In a judgment issued on 29 June 2023 based on a request for preliminary ruling (CJEU, June 29, 2023, aff. C-211/22) (the “Judgment”), the Court of Justice of the European Union (the “CJEU”) held that a vertical agreement fixing minimum prices cannot be presumed to qualify as a restriction of competition “by object”, and therefore unlawful in and by itself, without ascertaining that it presents a sufficient degree of harm to competition.

This is a welcome clarification as many competition authorities in the EU tend to consider that because vertical price fixing is  a hardcore restriction of competition under the European Vertical Block Exemption Regulation (“VBER”), it should automatically be considered to be harmful to competition and prohibited per se.

Facts of the case

The preliminary ruling was requested by the Court of Appeal of Lisbon in the context of an appeal lodged against an infringement decision issued by the Portuguese Competition Authority against Super Bock Bebidas SA ("Super Bock"), a Portuguese company selling beverages, for vertical price fixing. 

In its decision of July 2019, the Portuguese Competition Authority fined Super Bock more than 24 million euros for having implemented a minimum resale price policy with its distributors in the out-of-home channel.

According to the Portuguese Competition Authority’s decision, Super Bock’s sales department circulated, on a monthly basis, a list of minimum resale prices at which beverages could be sold, subject to retaliation in case of non-compliance, taking the form of removal of financial incentives or refusal to supply. 

The Court of Appeal of Lisbon referred a number of questions to the CJEU concerning in particular the standard of proof and the concept of “restriction of competition by object”.     

No presumption of restriction by object for vertical price-fixing agreements

EU competition law distinguishes between restriction of competition “by effect” and “by object”. Restrictions of competition “by object” are restrictions which by their very nature are considered unlawful, without it being necessary to examine their effects. This is typically the case for horizontal market-sharing or price-fixing cartels. 

In its Judgment, the CJEU clarifies for the first time how the notion of restriction by object should be applied to price-fixing agreements.  

The CJEU notes first that the fact that an agreement is vertical does not exclude the possibility that it comprises a restriction by object. That would be the case if it could be determined that the agreement in itself presents a sufficient degree of harm to competition. 

The CJEU indicates in this respect that the fact that a vertical agreement fixing minimum prices is considered as a hardcore restriction under the VBER does not mean that it is automatically a restriction of competition by object. It stresses that the concepts of “hardcore restriction” and “restriction by object” are not conceptually interchangeable and do not necessary overlap. 

If follows, according to the CJEU, that the referring court cannot dispense with carrying out an assessment of whether the agreement presents a sufficient degree of harm to competition. According to well established case law, such assessment must be made taking into account (i) the content of the agreement (ii) its objective and (iii) its economic and legal context. 

Minimum resale price policy still not safe   

The Judgment raises the bar for competition authorities of EU Member States to take action against companies for resale price maintenance. 

Vertical price-fixing agreements were generally considered to be a “by object” restriction which did not call for a specific analysis of their context. Although vertical price-fixing agreements can in theory benefit from an individual exemption, it is up to the defendant to demonstrate that the conditions for an individual exemption are met, which is a notoriously difficult and highly unreliable exercise.

Competition authorities of EU Member States will now have to demonstrate that the resale price maintenance practices presented a sufficient degree of harm in light of their objective and context. 

This may give rise to interesting debates as vertical price-fixing agreements have ambivalent effects and can lead to economic efficiencies or even pro-competitive effects. 

In a number of jurisdictions outside the EU, resale price maintenance practices are assessed on the basis of their effects or under a “rule of reason”, such as in the United States (since the landmark Leegin Creative Leather Products decision of 2007). 

The CJEU already had the occasion to indicate in previous rulings that where the parties to the agreement rely on its pro-competitive effects, those effects must, as elements of the context of that agreement, be taken into account when assessing whether the agreement qualifies as a restriction by object.  

Many economists consider that vertical price fixing agreements should not be considered problematic as such. They point out that their anti-competitive effects are limited when inter-brand competition is sufficiently strong. In such a case, the manufacturer must always offer a competitive price, otherwise consumers will turn to competing products from other brands.

They also observe that resale price maintenance can create efficiencies in that they prevent the risk of free-riding i.e. the risk that certain distributors which do not provide any pre-sale services rendered by others may “steal” sales by offering a lower price. This type of behaviour is particularly harmful to competition since it discourages the provision of services to consumers.

In this regard, resale price maintenance could be seen as having pro-competitive effects as by fixing the resale price, the supplier protects its distributors from price competition among themselves, and thus creates an incentive for competition in services and sales efforts. 

However, one should probably not place too much hope on the outcome of these debates. There have been discussions and lobbying for years now to try to soften the position of the European Commission regarding resale price maintenance, in particular in the context of the successive revisions of the VBER. 

So far, the European Commission has always maintained a very firm position on the harmful nature of resale price maintenance. National competition authorities in the EU have generally followed suit, including when applying their domestic competition law.  It remains to be seen whether the Judgment will pave the way for a less dogmatic approach, in particular before the courts, and whether it could lead in some cases to the conclusion that the practice did not present a sufficient degree of harm to competition to be considered unlawful. 

This was not the case in the present proceedings. Indeed, following the Judgment, the Court of Appeal of Lisbon rendered a decision on 12 September 2023 in which it upheld the infringement decision as well as the amount of the fine against Super Bock noting that the interference of a supplier in the determination of prices by distributors restricts their ability to compete to the detriment of consumers who are limited in their options and can no longer benefit from products at a reduced price. It concluded that the practice in question was therefore likely to directly and immediately harm consumer welfare.  

The Judgment should therefore in no way be interpreted as a signal that it is now possible to impose a minimum resale price policy under EU competition law. Companies issuing recommended resale prices should, in particular, ensure that these prices are not regarded as compulsory resale prices.     

The boundary between price invitations or recommendations and vertical price-fixing 

In its Judgment, the CJEU recalls that an invitation to apply resale prices qualifies as an agreement under EU competition law when there is an explicit or tacit acquiescence on the part of the distributors to apply such resale prices. Such acquiescence could result from the fact that the recommended prices are observed in practice by distributors. If the supplier is seen as imposing the price, and in particular, if it monitors the prices and takes or threatens to take retaliatory measures in case of failure to apply the price, then such actions could be considered as a vertical price-fixing agreement.  

The Judgment also clarifies that the existence of such an agreement may be established not only by means of direct evidence but also on the basis of objective and consistent indicia from which the existence of the agreement may be inferred.

The CJEU states in this respect that " the fact that a supplier regularly transmits to distributors lists indicating the minimum prices that it has determined and the distribution margins, as well as the fact that it asks them to comply with those prices, which it monitors, on pain of retaliatory measures and at the risk, in the event of non-compliance with those measures, of the application of negative distribution margins, are elements from which it may be concluded that that supplier seeks to impose minimum resale prices on its distributors " (§. 52).

Issuing a list of minimum resale prices is a rather clear risk for companies and certainly remains rare. The most difficult compliance area concerns recommended resale prices which are not unlawful by themselves, but which require very clear internal guidance on the fact that they must remain a simple recommendation and should in no way directly or indirectly be enforced, nor, to be on the safe side, monitored.   

If you need more information or further guidance in this area, please contact Thomas Oster and Claire Burlin.

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