Stricter Review and Enforcement of Vertical Resale Price Maintenance Arrangements

The Israel Competition Authority (ICA) recently published a revised public statement on the regulation of resale price maintenance (RPM) arrangements. Under such arrangements, an entity in the goods supply chain (typically, a manufacturer, importer, or wholesaler) dictates the price at which entities down the supply chain (typically, distributors or retailers) may offer the goods to their customers.

In the current legal situation, the relevant parties conduct self-assessments of vertical arrangements, including RPM arrangements, and do not reach out to the ICA, as they did before. The parties are responsible for reviewing the arrangement, whereas the ICA may take enforcement measures if it believes the arrangement in question may be anti-competitive. The public statement intends to serve as a guideline for parties when they carry out self-assessments of RPM arrangements, and as an explanation of how the ICA’s Director-General views such arrangements.

The public statement’s publication follows receipt of public comments on the draft, about which we wrote here.

Policy on RPM Minimum Arrangements and RPM Fixed Arrangements

The new public statement mainly concerns two types of RPM arrangements the ICA views most unfavorably. The first arrangement sets the minimum price at which the goods are to be offered (RPM minimum), and the second stipulates a fixed price at which the goods are to be offered (RPM fixed). According to the public statement, the ICA shall examine such RPM arrangements more carefully than other vertical arrangements, as such arrangements, by their nature, limit inter-brand competition on product prices and may raise other anti-competitive concerns.

According to the public statement, these RPM arrangements are not, generally speaking, exempted under the block exemption for non-horizontal arrangements (i.e., they require obtaining an exemption from the ICA’s Director-General or an approval from the Competition Tribunal), unless they meet these strict conditions:

1. The arrangement confers some benefits. It results in a substantial improvement in the sale services or auxiliary services to consumers (such as the introduction of new products to the market or a solution to the “free rider” problem when there is a risk of it arising).
2. This improvement cannot be plausibly achieved through other means that are much less anti-competitive. As explained in the public statement, sometimes, service can be improved without an RPM arrangement (for example, when the supplier can set the requirements for retailers on how they sell its products or share the sale expenses and the expenses of providing the auxiliary services).
3. The pro-competitive benefits of the arrangement exceed the probable harm to competition arising from it. The stronger the competitive concerns arising from the arrangement, the more pro-competitive benefits it would take to overcome them.

In practice, the public statement clarifies that the ICA’s Director-General almost always considers RPM minimum and RPM fixed arrangements to be anti-competitive and/or unnecessary (i.e., arrangements that may not fall under block exemptions). In any case, an RPM arrangement will always be examined based on the relevant case’s concrete circumstances.

Policy on RPM Arrangements between Suppliers and Agents

The public statement takes a favorable view of RPM arrangements between supplier and “agent,” defined as a distributor or marketer who does not assume the risks of marketing the products, or who bears a negligible risk. Such risks include possession of the goods and costs related to the supply of goods (such as transportation costs), inventory maintenance costs, third-party liability, and more. Such an agent will effectively be perceived as an extension of the supplier, as opposed to a competitively relevant link in the supply chain. An RPM arrangement between a supplier and an agent would, generally speaking, be considered legitimate and reasonable, and would meet the conditions of the block exemption for non-horizontal arrangements.

Policy on Maximum RPM and Recommended Price Arrangements

The public statement mostly discusses RPM minimum arrangements and RPM fixed arrangements, but it also refers to the method of reviewing RPM maximum arrangements and recommended price arrangements.

According to the public statement, RPM maximum arrangements (i.e., setting the maximum resale price) generally do not raise competitive concerns, and are typically even considered economically efficient. This is provided the price set in the arrangement is not effectively the price reference point for retailers or suppliers, and does not become a de-facto RPM fixed arrangement.

The ICA’s position is that a recommended price (a unilateral action that does not constitute an arrangement) may raise different competitive concerns. On the other hand, the pro-competitive benefits that may arise from RPM arrangements are likely to apply to a lesser extent, if at all, in the event of a mere recommendation, which does not give retailers the business certainty provided by the supplier setting the price. Furthermore, when the recommended price is a guise for setting the price, it will be considered an RPM arrangement for all intents and purposes, according to the strict criteria noted above.

Director-General’s Policy – Increased Enforcement against RPM Arrangements

The public statement is another aspect of the Director-General’s stricter enforcement policy against RPM arrangements. In the past year, the Director-General imposed a ILS 5.5 million sanction on Argentools Ltd., the importer of Makita power tools, as well as sanctions against its officers equal to between ILS 250,000 and ILS 320,000, due to RPM minimum arrangements Argentools partook in.

In addition, the Director-General recently signed a consent decree with Energym, a sporting goods marketer and importer. Under this consent decree, Energym is to pay the State Treasury ILS 1.65 million for interfering with minimum prices at which retailers could advertise or sell its products.

These enforcement procedures demonstrate the Director-General’s efforts in this area, on top of the ICA clarifying its policy on RPM arrangements in the public statement. Presumably, in light of the overall policy seeking to lower the cost of living through further regulation of the food and consumer goods market, the ICA will make substantial efforts to detect RPM arrangements in these industries, eliminate them, and penalize the responsible parties.

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Barnea Jaffa Lande’s Antitrust and Competition Department is at your service for any question or request on these subjects.

Adv. Irit Brodsky is a partner in the Competition and Antitrust Department at Barnea Jaffa Lande.

Adv. Ran Karmi is an associate in the competition and antitrust department.