In March 2022, the UK Competition and Markets Authority (CMA) fined the lighting products supplier, Dar Lighting Limited (Dar), £1.5 million for engaging in resale price maintenance (RPM), in breach of the UK prohibition against anticompetitive agreements, with the text of the CMA’s 241-page decision only having been made available earlier this summer. 

While the decision is one of many by the CMA in recent years to tackle illegal RPM practices (for example, see our recent alert on the surge of RPM enforcement all over Europe here), this case is different in that its focus is not on direct and explicit contractual terms imposing RPM, but rather on the perception that Dar’s sales partners got from messages conveyed to them in relation to their ability to offer product discounts. 

The CMA found that Dar, which operates a selective distribution system to sell its domestic lighting products, restricted its retailers’ freedom to set their own online prices and to offer discounts for the products they onsold.

More specifically, the CMA’s investigation focused on a number of terms and provisions contained in Dar’s selective distribution agreements with its resellers, as well as Dar’s branding guidelines, which contained strict instructions relating to the use of brand names and logos, product photography, typography, and brand colours on the resellers’ websites. Although the CMA noted that these instructions “were not explicitly or directly about the price at which the products were being sold but about product presentation” and that they did not “explicitly prevent discounting,” the UK competition watchdog nonetheless found that the manner in which these instructions were communicated and enforced by Dar created a perception amongst the brand’s authorised resellers that discounts were not permitted because they were not compatible with the goals of the selective distribution system.  

The CMA relied on two key types of contemporaneous evidence to establish that, in the absence of written price-fixing obligations, Dar’s practices in effect prevented its resellers from offering sales discounts to customers:

The CMA clarified that selective distribution is a legitimate way for a business to make products available only to select retailers, who meet certain criteria, and is a useful tool for brand protection. However, the authority highlighted that brands who adopt a selective distribution model must take particular care to ensure that the implementation/enforcement of the selective distribution system does not lead to any infringement of competition law. It is in this context that the CMA held that Dar’s implementation and enforcement of its selective distribution system ran afoul of the UK prohibition against anticompetitive agreements.

The CMA ultimately concluded that Dar effectively operated and enforced a pricing policy that would ensure authorised resellers would not advertise or sell Dar products online below a certain minimum price specified by Dar. In the UK and EU, such practices amount to illegal resale price maintenance and constitute a so-called “hardcore” restriction of competition that cannot benefit from the safe harbour applicable to vertical agreements. 

RPM practices are amongst the most hotly enforced cases by the CMA. For example:

Finally, it is worth noting that Dar’s fine was subject to a 20% discount because it admitted it had broken the law and settled the case with the CMA. This also means that the CMA decision will not be appealed further. 

There are a number of very important points that brands and manufacturers need to be aware of when structuring and enforcing their distribution strategies:

Our UK, EU, and global teams are experienced in advising brands in relation to distribution strategies and structures, as well as in providing practical tailored guidance for limiting competition risk in their day-to-day activities, from customer-competitor relationships, to performance pricing policies, enforcement against unauthorized third parties, and the legitimate use of market monitoring technology. Please get in touch if you’d like to discuss any of these issues.

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.

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