December 2012

The price of beauty is high - resale price maintenance

ACCC successful in action against an Australian beauty products wholesaler, for engaging in resale price maintenance. 

On 17 October 2012 the Federal Court found that a Melbourne beauty products wholesaler, Eternal Beauty Products Pty Ltd (Eternal Beauty) had engaged in various acts of resale price maintenance – handing down penalties totalling $100,000.

In this Bartier Bulletin, we examine the illegal practice of retail price maintenance, and the responses of Courts and the consumer regulator to local businesses that engage in this practice.

What is resale price maintenance?

Resale price maintenance is prohibited under section 48 of the Competition and Consumer Act 2010 (Cth).

Resale price maintenance can occur in several ways, but the gist of this offence is the supply of goods to a reseller on the condition that the reseller keeps its prices up.  Included within the ambit of the prohibition are the following, ie, where the supplier:

  • induces or attempts to induce the reseller not to sell or resupply goods or services below a specified price;

  • makes it known to the reseller that the supplier will only supply goods or services if the reseller agrees not to resupply them below a specified price;

  • enters into a supply agreement that contains a provision that prohibits the resupply of those goods or services below specified price; or

  • having supplied goods or services to a reseller, then withholds supply because the reseller has resupplied those goods or services below a specified price.

Resale price maintenance can also be achieved through various indirect means – for example, specifying the desired price through a formula, such as cost price plus 30%.

The rationale for the prohibition was best put by ACCC Chairman Rod Sims when he said “…any attempts by suppliers to prevent discounting of their products…affects the fundamental right of traders to compete for business”.  It’s also bad for consumers, who end up paying inflated prices for the goods and services that are resold to them.

Penalties are severe!

The maximum penalty is the greater of:

  • $10 million;

  • three times the total value of the benefits obtained by reason of the act; and

  • 10% of the annual turnover of the body corporate during the 12 month period ending when the act occurred.

The conduct is a ‘per se’ contravention, meaning that its effect on the market is not relevant to the proof of contravention.

The facts about Eternal Beauty

Over a period of nine months between 2010 and 2011, Ms Rider, a director of Eternal Beauty, and her employees under her direction, contacted two of its online distributors by phone and email on multiple occasions demanding that they stop selling certain products below a minimum price.

One email read (without alterations):

“I have been asked to contact you by the CEO of the company, Penny Rider. She said she talked to the boss off your company last week and it was agreed that the price of the Eyesential should be put up to $99. It’s still at the same price as it was last week so please can it be changed?”

About one week later, the online retailer that received the above email increased its price as requested.

Eternal Beauty admitted that it had engaged in seven acts of resale price maintenance, including the act described above, by inducing and attempting to induce the online distributors not to sell below a minimum price.

Ms Rider admitted that she had been knowingly involved in, and party to, each of the acts. 
Eternal Beauty co-operated with the ACCC throughout the process and agreed to a statement of facts, submissions and proposed orders. 

Prior to the orders being affirmed by the Federal Court, Eternal Beauty voluntarily sent letters to all of its retailers and informed them that resale price maintenance is illegal and retailers were entitled to independently set the price at which they offer those products for sale.

Federal Court Orders

The Federal Court ordered that:

  • Eternal Beauty pay a pecuniary penalty of $80,000 and Ms Rider pay a pecuniary penalty of $10,000;

  • both Eternal Beauty and Ms Rider establish a compliance and education program and attend practical training; and

  • Eternal Beauty and Ms Rider pay the ACCC $10,000 as a contribution to its costs.

It was clear that the penalties ordered were significantly lower than would have been the case had Eternal Beauty and Ms Rider not been as co-operative with the ACCC.

Important lessons for business

This decision serves as an important reminder to suppliers that:

  • they must never dictate, in any shape or form, the minimum prices at which their reseller customers can on sell goods or services.  Distributors can specify a maximum price or even a recommended or suggested retail price (i.e. RRP or SRP), but not a minimum price. 

  • recommended prices must be a genuine recommendation only; ie there must be no sanction for failure to comply – and the flip side there must be no benefit or inducement (such as a discounted supply price) for complying.  There is a prescribed form of words that must be followed when making resale price recommendations.

  • the law doesn’t merely prohibit supply agreements that set fixed or minimum resale prices.  Remember that any attempt to persuade or induce, and any sanction or benefit imposed by the supplier on the reseller will trigger the prohibition.  It is best to accept and even document (in the reseller agreement) that the reseller is free to choose the prices at which it resupplies the goods or services.

  • the ACCC will not hesitate in handing down significant penalties, even where a party does everything it can to co-operate with the regulator.