PROJECT WORK

SUBMITTED TO

THE TAMILNADU NATIONAL LAW UNIVERSITY, TIRUCHIRAPPALLI.

Asst. Prof. Mr. Mohammad Azaad

In Fulfilment of the Requirements for Internal Component in

Competition Law

TOPIC: CARTELISATION : RESALE PRICE MAINTENANCE –

DETERMINING WHAT CONSTITUTES AN APPRECIABLE
ADVERSE EFFECT ON COMPETITION

By
VISHAL.R
BC0150034
Contents
Acknowledgement ................................................................................................................................. 3
Abstract.................................................................................................................................................. 4
Research Aims : .................................................................................................................................. 5
Hypothesis .......................................................................................................................................... 5
Literature review ................................................................................................................................. 6
Research Methodology ....................................................................................................................... 6
Research Questions ............................................................................................................................. 7
1. Introduction ................................................................................................................................... 8
1.1 Resale price maintenance under the MRTP Act, 1969 ......................................................... 10
1.2 Legal interpretation of the term resale price maintenance under S.3(4) of the Competition
Act, 2002 ........................................................................................................................................... 11
2. Regulation of RPM across jurisdictions – USA, UK ................................................................ 15
2.1 USA....................................................................................................................................... 15
2.2 United Kingdom & European Union .................................................................................... 16
3. Conclusion ............................................................................................................................... 19
4. Bibilography ................................................................................................................................ 20
 Acknowledgement

First, I am also grateful to God for giving me the courage and strength to withstand all
hindrances during this project and make it successfully finally since its start.

Secondly, I thank my Competition Law professor, Mr. Mohammad Azaad for allotting me
such a challenging and dynamic topic. Even repaying her through mere words in beyond the
domain of my lexicon that was the backbone during all hurdles that I confronted during the
making of this project, hence I am forever duly indebted to him as a student.

Also, I am grateful to the staff and administration of Tamil Nadu National Law School who
contributed useful resources tremendously in the making of this project by providing library
infrastructure and data connections which were instrumental in helping me make this project.

This entire project wouldn’t have been possible without the involvement of precious inputs of
my parents and friends who sacrificed their valuable time to guide and advice me at all times
of need to make this project a successful one.
Abstract

A cartel is defined under S.2(c) the Indian Competition Act, 2002 to include “an association
of producers, sellers, distributors, traders or service providers who, by agreement amongst
themselves, limit, control or attempt to control the production, distribution, sale or price of,
or, trade in goods or provision of services”. Cartelisation is of 2 types under the Competition
Act – horizontal and vertical cartels. While horizontal cartels are subject to per se rule,
vertical cartels are subject to the rule of reason. In this paper, cartelisation will be analysed
from the lens of two critical issues: price parallelism and resale price maintenance, both
falling under the different heads of cartelisation.

Price parallelism can be understood as a mirroring effect where traders independently pursue
their unilateral interests. Price parallelism occurs if firms change their prices simultaneously
in the same direction proportionally. Price parallelism occurs in any free market, the
challenge arises when the authority needs to distinguish between a practice carried out in
normal course of business and the change in price due to some sort of collusion. The
jurisprudence on price parallelism in India has been erratic, where different High Courts have
issued varied orders on similar factual scenarios. The definition of what constitutes an
‘external’ factor in cases of collusion is highly disputed. In this project, the researcher seeks
to carry out a comprehensive analysis of the concept of price parallelism under the MRTP
regime and Competition Act, also drawing along contrast with the jurisprudence of India and
the rest of the world, while acknowledging the need for an authoritative proposition on the
same.

