Guidance on use of RRPs comes from a price fixing appeal

On 14 December 2004 the Competition Appeal Tribunal (CAT) dismissed appeals by Argos and Littlewoods against an OFT decision that they had breached UK competition law by fixing prices of toys. The CAT unanimously upheld the OFT's decision that the catalogue companies had infringed the Competition Act 1998, Chapter I prohibition.

The case centred around Hasbro (UK) Limited's recommended retail prices (RRPs) and their implementation by Argos and Littlewoods. The OFT found that each of Argos and Littlewoods had discussed with Hasbro whether they would adhere to Hasbro's RRPs. It also found that these discussions went further, for example, by Hasbro discussing with Littlewoods whether Argos would also stick to RRPs, with the result that this influenced Littlewoods' pricing strategies.

There was no formal agreement between Argos and Littlewoods to share price information or fix prices, but the OFT and the CAT found that the RRP discussions amounted in practice to either a verbal agreement or, at the very least, a practice whereby the parties did not compete and any uncertainty as to their future conduct was removed. This was found to infringe UK competition law.

Argos and Littlewoods appealed on the basis that the OFT lacked evidence of any price-fixing agreement. It was submitted that the similarity in pricing was due to Littlewoods and others on the market correctly anticipating Argos' likely price movements.

The CAT found that there was clear evidence of information having been shared with Hasbro in the knowledge that it would be communicated to Littlewoods. The CAT emphasised that the 2contacts and discussions [between Hasbro and Argos or Hasbro and Littlewoods] went well beyond possibly legitimate discussions and led to agreements or concerted practices on prices."

Arguments were also made that the discussions were merely attempts to persuade retailers to observe RRPs and as such were lawful "where the supplier does not incentivise the retailer and the retailer does not fetter his discretion". Although the CAT pointed out that it was not concerned in this case to "determine at what point the unilateral recommendation by a supplier of RRPs may or may not lead to" a breach of competition law, the case does give some helpful reminders on the use of RRPs.

The CAT stated that "if a supplier seeks to 'persuade' a retailer to observe RRPs, there may not be much doubt […] that the supplier's action, and its effect, if achieved, is to prevent, restrict or distort competition. The issue is then whether what occurred can be properly characterised as purely unilateral action on the part of the supplier, or whether facts disclose a sufficient degree of consensus to give rise to a relevant agreement or concerted practice." It continued that it is a question of fact in each case whether conduct was unilateral or whether there was sufficient consensus or co-ordination to give rise to an agreement or concerted practice. If such an agreement or concerted practice exists, UK competition law is infringed. The CAT also found that it does not matter if there is no guarantee that the other party will in fact adhere to the strategy (here observing RRPs).

The CAT added that suppliers should not reveal to a retailer information about other retailers' pricing intentions, stating "if a retailer complains to a supplier about the prices of another retailer, and the supplier approaches the retailer with a view to persuading that retailer to raise his prices, and the retailer in fact does so, then [a breach of UK competition law] may have come into being, provided that there is a relationship of cause and effect between the original retailer's complaint and the other retailer's decision to raise prices."

The message is clear, whether you are a supplier or retailer – do not participate in any discussions with a third party about prices charged by others. If you are a retailer, information on your pricing is highly confidential and should not be shared with third parties. If you supply to retailers, you should note that purely recommending an RRP is lawful, but that you are entering a danger zone as soon as discussions go beyond simple recommendations.

The CAT's judgment dealt only with liability. A verdict on appeals regarding the amount of penalties imposed by the OFT is still to come.

For further details the full text of the CAT's judgment, please click here.

For further information, please contact Susan Hankey on T: + 44 20 7367 2960 or by e-mail at [email protected] , David Marks on T: +44(0) 207 367 2136 or by email at [email protected] or Salim Gunny on T: +44(0) 207 367 3458 or by email at [email protected]