Last month the highest French court – the Cour de cassation – upheld a fine of more than € 40 million imposed on 13 luxury perfume manufacturers (including Chanel and Guerlain) and three giant retailers on the French market (Marionnaud, Séphora and Nocibé) for price fixing. The Cour de cassation confirmed the finding of an anticompetitive vertical price-fixing agreements between leading perfume producers and retailers on the French market.
1. Resale price maintenance (RPM) is per se illegal, even for luxury brands
RPM occurs when a manufacturer sets its retailers’ resale price for its goods. In this case, the luxury perfume manufacturers imposed a “recommended retail price” for the perfumes, set a maximum discount off the recommended retail price and introduced a pricing control system. In Europe, RPM practices are considered to be anticompetitive as they can facilitate collusion, lead to a softening of competition and/or result in higher prices.
The luxury perfume manufacturers and retailers argued that RPM can be an effective way for manufacturers to ensure that their distributors protect and promote the luxury image of the brands, in particular through competition on services and sales efforts. But the court rejected this justification, reasoning that the need for manufacturers to protect their brand image cannot justify the restrictions placed on free price determination.
In view of the broad consensus in the economic literature on the need for a relaxation of the “per se” prohibition approach to RPM, the European Commission has opened the door to a more reasoned approach towards RPM. While the 2010 Regulation and Guidelines on vertical restraints maintain the strict prohibition of fixed and minimum resale prices, the Guidelines open the door for companies to argue that these practices generate efficiencies (e.g., when a manufacturer introduces a new product or to organize a coordinated short term low price campaign in a distribution system under certain conditions). However, there are no recent cases testing the implementation of this more “rule of reason” approach.
In addition, (non-binding) maximum and recommended prices are permissible, unless they amount, in practice, to fixed or minimum price setting (e.g.¸as a result of pressure imposed, or incentives provided, by the supplier or buyer). Therefore, companies should be very careful in setting maximum or recommended prices. In particular, suppliers and retailers should generally not discuss actual retail prices and great care should be taken with any reporting system that could be construed as a means of monitoring and/or enforcing prices.
2. Clarification of the requirements for infringement
The judgment issued by the Cour de cassation also dealt with the notion of generalized and continuous infringement of competition law. The court – upholding the 2012 judgment of the Paris Court of Appeal – clarified that:
- A retailer can be found to have engaged in price fixing (or more generally of having participated in an anti-competitive vertical agreement) without the competition authority having to prove that each distributor to the retailer took part in the system. Proof of a “significant application” of the recommended price is sufficient.
- The fact that the practices are broken up in time does not impact on the ability of the competition authority to find the existence of a single and continuous infringement. As a result, the French competition authority did not have to show the persistence of the infringement during each year concerned and for each company.