While price parallelism highlights the gap in the jurisprudence regarding when external
collusion occurs, resale price maintenance is another concept which has had varied
interpretations by the Indian judiciary and Competition Commission of India, owing to a
similar lack of an authoritative proposition. While price parallelism falls under horizontal
cartelisation, resale price maintenance occurs in the lower levels of the distribution chain and
falls under vertical cartelisation. Resale price maintenance occurs when an enterprise decides
the resale price at which a product or service must be sold by a distributor. Resale price
maintenance has different positions under different anti-trust regimes in the world with the
United Stated subjecting such agreements to rule of reason while UK treating RPM
agreements under the per se rule. The Competition Commission of India, till its judgment in
Re: M/s Fx Enterprise Solutions India Pvt. Ltd v. M/s Hyundai Motor India Limited1 had
followed a restrictive interpretation in determining when an RPM agreement had an
appreciable adverse effect on competition in India. In the Hyundai case, the CCI had
broadened the scope of RPM to include any distribution margin, rebates and discounts levels.
However, whether the previous cases which highlighted a narrow proposition were overruled
or not remains contentious. This remains significant considering the impact the order can
have on retailer distributorship agreements.

This research seeks to intersect the two mentioned contentious issues in cartelisation (both,
horizontal & vertical) and highlight the gaps that currently exist in their jurisprudence.

Research Aims :

1) To study the emergence of price parallelism under the MRTP Act, 1969 and its
evolution under the Competition Act, 2002.
2) To determine the ‘legal gap’ in the interpretation of the term ‘external collusion’ and
highlight the divergent views on the same issue.
3) To study resale price maintenance in different jurisdiction and contrast with the
India’s treatment of the same by subjecting it to the rule of reason under vertical
agreements.
4) To emphasize on the intersectionality between varied judicial and CCI’s treatment of
both the issues and shed light on the lacunae existing in both.

Hypothesis

 The interpretation of the phrase, ‘external collusion’ under horizontal agreements and
scope of resale price maintenance under vertical agreements is inconsistent, erratic
and there is a need for a final authoritative proposition settling the issues.

1
CCI order dated 14.6.2017 in Case No. 36 of 2014
Literature review

1) Aditya Bhattacharjea, India's New Competition Law: A Comparative Assessment,

Journal of Competition Law and Economics, Vol. 4, Issue 3, Oct 8, 2008 – The author
critically examines India's new Competition Act. I begin by examining the working of
its predecessor, the 1969 Monopolies and Restrictive Trade Practices Act. The author
argues that despite being suited for the neoliberal Indian economic setup, there might
be several institutional constraints which might hamper smooth functioning of the
CCI under the Act. This article helped the researchers with the basics of the transition
from MRTP to Competition Act and its effect on Resale price maintenance and price
parallelism.
2) G.R. Bhatia “Combating Cartel in Markets – Issues & Challenges, The ICFAI
University Press, Hyderabad (2007) – The author presents a comprehensive account
of evolution of cartels and their legal treatment under the MRTP Act, 1969 and the
Competition Act, 2002. He highlights the types of horizontal and vertical agreements
and puts forth pertinent issues that have policy implications. The research study
stresses on a close coordination between CCI and various government departments as
well as sectoral regulators to handle domestic and international cartels. This article
helped the researcher while studying the concept of price parallelism.
3) Meghna Chandra “An Analysis of Orders of CCI With Respect to Anti- competitive
Agreements” Internship Project Report, Competition Commission of India, January
2013 - The researcher attempts to recognize the concept of anti-competitive practice ,
to analyse Commission‘s order that relate to anti-competitive agreements and to learn
the justification of competition laws along with interest of consumer. This article
helped the researcher in getting an overview of resale price maintenance agreements
in India and legal ambiguity surrounding it.

Research Methodology

The research is purely doctrinal with emphasis on primary and secondary sources like
statutes, books and articles which highlight the normative position of law.
Research Questions

1) Whether price parallelism is illegal per se or price parallelism as a result of external

collusion be established by proving Appreciable Adverse Effect on Competition?
2) Whether RPM is subject to the rule of reason under other jurisdictions like UK & US
and what are the possible reasons for RPM being subject to per se rule in India?
3) Whether the scope of resale price maintenance under vertical cartels extends to
specific kind of RPM agreements like fixing rebates, discounts or is a blanket
provision prohibiting any kind of RPM agreements?
 1. Introduction

