Our Trade Practices Act prohibits resale price maintenance (RPM). RPM includes selling goods to a reseller on condition that the reseller will not resell the goods at a price equal to or less than the one you specify. RPM is broadly defined to catch any conduct which suggests that you will withhold supply to a reseller who will not agree to come to the resale pricing party. RPM is prohibited because it disadvantages consumers. RPM keeps prices high. The Trade Practices Act is all about keeping the consumer price down.
RPM is not the same as price fixing. Price fixing happens when competitors agree to fix the price of their goods (horizontal conduct). RPM happens when a supplier and its resellers agree on the minimum price at which the goods will be sold (vertical conduct).
Hobie Cat Australasia has been fined for RPM not long after significant fines were imposed on Navman for the same conduct. Hobie Cat was caught out by the written terms of its distribution agreement. Navman was caught out by its communications on discounting. Both ended up facing competition law consequences.
What was Navman doing?
Between 2001 and 2004, Navman supplied navigational equipment through retail dealers. It used various tactics to encourage retailers not to sell its equipment below certain prices, including over the internet. The ACCC took action against Navman as well as its National Sales Manager and its General Manager.
The Court heard that Navman sent dealers price lists that included statements discouraging the dealers from discounting below the recommended retail price. Navman threatened to terminate dealerships if prices were reduced and followed through in some instances.
What was said that caused all the trouble?
Excerpts from some of the written statements that got Navman into trouble include:
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"If we have good products that are priced below our competitors, as I have stated before, the discounting of our products makes no commercial sense."
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“First off and my biggest gripe within our industry has always been discounting. I just cannot understand the mentality where you have an extremely popular product that is priced under the market with good margin and we still have dealers that discount heavily. There is only one issue that will stop NAVMAN and that’s discounting!! I will not allow our great products to be prostituted – take the warning now!”
These statements were found to constitute RPM.
In assessing the penalties to be imposed on Navman and its National Sales Manager and General Manager, the Court noted that Navman’s corporate culture was not conducive to compliance with the Trade Practices Act and that the National Sales Manager and General Manager did not receive any trade practices training. All the same, the Court saw this as no excuse.
The Court noted that Navman’s turnover and profit had increased substantially over the time it committed RPM. In 2001, its turnover was approximately $3.6 million. In 2004, it was over $29 million. The Court imposed a fine on Navman of $1.25 million in view of the seriousness of the RPM breaches. The National Sales Manager was fined $80,000. The Court noted that this fine reflected a discount of 25% to 30% because the National Sales Manager had co-operated in the proceedings. The General Manager was fined $30,000.
What happened to Hobie Cat?
Hobie Cat appointed dealers of its watercraft and supplied its dealers with documents that listed the Manufacturer’s Recommended Retail Price (MRRP). These were updated annually.
In August 2004, Hobie Cat entered into a written agreement with a distributor which included terms that the dealer would:
These terms saw Hobie Cat pay a fine of $168,000 for RPM. Hobie Cat also had to pay the ACCC’s legal costs, was obliged to establish a trade practices compliance program and was required to write to all its dealers advising them of its illegal conduct.
Lessons from the cases
Tempting as it may be, you cannot force resellers of your products to stop discounting! You can recommend a resale price as long as you do not impose an obligation on your reseller to follow this. You can also fix a maximum resale price as long as you make it clear that your reseller can sell at any price below the maximum. If any of your conduct suggests you are trying to insist that your resellers keep the prices of your products high, think again before you follow Navman and Hobie Cat straight to Court.
