequate legal assistance. One of the distributors, who operates a retail store, stated that she bought five e-cigarette devices for her personal use, and not for further resale at the store. Another distributor, who operates two pharmacies in Belgrade, claimed that the clause was in reality ineffective, as she was setting retail prices herself, was not coerced by the Supplier and, in fact, benefited from a large discount. She ascribed inattention to the clause to her lack of legal knowledge. Furthermore, the Parties claimed that the Supplier never monitored whether the recommended minimum price was respected or did not take any steps to enforce it. Rather, the Supplier published wholesale price on its website and distributors were free to set prices to their consumers.

The Commission acknowledged that there was no evidence that the clause was ever applied. It also recognized the limited impact on the market of the RPM clauses in two agreements – the Supplier’s agreements with other distributors did not contain similar provisions, whereas goods sold under the disputed agreements generated less than 1% of the Supplier’s revenue. Furthermore, these agreements concerned only few Belgrade neighborhoods where the two distributors operated.

However, lack of bad faith, absence of substantial effects of the clause and its limited geographical reach did not exonerate the parties. The Serbian Commission classified the RPM clause in the two distribution agreements as a “very serious” infringement, which is prohibited as such. The Commission’s classification of the infringement as “very serious” is slightly exaggerated under the circumstances and the modest fines the Commission imposed (0,4% and 0,2% of the annual turnover for the Supplier and each distributor, respectively) reflect this. In a similar case adopted by the European Commission in 2003 (Yamaha), the EC treated RPM as “serious” rather than “very serious” infringement.

RPM is not unexceptionally inexcusable. The 2010 EC Guidelines on Vertical Restraints acknowledge that RPM might have pro-competitive effects in which case they may be individually exempted. In particular, the European Commission recognizes that RPM may lead to efficiencies and benefit consumers when introducing a new product, organizing a short-term low price campaign, or providing presales services for complex products at a retail level. In 2007 the US Supreme Court in Leegin eliminated treatment of RPM as a per se violation of US federal antitrust law. Following that judgement, in US, RPM clauses in distribution agreements are subject to effects-based test where pro- and anti-competitive effects are evaluated on a case-by-case basis.

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