Consider the following scenario: A, a tyre manufacturer distributes his manufactured tyres to
a dealer B for ultimate sale to consumers at the cost of Rs. 5,000 per tyre. In the contract
between A and B, A sets a minimum floor price of Rs. 4,800 below which the retailer B
cannot sell the tyres and a maximum ceiling price of Rs. 5,100 above which the retailer again
cannot sell the tyres (in its usual form, resale price maintenance is only used for fixing
minimum prices and not maximum). If the retailer fails to comply with any of these
conditions, the manufacturer stops dealing with him. How valid are these conditions under a
competition/antitrust legislation of a country? There are compelling arguments for and
against such fixing of minimum/maximum prices at which the distributors can sell a product.
Proponents of its legality argue that these conditions keep resellers profitable, thus keeping
the manufacturers themselves profitable. Another argument for the legality of such conditions
is that the contract the parties are exercising their freedom to contract and the govt. should
not interfere unless it affects public policy2. The opponents of such conditions argue that they
reduce the flexibilities available to the retailer in selling products based on the market
demand and therefore, anti-competitive in nature3. Such conditions go against the principle of
free market that pricing of goods be done based on the demand and supply of goods/services.
The conditions mentioned above are referred to in competition/anti-trust jurisprudence as
“resale price maintenance”.

Section 4(e) of the Indian Competition Act, 2002 defines the term “resale price maintenance
as, including, “any agreement to sell goods on condition that the prices to be charged on the
resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated
that prices lower than those prices may be charged”. Though, resale price maintenance could
include a maximum recommended price, the Indian Competition Act, 2002 does not penalise
maximum fixed prices. The Indian Act only prohibits fixing of lower levels of price unless it
is clearly stated that prices lower than those prices may be charged 4. Resale price

2
See Andreas P. Reindl, Resale Price Maintenance and Article 101: Developing a More Sensible Analytical
Approach, 33 Fordham Int'l L.J. 1300 (2011).
3
See Neil Kokemuller, Advantages & Disadvantages of Resale Price Maintenance, Available at:
http://smallbusiness.chron.com/advantages-disadvantages-resale-price-maintenance-14379.html
4
See Bhawna Gulati, Resale Price Maintenance Agreements Indian Perspective and International Practices
Apropos, Available at:
maintenance refers to those conditions which a manufacturer imposes on a retailer5 (among
different levels in a distribution chain) with regard to selling of his/her goods. A price is said
to be a minimum resale price when the agreement disallows are sale at a price below the price
stipulated in the agreement between manufacturer and downstream distributor. Resale price
maintenance falls under the ambit of vertical cartelisation under the Indian Competition law6.
The definition of resale price maintenance is an inclusive one and can extend to include any
similar or connected provisions in contracts. In its traditional conception, resale price
maintenance is the act of directly controlling the retail transaction price for the manufacturer's
products. However, it can also be achieved through some programs under which a
manufacturer unilaterally announces its recommended retail prices and stops dealing with
retailers that do not follow its suggestions7.

Resale price maintenance has been considered to be much more serious than other vertical
agreements like exclusive supply agreements or tie-in arrangements due to the fact that it
strikes at the core of competition – price. It restrains the prices of goods/services, thereby
limiting the freedom of retailers to sell at prices they prefer or based on market demand 8.
Irrespective of the quality, characterstics of goods and the locations in which the products are
sold, the retailer will be forced to adopt a single price for the product/service. They affect the
intra-band price competition, i.e., debilitate price competition among similarly situated
retailers selling a product and also, promote collusion and cartelisation which could be anti-
competitive. It is to be noted here that exclusive retail outlets owned and controlled by the
manufacturers are excluded from the ambit of resale price maintenance and only, independent
retailers are stakeholders under this process. In the forthcoming sections, the researcher will
emphasize on the legal interpretation of the term “resale price maintenance” under the MRTP
Act, 1968 followed by its interpretation under the Competition Act, 2002.

