Avoiding liability for resale price maintenance

It was held in Australian Competition and Consumer Commission v Mitsubishi Electric Australia Pty Ltd [2013] FCA 1413 (ACCC v Mitsubishi) that resale price maintenance (RPM) refers broadly to conduct of suppliers in attempting to induce distributors or resellers of their goods not to resell them at a price less than that which is prescribed by the supplier. Section 48 of the Competition and Consumer Act 2010 (Cth) (Act) states that:

‘a corporation or other person shall not engage in the practice of resale price maintenance’.

Conduct constituting resale price maintenance

Section 96(3) of the Act contains provisions which provide the following specific examples of what amounts to resale price maintenance:

the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier;
the supplier inducing, or attempting to induce, a second person not to sell, at a price less than a price specified by the supplier, goods supplied to the second person by the supplier or by a third person who, directly or indirectly, has obtained the goods from the supplier;
the supplier entering into an agreement, or offering to enter into an agreement, for the supply of goods to a second person, being an agreement one of the terms of which is, or would be, that the second person will not sell the goods at a price less than a price specified, or that would be specified, by the supplier;
the supplier withholding the supply of goods to a second person for the reason that the second person:
- has not agreed as mentioned in paragraph (a); or
- has sold, or is likely to sell, goods supplied to him or her by the supplier, or goods supplied to him or her by a third person who, directly or indirectly, has obtained the goods from the supplier, at a price less than a price specified by the supplier as the price below which the goods are not to be sold;
the supplier withholding the supply of goods to a second person for the reason that a third person who, directly or indirectly, has obtained, or wishes to obtain, goods from the second person:
- has not agreed not to sell those goods at a price less than a price specified by the supplier; or
- has sold, or is likely to sell, goods supplied to him or her, or to be supplied to him or her, by the second person, at a price less than a price specified by the supplier as the price below which the goods are not to be sold; and
the supplier using, in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.

When is a price ‘specified by the supplier’?

Section 96(4) of the Act clarifies, for the purposes of subsection (3), when a price is considered to have been specified by the provider. It states:

where a price is specified by another person on behalf of the supplier, it shall be deemed to have been specified by the supplier;
where the supplier makes it known, in respect of goods, that the price below which those goods are not to be sold is a price specified by another person in respect of those goods, or in respect of goods of a like description, that price shall be deemed to have been specified, in respect of the first-mentioned goods, by the supplier;
where a formula is specified by or on behalf of the supplier and a price may be ascertained by calculation from, or by reference to, that formula, that price shall be deemed to have been specified by the supplier; and
where the supplier makes it known, in respect of goods, that the price below which those goods are not to be sold is a price ascertained by calculation from, or by reference to, a formula specified by another person in respect of those goods or in respect of goods of a like description, that price shall be deemed to have been specified, in respect of the first-mentioned goods, by the supplier.

What is ‘selling’?

Section 96(7) of the Act defines what the section refers to as ‘selling of goods’ in the context of resale price maintenance. It includes:

the advertising of goods for sale at a price less than a price specified by the supplier as the price below which the goods are not to be advertised for sale;
the displaying of goods for sale at a price less than a price specified by the supplier as the price below which the goods are not to be displayed for sale; and
the offering of goods for sale at a price less than a price specified by the supplier as the price below which the goods are not to be offered for sale.

Recommended Retail Price (RRP)

According to section 97 of the Act, a supplier is not taken to have induced, or attempted to induce another person in relation to goods:

by reason only of a statement of a price being applied to the goods…or being applied to a covering, label, reel or thing as mentioned in paragraph 99(1)(b), provided that the statement is preceded by the words “recommended price”; or
by reason only of his or her having given notification in writing to the second person of the price that he or she recommends as appropriate for the sale of those goods, provided that there is included in the notification, and in each writing that refers, whether expressly or by implication, to the notification, a statement to the following effect:

“The price set out or referred to herein is a recommended price only and there is no obligation to comply with the recommendation“.

The consequences – a lesson from ACCC v Mitsubishi

The Federal Court of Australia, after finding that Mitsubishi Electric Australia Pty Ltd (Mitsubishi) was guilty of RPM, issued the company with a hefty $2.2 million fine. In his judgment, Justice Mansfield warned that the practice will be condemned, stating:

“there is a need for a significant level of penalty in respect of resale price maintenance to deter large corporate groups from engaging in such conduct in the future”.

The Court noted that Mitsubishi’s conduct was at the serious end of the spectrum of RPM. Mitsubishi had taken action against one of its distributors by demoting the company from ‘dealer’ to ‘contractor’, essentially punishing it for selling air conditioning units below the prices desired by Mitsubishi. In imposing a penalty, the Court stated that it seeks to ensure that any fines imposed will go above and beyond being an ‘acceptable cost of doing business’. This should act as a stern warning to companies engaging in, or planning to engage in RPM that the practice will not be tolerated, regardless of any impact it may or may not have on the market.

Links and further references

Further information about resale price maintenance

If you need advice on how the retail price maintenance provisions of the Australian Consumer Law apply to your business, contact us for a confidential and obligation-free discussion:

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au

Disclaimer

This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

Avoiding liability for resale price maintenance

Conduct constituting resale price maintenance