25/02/2009

What is resale price maintenance?  Resale price maintenance is a form of price fixing which has the effect of eliminating competition.

The classic example of resale price maintenance is where a supplier sells products to its retailers on the condition that retailers not sell the product at a price less than that specified by the supplier……

An example of such conduct was considered by the Federal Court in the case of Australian Competition and Consumer Commission v Navman Australia Pty Ltd [2007] FCA 2061.  The facts are summarised as follows:

 

-  Navman’s conduct involved more than 35 individual acts between 2001 and 2004.

 

-  The conduct included communications which Navman sent to its dealers, enclosing price lists and containing statements discouraging the dealers from discounting their prices below those set out in the price lists and specified by Navman.

 

-  The conduct also included threats to terminate, and subsequent termination of, dealerships for discounting below Navman’s specified prices.

 

In one statement sent to dealers by a Navman executive, he said:

 

“It is not acceptable to have dealers discounting heavily with a good product that is already well priced. If you can’t sell our products without discounting, then I suggest it’s time to sell any of our competitors’ products — simple as that!!”

 

The Trade Practices Act seeks to improve competition between retailers by allowing them to trade using lower margins, volume buying and discounts, without influence by their suppliers.

 

The resale price maintenance provisions are there to ensure the public benefit from fair competition between retailers which is unfettered by their suppliers.  This is particularly evident where a product is supplied by a sole supplier who could otherwise drive the price of the product up by forcing its retailers to charge an inflated price for the product on the basis that the consumer can’t get the product any cheaper elsewhere.

 

The Federal Court decided in the Navman case that the company had breached the resale price maintenance provisions in three ways, by:

 

-  inducing or attempting to induce retailers not to sell goods at prices less than the price specified by the supplier;

 

-  withholding the supply of goods to retailers because the retailers were likely to sell the goods at prices less than those specified by the supplier; and

 

-  making statements of prices to retailers that were likely to be understood by the retailers as prices below which the goods were not to be sold.

 

In that case the Federal Court imposed a penalty (with agreement between the parties) in excess of $1 million on the company and a penalty on of the two directors on the basis that the directors were involved in the conduct of the company and therefore had personal liability for their role in breaching the Act.

The consideration is therefore, if you are a supplier of products to retailers, that you do not breach the resale price maintenance provisions by imposing such conditions on the retailers.  Alternatively, if you are a retailer, you should consider if your supplier is creating such impositions on your right to independently price your products for sale.

If you would like more information, please contact David Nicoll at Townsends Business & Corporate Lawyers on (02) 8296 6222.