http://www.academia.edu/7627001/Resale_Price_Maintenance_Agreements_Indian_Perspective_and_Internatio
nal_Practices_Apropos_Bhawna_Gulati_Introduction_Resale_Price
5
See Abdullah Hussain, The Reasonableness of Resale Price Maintenance, May 2008, Available at:
https://www.competitionpolicyinternational.com/assets/0d358061e11f2708ad9d62634c6c40ad/Hussain,%20GC
P%20May-08(1).pdf
6
Section 3(4), Competition Act, 2002
7
See Prerna Parashar, India: The fixation with fixing resale prices, October 2017, Available at:
http://www.mondaq.com/india/x/633522/Antitrust+Competition/The+Fixation+With+Fixing+Resale+Prices
8
See Avanthika Kakkar and Kirthi Srinivas, Resale Price Maintenance under the Competition Act - Old Wine in
a New bottle, 2016, Available at:
https://www.khaitanco.com/PublicationsDocs/Com%20Law%20Reports_Nov%202016_Article%20of%20AVK
%20&%20KSG.pdf
 1.1 Resale price maintenance under the MRTP Act, 1969

The Monopolies Inquiries Commission (MIC), 1952, which prepared reports relating to
concentration of economic wealth and power in the hands of a few people lead to the passing
of the Monopolies and Restrictive Trade Practises Act, 1969. The MIC in its report noted that
resale price maintenance was one of the main aspects of unfair trade practises which led to
inflated prices being paid by consumers. The MIC report observed that minimum resale price
maintenance is restrictive of competition as it kills competition between the actual
distributors of the product, while also nullifying the arguments of the producers that price
stability attracts consumers and lower price means lower reputation for the products 9. While
framing the legal text prohibiting resale price maintenance, the Commission looked into
foreign jurisdictions regarding their treatment of the same. For e.g., US, UK, Australia had at
that point of time, subjected RPM to per se rule and held it to be prima facie illegal10. The
MIC recommended a similar approach under the MRTP Act, 1969.

Section 33 of the MRTP Act, 1969 provided for a list of agreements which amounted to
Restrictive Trade Practises (RTP). Section 33(f) mentions particularly of RPM agreements
and such agreements were to registered. However, the 1984 Amendment to the Act deemed
all RTP agreements to be illegal, irrespective of their effect in distorting, preventing or
reducing competition. Sections 39 and 40 of the MRTP Act, 1969 dealt with the restriction on
resale price maintenance. Section 39 applied a blanket ban to all contracts between
manufacturers and retailers which fix a minimum price for the sale/re-sale of products to
consumers. Further, no supplier were allowed, “either directly or indirectly to notify dealers
or otherwise publish in relation to any goods, a price stated or calculated to be understood
as the minimum price which may be charged on the re-sale of goods in India”11. The Act
only provided for 2 exceptions to the above illegal practise : “(a) where the goods supplied
have been used as loss leaders; (b) where the supplier in addition to the ground which alone
would entitle him to withhold such supplies”12. The strict application of per se rule was
followed throught the jurisprudence under the MRTP Act, 1969 and this was reflected in the
cases decided under the MRTP Commission. The first case decided by the Commission with

9
See Report of the Monopolies Inquiry Commission, 1965, Vol.1, Available at:
http://reports.mca.gov.in/Reports/44-
Report%20of%20the%20monopolies%20inquiry%20commission%201965,%20Vo1.-I-II.pdf
10
Many of the countries referred to by the MIC have acknowledged the pro-competitive effects of RPM and
have ever since, adopted a balanced rule of reason in dealing with it.
11
Section 40, MRTP Act, 1969
12
Section 40(2), MRTP Act, 1969
regard to RPM was M/s Mohan Meakins Limited and other13. The respondents in this case
were engaged in manufacturing of soft drinks who had entered into a franchisee agreement
with the distributors for bottling and selling of the same. In the terms of the contract, one of
the clauses stipulated that the retailers must only sell the products at prices arrived in
consultation with the manufacturers. Though this was not a binding clause and merely
consultative, it was still challenged by the petitioners claiming that condition hindered
competition among interested distributors at the supply level. The Commission noted that
despite the clause being consultative, the nature of parties engaging in the agreement did
provide a significant measure of superiority to the first respondent vis-a-vis the other
respondents14. As a consequence, the Commission passed a ‘cease and desist’ order under S.
37 and S.51 of the Act. This order reflects the application of the per se rule in dealing with
RPM cases. The Commission did not venture into the potential effects of setting a minimum
or a recommended resale price on competition and adopted the per se rule.

