ENFORCEMENT ALERT: MINIMUM RESALE PRICE MAINTENANCE – SOUTH AFRICA

The AAT Editors thank Charl van der Merwe for his contribution.

The Competition Tribunal of South Africa (Tribunal) on 26 October 2017 confirmed a consent order filed by the South African Competition Commission (SACC) in terms of which SBS Household Appliances t/a SMEG (Pty) Ltd (SMEG) admitted to contravening Section 5(2) of the South African Competition Act 89 of 1998 (Competition Act).

Section 5(2) of the Competition Act contained a per se prohibition of Minimum Resale Price Maintenance (MRPM), which means that firms operating in South Africa may not set minimum prices at which its downstream customers/retailers are obliged to sell its products.

According to the Tribunal’s order, one of SMEG’s customers lodged a complaint with the SACC in which it was alleged that SMEG refused to supply them with product because they failed to resell a certain product at a price above the minimum recommend price set by SMEG.

The SACC conceded that the price list which SMEG circulated to its retailers had the words “recommended price” appearing next to it – as required under South African competition law. However, the SACC found that in practice when the complainants continued to sell the specific product below the ‘recommended price’ (after SMEG demanding adherence to the ‘recommended price’), SMEG terminated supply of all its product to the complainants. This was done after SMEG received a complaint from one of its other retailers that the complainants had sold the specific product below the ‘recommended price’.

As a mitigating factor, the SACC found this to be an isolated incident, which was not implemented throughout SMEG’s operations. In this regard, the SACC’s investigation into the matter revealed that most of the retailers of SMEG’s products do not necessarily sell at the recommended price and that it was in fact SMEG’s practice to “recommend retail prices, but those were not enforced.”

In light of this mitigating factor, SMEG was only fined R 100 000 (roughly $7000) and agreed to implement a number of behavioural remedies – which includes a commitment to continue to supply the complainants with the respective products.

With regards to the calculation of the penalty, despite some deliberation as to the relevant turnover to be utilised for purposes of calculating the administrative penalty, the Tribunal ultimately fined SMEG based the affected turnover, as “this is a case specific issue” (Retailer specific).

Most notably, the Tribunal elected to move away from its standard procedures in relation to consent orders (not to give any reasons or explanation for its decision) in order to specifically raise awareness on the issue of MRPM in South Africa and deal with the “nature and severity of minimum resale price maintenance” and to “enhance the awareness of the fact that minimum resale price maintenance is prohibited per se in South Africa”.

The SACC in its consent agreement clearly stated that although other jurisdictions such as the US are now treating MRPM as a rule of reason rather than a per se contravention, it remains a per se contravention in terms of the Competition Act and specifically noted that there is no intention to change the Competition Act in relation to the per se nature of MRPM.

The Tribunal also used the opportunity to caution firms against adopting American (or other) antitrust practices in South Africa. In this regard the Tribunal held that “[T]he notion that other jurisdictions may be revisiting their stance on minimum resale price maintenance cannot be construed as a mitigating factor in the matter at hand.”

Finally, the Tribunal reaffirmed its stance on the serious nature of MRPM as a competition offence with reference to the its previous decision on the issue in the case of Competition Commission vs Federal Mogul Aftermarket Southern Africa (Pty) Ltd and Other (08/CR/Feb01) and used the case at hand as an illustration of the detrimental effects of minimum resale price maintenance on customers.

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