Retail and Consumer GoodsAntitrust Law and Merger Control06.11.2020 Newsletter
Suppliers may stop supplying a retailer for falling below the RRP - under certain conditions
The mere attempt by a supplier to influence the resale prices of its dealers usually constitutes a violation of German antitrust law. The Higher Regional Court (OLG) of Düsseldorf has now clarified that a final blocking of deliveries to a dealer on grounds of differing ideas about resale prices can be permissible. There is no violation of the German antitrust law boycott prohibition if the blocked retailer cannot be induced to increase its resale prices in line with the supplier’s intentions. A supplier who is unhappy with the pricing policy of a retailer is therefore not powerless, despite the prohibition of vertical price fixing.
The decision of the Düsseldorf Higher Regional Court
The OLG dismissed the action for an injunction and damages brought by an online dealer against an import and wholesale company active in the field of model-making and toys (judgement VI-U (Kart) 3/20 of 8 July 2020).
The dealer had sold numerous products of the supplier on the internet, some of which he had purchased directly from the sued supplier and some of which he had obtained from other sources. The dealer had no own stock of the products and regularly fell significantly below the supplier's recommended retail prices. The supplier repeatedly criticised the dealer for its business practices and pricing policy.
Since the dealer failed to change its business and pricing policy, the supplier initially prohibited him from using the images and data of its products and blocked the dealer’s account. As these measures failed to bring about a change in the supplier's business and pricing policy, the supplier finally stopped supplying the products and terminated the supply relationship.
The dealer argued in court that the supplier had stopped supplies solely on the basis of the dealer's pricing policy. It had therefore violated the prohibition on threatening or inflicting disadvantages on other companies in order to induce them to behave in a manner that restricted competition (so-called boycott prohibition, cf. § 21 (2) German Act against Restraints of Competition).
However, the OLG denied a violation of the boycott prohibition and affirmed the legality of the suspension of deliveries. The supplier had not used any inadmissible means of exerting pressure with its discussions about the dealer's pricing because it had not acted with the aim of persuading the dealer to raise its prices in violation of antitrust law.
Permissible discussions about the dealer's pricing
In the court’s opinion, a means of exerting pressure that is inadmissible under antitrust law only exist if the supplier had influenced the company’s freedom of decision. The decisive factor here was whether the dealer was to understand the contact in such a way that a certain conduct was expected of him with regard to the setting of his resale prices and whether he would have to fear a disadvantage if this expectation were not fulfilled. However, according to the court, this was not the case for mere inquiries that were not aimed at a specific pricing behaviour.
Permitted delivery block
Furthermore, the OLG clarified that there is no violation of the antitrust law prohibition of boycotts if a supplier, as in the present case, terminates the business relationship due to questionable business practices of the dealer. Even a delivery block based solely on the dealer’s pricing policy can be permissible if the delivery block is aimed at a final termination of the business relationship. In this case, there is no incentive for anticompetitive behaviour, i.e. no impermissible influence on the dealer’s resale prices.
However, the court pointed out that the supplier may not give the impression that deliveries might be recommenced in return for future good conduct, i.e. in this case an increase of the resale prices. The decisive factor here is how the dealer must understand the statements or actions of the supplier in the overall context.
In the specific case, the Düsseldorf Higher Regional Court based its decision on the fact that the supplier had already blocked the dealer's account and had prohibited him from using images and data before finally terminating the business relationship. The court deemed it harmless that the final termination had been worded as polite yet emphatic advice. The fact that the supplier had once again mentioned the dealer's pricing policy in this connection did not change the court’s opinion. In the overall context, this was viewed as not being linked to the demand to increase the resale prices in order to avoid the termination of the business relationship.
Effects on practice
With its judgement, the OLG follows jurisprudence of the German Federal Court of Justice (BGH) that was has received little attention for many years, according to which a distinction must be made between a (permissible) final retaliation block and a (prohibited) temporary will-bending block (BGH, judgement of 28 October 1965 - KRB 3/65).
According to this, a supplier who is dissatisfied with the pricing policy of a dealer is not entirely powerless despite the prohibition of vertical price fixing under German antitrust law. He may permanently stop supplying his dealer - also because of his low resale prices. However, the dealer should be expressly informed that this is a permanent delivery block and that he cannot reverse the decision by increasing his resale prices. For this reason, to the extent possible suppliers should avoid prior threats or announcements of a delivery block in connection with a dealer’s pricing policy. The German Federal Cartel Office already regards the supplier’s contacting of a dealer to be critical under cartel law if such announcement gives the dealer the impression that he can avert the delivery block by raising his resale prices.
Suppliers with a dominant market position or with relative market power within the meaning of § 20 (1) German Act against Restraints of Competition must also observe the requirements of the prohibition of abuse under cartel law. On the one hand, the discontinuation of supply in these cases requires a high degree of justification. On the other hand, dealers generally have to be granted a transitional period until deliveries are terminated. The obligation to comply with the German prohibition of abuse may already exist if dealers are dependent on one supplier, for example because the goods in question are "must-have" products or because the dealer does not have a sufficient or reasonable possibility to switch to other suppliers.