This stance enunciated in the MRTP Act, 1969 was further elaborated in the Rajinder Sachar
Committee report which subjected RPM cases to prima facie illegality. There was no
economic or commercial justification that could redeem such an agreement once its existence
was established. This was the trend till the new Competition Act, 2002.

1.2 Legal interpretation of the term resale price maintenance under S.3(4) of the
Competition Act, 2002

Resale price maintenance, being a part of vertical agreements is subject to the “rule of
reason” and not the “per se” rule under the Indian Competition Act, 2002. The shift in
jurisprudence was discussed extensively by the Raghavan Committee High Level Committee
report on competition law and policy which invoked its treatment in plenty of foreign
countries similar to the MIC15. The Committee agreed upon the proposition that vertical
agreements were treated leniently compared to horizontal agreements in other countries and
RPM, being a vertical agreement had to be subject to the “rule of reason” approach. The rule
of reason mandates that cases pertaining to resale price maintenance could only be struck
down as invalid if they have an “Appreciable Adverse Effect” (AAC) on competition in India

13
RTP Enquiry No. 65 of 1984 (decided on 11th April, 1986)
14
Supra note 3, pg.7
15
See Raghavan Committee, Report of The High Level Committee On Competition Policy Law (May 2002)
[hereinafter Raghavan Committee Report], Available at:
http://www.competitioncommissionindia.nic.in/Act/Report_of_High_Level_Committee_on_Competition_Polic
y_Law_SVS_Raghavan_Comm ittee29102007.pdf.
as per S.19 of the Competition Act. According to S.19, the following positive and negative
factors of resale price maintenance agreements will be considered:

“Negative factors - (a) creation of barriers to new entrants in the market; (b) driving existing
competitors out of the market; (c) foreclosure of competition by hindering entry into the
market;

Positive factors – (a) accrual of benefits to consumers; (b) improvements in production or

distribution of goods or provision of services; or (c) promotion of technical, scientific and
economic development by means of production or distribution of goods or provision of
services”16.

Thus, only if an RPM agreement contributes to any of the positive factors enlisted above or
do not cause any of the negative distortions can it be held valid under the rule of reason.

The CCI has been consistently applying the principle of “rule of reason” in cases pertaining
to RPM. A discussion on the following 2 cases highlight this assertion:

 M/s Esys Information Technologies Pvt. Ltd. v. Intel Corporation & Anr17- In this
case, the petitioner, a distributor in the marketing chain contended that the
technology company, which is involved in making core software products was a
abusing it dominant position in the market and using its dominance, it was stipulating
RPM clauses in its terms and conditions with the distributors. The company
mandated a minimum price threshold below which its products were not to be sold in
the market. However, there was no clause which stipulated that the manufacturer will
stop doing business with the distributors. Notwithstanding the claim of dominance,
the CCI concluded regarding the claim of RPM that mere monitoring of minimum
resale prices by Intel did not result in Appreciable Adverse Effect on Competition
(AAC) in the market. The Director General of Investigation could not find any facts
as to the RPM causing entry barriers to new entrants, or foreclose competition or
drive existing competitors out of market.
 Ghanshyam Dass Vij v. Bajaj Corp. Ltd. and Ors18- In this case, Bajaj Corp. Ltd. had
imposed minimum resale price in many of its fast-moving consumer goods (FMCG)
in its contracts with the retailors. Not only was there a vertical restraint on the dealers

