Definition
Resale Price Maintenance (RPM) is an arrangement by which a manufacturer (or similar upstream entity) dictates the price at which its product or service is re-sold by a downstream entity, such as a distributor or retailer.
The Indian Competition Act 2002 defines RPM as follows –
“resale price maintenance” includes, in case of any agreement to sell goods or provide services, any direct or indirect restriction that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.1
Such arrangements can be found in a variety of sectors, particularly where the manufacturer relies on a network of distributors and retailers/resellers for onward sale of its products.
Commentary
Anti-Competitive Nature of RPM arrangements
The extent to which RPM arrangements are viewed as anti-competitive varies across jurisdictions. The anti-competitive effect of RPM stems from the fact that the end user/consumer is potentially stopped from getting the product or service at a lower price than she would otherwise get, had the arrangement not been in place. Further, through the RPM mechanism, price competition between dealers / distributors / resellers can be foreclosed. Where an RPM arrangement exists, the customer will not be able to get a better price no matter which reseller she purchases the goods or services from, because price is controlled by the manufacturer.
On the other hand, manufacturers may be able to justify an RPM arrangement on some grounds. For instance, the manufacturer of luxury goods may not want its product to be priced below a certain level or heavily discounted, lest it be perceived that its product falls in a different market segment. Even where the arrangement exists, it may not have significant or appreciable anti-competitive effects based on the extent of trade affected, manufacturer or product/service share in the market, presence of alternatives, and other similar factors.
It is important to distinguish between stipulations that fix a minimum resale price as against those that fix a maximum price. The former are more likely to fall foul of competition law. On the other hand, fixing a maximum price is often mandated by law, for instance in India through the Legal Metrology Act 2009 which mandates declaration of maximum retail prices (MRP) for many types of goods, in consumer interest.
India
Under Indian law, RPM is governed by the rule of reason i.e. there is no presumption that it is anti-competitive. The onus of proving both the existence of the arrangement and its appreciable adverse effect on competition is on the Competition Commission of India.2 Prior to 2023, resale price maintenance was only recognized as a vertical arrangement. By the 2023 Amendment to the Competition Act, it has been recognized that RPM can form part of a hybrid or ‘hub and spoke’ system, exhibiting characteristics of both vertical and horizontal arrangements.
What is essential for an RPM arrangement is the element of ‘resale’ or second sale. Where a party merely acts as an agent of another, or provides services through the platform of another, resale price maintenance is not applicable. Hence, price setting by cab aggregators such as Uber have been held to be outside the purview of RPM violation.3
The CCI has recognized that RPM can be maintained both directly as well as indirectly. Regulating dealer discounts is one way of maintaining RPM, by providing a ‘floor’ price or maximum level of discount that any dealer / reseller can give. Such practices have been found in the automotive industry.4 The question of whether a RPM arrangement, if established, causes appreciable adverse effects on competition is ultimately a question of fact. The CCI has recognized that RPM has the potential to affect competition not only vertically but also horizontally. While the primary target of RPM is intra brand competition, it can also impact inter-brand competition.5 Such cases are more likely to cause appreciable adverse effects.6 Conversely, where there is robust inter-brand competition, adverse effects are mitigated.7 For RPM to be violative of the Competition Act, it has to be uniformly implemented across resellers and the manufacturer should wield significant market power.8 It is also recognized that RPM arrangements can have some justification and desirability, both from the perspective of manufacturers and consumers.9
