Resale price maintenance is recognised as an offense under Indian competition law regime. However, with the passage of time and evolution of jurisprudence, it has been observed that the practice might not be as bad as it was initially made out to be. This article analyses Indian jurisprudence in the context of the same.
THE LEGAL CONCEPT
Resale price maintenance involves the selling of products at a predetermined price by retailers in collusion with manufacturers. Generally, if any retailer refuses to cooperate, the manufacturer cuts down all business relations with them. Also, merely recommending a certain price for products to be sold to retailers, with no coercion to enforce the said price, will not amount to resale price maintenance. In India, Section 3(4) of the Competition Act, 2002 provides for RPM, and it states that fixing a minimum price limit for the retailers is illegal, although only if such fixation has an appreciable adverse effect on competition (AAEC). The same needs to be proven by the informant. In other words, it is not considered ‘per se’ illegal, as it is in other jurisdictions, such as Australia, Germany, France, and the former United States, and the same is discussed in the following sections in greater detail. Also, as far as the Indian competition law regime is concerned, only a minimum fixed price is considered illegal, and a maximum limit can be imposed by manufacturers without attracting any penalty.
There are certain arguments in favour of RPM as well. The most basic argument is that it can create better profit margins for the retailers and, in turn, for the manufacturers as well. Another pertinent argument is that it prevents ‘free riding’. This involves a situation wherein one retailer provides multiple additional services such as advising and technical assistance concerning the products for the benefit of consumers. However, to cover the cost of providing such services, the retailer has to price the products accordingly. Other retailers who are not providing such additional services can price the products lower and attract a higher number of customers. Thus the retailers can ‘free ride’ the services provided by the first retailer and make greater profits. RPM makes it compulsory for the retailers to price the products equally; thus, either no retailer would provide additional services, or all of them would do so to attract more customers, thus indirectly improving the quality of products and supplementary services in general.
ANALYSIS OF JUDICIAL PRECEDENTS
In many jurisdictions, RPM was considered per se illegal, although the courts are changing their approaches across the states. For example, in the USA, the Sherman Act considered RPM per se illegal, and it was held so for a long period of time until the landmark judgment in Leegin Creative Leather Products Inc. v. PSKS Inc., wherein the US Supreme Court opined that not always can RPM be considered illegal, and the ‘rule of reason’ is more pertinent while deciding such cases. The court also acknowledged the pro-competitive effects of RPM in the same judgment. The court pointed out that RPM massively reduces intra-brand competition (which takes place between retailers who sell products of the same brand), and indirectly promotes inter-brand competition since with prices fixed for the retailers, the only way to increase profits would be to increase investment in customer services and other additional services which can improve customer experience and consequently, market share of the manufacturers and in turn, of the retailers.
Competition Commission of India, however, has been fairly consistent with its interpretation of RPM as an offense under existing jurisprudence of competition law. Section 3(4) of the Competition Act, 2002 provides for various kinds of vertical arrangements that are prohibited under it. These arrangements are not per se illegal rather, and the CCI checks whether any such arrangement can have an appreciable adverse effect on competition. In the landmark case of In Re: Ghanshyam Dass Vij and Bajaj Corp. Ltd., the CCI adjudicated that the agreement between Bajaj and retailers selling its almond oil product does not amount to a violation of Section 3(4) of the Competition Act, as the agreement cannot adversely affect market competition because of the dynamic nature of the market where numerous brands exist and compete fairly well. As mentioned in the previous section of this article, a mere recommendation of prices to be followed by retailers does not amount to a violation of section 3(4) of the Competition Act, 2002. In the case of ESYS Information Technologies v Intel Corporation, the informant (ESYS) alleged that Intel was abusing its dominant position and fixing prices for retailers. After investigation, it was found by the CCI that Intel only recommended prices and monitored them at the ground level, and it left the discretion to decide final sale prices to the retailers. Thus, CCI adjudicated that Intel is not violating Section 3(4) of the Act.
CCI’S FLEXIBLE APPROACH CONCERNING CHANGING MARKET
The judgment in Jasper Infotech v. KAFF Appliances 2019 made it clear that the CCI can adapt to the changes that are taking place across the marketplace. The informant, Jasper Infotech, listed KAFF products on its online market platform, ‘Snapdeal’. However, KAFF sent a notice to the informant stating that the products were listed on Snapdeal without its permission and at prices lower than what KAFF has fixed for its retailers. Further, the notice said that KAFF wouldn’t respect the warranty and other related offers that are available to customers who buy their products, as long as they are buying them from Snapdeal. In other words, KAFF has provided for its products to be sold by all distributors above a ‘Minimum Operating Price’ or MOP, which, the informant (Jasper Infotech) argued was a violation of Section 3(4) of the Competition Act. CCI directed the Director General (DG) to investigate the matter. The DG observed that- (i) The OP (KAFF) lacked market power for its actions to adversely affect competition in the relevant market, and (ii) The informant is not a buyer of KAFF’s products, rather an online platform through which retailers (who are the buyers of KAFF’s products) contract with the end-use customers. Thus, an agreement between OP and Informant cannot be perused under the provisions of Section 3(4). CCI showed a flexible and rational approach and rejected DG’s second observation. It stated that even though Snapdeal is just an online platform and not a direct purchaser of OP’s products, that doesn’t deny the fact that it’s still a part of distribution change and can be subject to vertical restraints, as it is in the present case. Ultimately CCI ruled in favour of OP; however, the presence of multiple powerful players in the relevant market made it clear that there is sufficient intra-brand competition to prevent any appreciable adverse effect on competition.
While Resale Price Maintenance is considered an anti-competitive activity in most jurisdictions, it’s fair to say that the rule of reason is much more accurately applicable on it as compared to the per se rule, given that RPM also has potential pro-competitive effects as well. While the pro-competitive effects are yet to be acknowledged by CCI, it is clear that jurisprudence in this regard has evolved very well in India. The emergence of online marketplaces has been tackled very well, and CCI made clear that semantics shouldn’t interfere with the right of a party to appear as an informant in an antitrust suit.
Author(s) Name: Swastik Shukla (National Law Institute University, Bhopal)