Recognising the difficulties faced by bricks-and-mortar retailers, a milestone change in EU competition law will make it possible from June 1 for suppliers to charge higher prices to online resellers than to showrooms. The CMA in the UK is expected to follow suit. Stephen Sidkin, commercial law partner at Fox Williams LLP, explains.
The past 10 years have seen the development of distinct sales channels. The online channel has rivalled the in-store channel. In addition, suppliers are selling direct to end consumers and, in so doing, compete with the distributors and retailers they also supply with the exact same goods.
In such situations, manufacturers and suppliers may seek to charge different wholesale prices, depending on whether the products are to be sold in-store or online.
Equally, different wholesale prices may be charged depending on whether a distributor will sell to a retailer or directly to consumers.
In either situation, what is taking place is so-called dual-pricing.
The current position
Currently, under both EU and UK competition laws, dual-pricing that results in online sales being disadvantaged amounts to a restriction on passive sales (being, in effect, sales made in respect of unsolicited requests by buyers and as a result of general advertising) and amounts to a so-called hardcore restriction on competition.
The upshot is that an agreement – whether written or unwritten and either formal or informal – containing a hardcore restriction is unenforceable. The parties to it may be fined either by the Competition and Markets Authority (CMA) or the EU Commission. It is also open to third parties to claim damages for losses resulting from the enforcement of a hardcore restriction.
The position from June 1
The law is now changing. As from June 1, 2022, dual-pricing may be exempt from infringing competition law.
Within the EU, a product intended to be sold off-line will be capable of being sold at a lower price to a distributor or retailer than a product intended to be sold online, if the price difference reflects the difference in investments made, or costs incurred, in both the in-store and online channels. As a result, a supplier wanting to reward or incentivise a distributor for its off-line sales may sell the product at a lower price than the same product is intended to be sold online.
Earlier this month, the CMA closed its consultation period in respect of the UK law that will come into force on June 1, 2022.
The CMA is expected to adopt the same position concerning dual-pricing as the EU Commission. In this respect, the CMA has recognised the difficulties faced by high-street retailers in competing with online sellers.
Can the online channel also be advantaged?
The view of the EU Commission, and its current draft guidelines to the new law, suggests that a pricing advantage for online sales at the expense of those sold off-line will also be exempt from infringing competition law.
However, what we do not know at the present time is whether the CMA will follow suit so far as UK competition law is concerned.
1. As a result of the change in EU and UK competition laws concerning dual-pricing, manufacturers and suppliers will enjoy greater contractual freedom. How they choose to use this freedom is likely to depend on: l their preferential mix for the online and off-line channels for their particular products, and their bargaining strength as against distributors and retailers; l their bargaining strength as against distributors and retailers.
2. Going forward, distributors and retailers who feel they have been disadvantaged by the pricing applied by manufacturers and suppliers may seek to complain to the CMA or EU Commission, arguing that the price differential applied fails to properly reflect the difference in investments made or costs incurred in both the in-store and online channels. It follows that manufacturers and suppliers need to be capable of justifying their pricing decisions and giving thought as to whether they will have exposure to distributors and agents in part.
3. Dual-pricing is only one aspect of how competition law both in the EU and the UK is changing with effect from June 1, 2022.
4. Although as at June 1, competition law in both the EU and UK will be very similar, there will also be some material differences. Going forward, we may see also divergences in interpretation of where the laws are the same with the attendant difficulties this causes for businesses selling in both the UK and the EU.
5. A further difficulty for such businesses may arise in the context of Northern Ireland, which is part of the union of the United Kingdom, but which in broad terms follows EU competition law.
6. There will be a 12-month transition period from June 1. This means agreements that meet the current law, but not the new, will be regarded as exempt until May 31, 2023.
7. But businesses should be planning on how they will adapt their pricing given – or taking advantage of – the new laws.
- Listen to the episode of The kbbreview Podcast where Stephen Sidkin talks through these points.