16
Section 19, Competition Act, 2002
17
CCI order dated 16.01.2014 in Case No. 48 of 2014
18
CCI order dated 12.10.2015 in Case No. 68 of 2013.
 to not sell the products below the fixed price, there was also a clause suggesting
termination of contract with the retailers on non-performance of the said obligation.
The Director General of Investigation took cognisance of the same. However, the
CCI differed with the opinion of the DGI claiming he had not looked into other
players in the FMCG sector and had failed to note that there was no dearth of
products of other equally placed and even better brands in the market19. Despite Bajaj
imposing vertical restraint on the FMCG distributors, it was not sufficiently
established to cause Appreciable Adverse Effects on Competition in a market where
the other retailers were similarly situated.
 Re: M/s Fx Enterprise Solutions India Pvt. Ltd v. M/s Hyundai Motor India
Limited20- Perhaps, the first time when the CCI passed an order claiming RPM had
an appreciable adverse effect on competition. Hyundai Motors India Ltd. was
involved in manufacturing cars which were sold by both, authorised and independent
distributors. HMIL authorised dealers, FX Enterprise Solutions India Pvt. Ltd. and St.
Anthony’s Cars Private Limited brought a complaint to the CCI alleging
contravention of S.3 of the Act. The dealers alleged that the HMIL had fixed a
maximum permissible discount level that were allowed to retailers to re-sell the cars
to the consumers. The level of discount was regulated through a ‘discount control
mechanism’ which prevented retailers from providing discounts on cars above the
limits specified by Hyundai. HMIL also monitored the levels of discount provided by
these retailers through independent agencies, specifically aimed at doing this. The
Director General of Investigation looked into the issue and found out about the actual
facts which constituted a violation of s.3 of the Act. The CCI, on receipt of the
Director’s report concluded that HMIL had contravened section 3 of the Act by
prescribing a minimum discount price. In this case, the DG linked the dominance of
HMIL in the market to its bargaining power in mandating maximum discount prices.
HMIL contended that the terms of the contract were only recommendatory and not
binding on the parties. However, this contention was rejected by the DG in his report
due to lack of evidence to prove the defence. This order has extended the ambit21 of

19
Supra note 6
20
CCI order dated 14.6.2017 in Case No. 36 of 2014.
21
See Abir Roy, Adoption of rule of reason in Resale Price Maintenance under the Indian competition law:
Rule of reason, Kluwer Competition Blog, Jan 16, 2016, Available at:
http://competitionlawblog.kluwercompetitionlaw.com/2016/01/16/adoption-of-rule-of-reason-in-resale-price-
maintenance-under-the-indian-competition-law-rule-of-reason/
 what constitutes an RPM from merely fixing a minimum resale price to permissible
discount rates, concessions, rebates and other forms of promotional schemes.
 The case of M/s Jasper Infotech Private Limited v. Ms. Kaff Applicances (India) Pvt.
Ltd22 indicates the development of a new jurisprudence regarding what is the
threshold for conducting an investigation for a violation of S.3(4) of the Competition
Act or when does RPM cause an Appreciable Adverse Effect on Competition. In this
case, Jasper Infotech Pvt. Ltd. owned and operated Snapdeal, an online market place
which provides a medium for buyers and sellers to meet and transact. KAFF, a
company dealing with kitchen and home appliances displayed its products Snapdeal
for sale. Aggrieved by the fact that its products were being sold at a lower price,
KAFF displayed a caution notice on its website holding out that the products sold on
Snapdeal were counterfeit, infringing its trademark, deceiving the public by trading
on the goodwill of KAFF23. Further, KAFF refused to provide warranties to all its
products that were sold through Snapdeal. In retaliation, Jasper served a legal notice
to KAFF for allegedly violating S.3(4) of the Competition Act, 2002 by fixing a
“Market operating price” (MOP) and subsequently filed a case under Section 19 of
the Act. Jasper produced an email sent to them by KAFF which mandated Jasper to
not sell KAFF’s products below the MOP. The CCI directed the Director General of
Investigation to conduct an investigation and based on his report, it concluded that
KAFF had prima facie contravened s.3(4) of the Act.
The most interesting feature of this case was that the CCI prima facie concluded that
there was a RPM on the basis of the 28% market share (KAFF’s market share in
India) of the enterprise holding that the agreement ‘may not only harm the consumers
but also are likely to have an adverse effect on competition in India’ 24. Without
studying as to whether KAFF’s policies violated section 19(3) of the Act based on
the 6 parameters, the CCI in this case set the threshold for Appreciable Adverse
Effect on competition on factors like “harming the consumers” and “likely to have an
AAC.” In this case, the market share of 28% held by KAFF was used by the CCI to