European Union
In the EU, stipulation of a minimum of fixed resale price is considered a hardcore restriction, and hence presumed to be anti-competitive.10 The EU Guidelines on Vertical Restraints11 state that the restriction covers both direct and indirect means of imposing RPM. Indirect means include fixing resale margin, fixing maximum levels of discount a reseller can give to a customer, making grant of rebates or incentives subject to maintenance of resale price, prohibiting advertisement of prices below the level set, linking resale prices to those of competitors, threats, intimidations and warnings to ensure compliance with resale price levels.12 The EU Guidelines on Vertical Restraints explicitly recognize both intra-brand and inter-brand effects of RPM on competition.13 Although it is acknowledged that RPM can bring about efficiencies, the onus to show such justification is on the enterprise imposing the restriction.14
In the EU, RPM arrangements have been found to violate competition law in a number of sectors and scenarios. Where an upstream entity enters into an RPM arrangement with a number of dealers, such vertical agreements have been held to have the same effect as a horizontal arrangement.15 A directive to agents not to share commission on sales with customers has been held to have the effect of RPM.16 A cap on discounts and ‘recommendation’ of resale prices was held to fall foul of competition law.17 It has also been recognized that the broader objective of the continuous price monitoring and resale price maintenance was to ensure that by adjusting to the prices of the lowest pricing retailers, market prices of other retailers would not fall, thereby having a wider price maintenance effect in the market.18
United States
Both minimum and maximum resale prices were earlier held to be per se illegal under section 1 of the Sherman Act by the US Supreme Court19. However, a unilateral action by a manufacturer not to deal with resellers who sold below a prescribed price is not considered to fall within the scope of an unlawful agreement20. The strict per se rulings of earlier decisions have since been overturned. In State Oil v. Khan,21 it was held that per se rule would not apply to maximum resale price restrictions. In Leegin Creative Leather Products v. PSKS22 the rule of reason was held to apply to vertical minimum resale price restrictions. The US Supreme Court held that RPM could have efficiency enhancing or pro-competitive effects. In this case, Leegin had argued that ensuring resellers did not sell below a price was to leave sufficient margin for resellers to maintain the high level of service it desired for the product line.
The legal position in the US is complex, as anti-trust laws may vary from state to state and apply different standards for RPM.
Explanation (e) to Section 3(4), Competition Act, 2002.↩︎
Section 3(4), Competition Act, 2002.↩︎
Samir Agrawal v. ANI Technologies (Case No. 37/2018, order dated 06.11.2018), upheld by the NCLAT (2020 SCC OnLine NCLAT 811) and the Supreme Court [(2021) 3 SCC 136].↩︎
See Maruti Suzuki India (Suo Motu Case No. 1/2019, order dated 23.08.2021), appeal pending. See also Fx Enterprise Solutions v. Hyundai Motor India (Case No. 36/2014, order dated 14.06.2017) reversed on appeal by NCLAT in Competition Appeal (AT) No. 06 of 2017 Hyundai Motor India Ltd. vs. CCI (19.09.2018) – appeal pending.↩︎
supra note 4.↩︎
Jasper Infotech v. KAFF Appliances (Case No. 61/2014, order dt. 15.01.2019).↩︎
Karni Communications v. Haicheng Vivo Mobile (Case No. 35/2018, order dt. 19.06.2019).↩︎
Counfreedise v. Timex Group India (Case No. 55/2017, order dt. 14.08.2018).↩︎
Jasper Infotech (supra).↩︎
Article 4(a), Commission Regulation (EU) 2022/720.↩︎
2022/C 248/01.↩︎
EU Guidelines on Vertical Restraints, para 187.↩︎
EU Guidelines para 196.↩︎
EU Guidelines, supra para 197.↩︎
Erauw-Jacquery (C-27/87), para 15.↩︎
VZW Vereniging van Vlaamse Reisbureaus (C-311/85).↩︎
Yamaha (Case COMP/37.975 PO/Yamaha).↩︎
Denon & Marantz (Case AT.40469).↩︎
Dr Miles Medical Co v John D Park & Sons Co, 220 US 373 (1911) and Albrecht v. Herald Co., 390 U.S. 145 (1968).↩︎
United States v Colgate & Co, 250 US 300 (1919).↩︎
522 US 3 (1997).↩︎
551 US 877 (2007).↩︎