As previously reported, scrutiny of retail pricing in the luxury industry continues to be a priority for European competition authorities. In addition to ongoing investigations of retail pricing of sportswear apparel in Denmark and luxury watches in Poland, the German competition authority (FCO) recently imposed €6.5 million fines on natural cosmetics maker WALA and two of its directors for imposing resale prices on retailers.
The case concerned WALA’s “Dr. Hauschka” natural cosmetic products, which are primarily sold in beauty salons, perfumeries, pharmacies, department stores and organic supermarkets. The probe was triggered by complaints from retailers and consumers, which prompted the FCO to raid WALA’s offices.
The FCO found that WALA had put pressure on the retailers over the course of several years to ensure that they did not sell below its recommended retail prices. In particular, WALA requested that retailers commit to apply the recommended price as a condition of being part of its network. WALA personnel also apparently regularly checked prices in stores, and threatened to stop –or actually stopped– supplying retailers that were undercutting the recommended price. The FCO found that WALA’s restriction of internet sales further supported the implementation of this pricing policy.
As part of the settlement it reached with the FCO, WALA agreed to amend its distribution agreements and lift the restrictions on internet sales.
This case is the second antitrust case against manufacturers of branded goods in Germany in 2013. In March, the FCO imposed fines of approximately EUR 63 million on 15 manufacturers of branded drugstore products, including the leading suppliers in Germany of branded body care products, cleaning agents and detergents, a trade mark association and members of staff for illegal exchange of competitively sensitive information, including planned price increases and information regarding negotiations with retailers.
WALA is another illustration of EU competition authorities’ strong stance against resale price maintenance, which is generally considered to be a “hardcore” restriction of competition (although the European Commission’s 2010 Regulation and Guidelines on vertical restraints opened the door to potential efficiency justifications, in narrow circumstances). Brand owners should thus be sensitive to arrangements that relate to fixing of distributors’ retail prices or imposing minimum prices are highly unlikely to pass competition muster.