22
CCI order dated 29.12.2014 in Case No. 61 of 2014
23
See Sundar Ramanthan, The Competition Commission of India initiates an investigation in relation to resale
price maintenance in the e-commerce sector, Available at:
https://www.lakshmisri.com/Uploads/MediaTypes/Documents/Resale-price-maintenance-in-e-commerce-CCI-
initiates-investigation.pdf
24
See Sundar Ramanathan, Resale price maintenance in e-commerce – CCI initiates investigation, Available at:
https://www.lakshmisri.com/News-and-Publications/Publications/Articles/Corporate/resale-price-maintenance-
in-e-commerce-cci-initiates-investigation
 claim that KAFF had a sizeable share of the market. The CCI order raises several
substantial questions regarding the threshold for conducting an investigation based on
the presence of AAC.

This highlights the erratic jurisprudence on resale price maintenance in India. One of
the central issues regarding CCI’s position on RPM is setting the threshold for when
RPM causes AAC in the market. Conflicting opinions have emerged with regard to
when RPM cases cause AAC after having adopted a rule of reason in dealing with
RPM cases.

2. Regulation of RPM across jurisdictions – USA, UK

2.1 USA

Similar to India, the USA Supreme court’s jurisprudence on resale price maintenance has
undergone a sea of change ever since studies have proved that RPM has pro-competitive
effects in the market. Section 1 of the Sherman Act prohibits agreements in restraint of trade
and commerce such as bid rigging, refusal to deal, resale price maintenance etc. However, the
courts have interpreted the section using the two tools: a strict per se prohibition and the rule
of reason. In one of the first cases on RPM, Dr. Miles Medical Co. v. John D. Park and
Sons25 , the Supreme court of USA affirmed that mandating price cutting to the distributors
contravened section 1 of the Sherman Act, 1890. In this case, Dr. Miles Medical Company, a
manufacturer of proprietary medicine, brought an equitable action seeking to enjoin the
defendant wholesaler from obtaining a Dr. Miles product from authorized distributors for the
purpose of resale at "cut prices"26. Though, the Supreme court primarily relied upon law of
contract and public policy to hold agreements in restraint of trade were void, it also invoked
anti-trust principles under the Sherman Act. The court had to determine whether resale of
products at price imposed by the manufacturer was against public policy. The Supreme court
answered in the affirmative and this has served as a precedent for cases dealing with RPM till
1919. The Supreme court carved an exception to anti-competitive agreements following the

25
220 U.S. 373 (1911)
26
See Terry Calvani and Andrew Berg, Announcing the Death of Colgate: The Form and Substance of Vertical
Price Fixing Agreements, 20(1) U. Penn J. Bus. L. 1-92 1163, 1167
precedent set in the Dr Miles case in the case of United States v. Colgate & Co27. In this case,
Colgate unilaterally refused to contract with distributor who did not sell Colgate’s products at
prices fixed by them. The Supreme court despite holding Colgate’s unilateral act to be illegal
carved out two exceptions for RPM agreements. First, the manufacturers can set a standard
acceptable price range within which retailers may sell their products 28. This exempts
contracts from being subject to per se invalidity. Second, manufacturers can choose to
appoint distributors and retailers under an agency agreement, wherein the distributor do not
act independently and act under the authority of the manufacturers. These exceptions
continue to be good law and manufacturers can structure their distributorship agreements as
per the Coalgate doctrine.

However, the major paradigm shift occurred with the case of Leegin Creative Leather
Products Inc. v PSKS, Inc29, when the Supreme court overruled the decision in Dr.Miles case.
In this case, Leegin, a leather manufacturer prevented his distributors from selling his
products at a price lower than the one set by him. The court in this case adopted a rule of
reason in dealing with RPM issues following the treatment of RPM in jurisdictions abroad30.
By then, plenty of literature had emerged regarding the pro-competitive effects of RPM.
Adopting the rule of reason, the Court held that manufacturer-imposed minimum resale
prices can lead retailers to compete efficiently for customer sales in ways other than cutting
the retail price. Thus, the pro-competitive effects of RPM were considered and Leegin’s
contract with the distributors were considered not to be anti-competitive. Since the decision
in Leegin, the US courts have followed the rule of reason in dealing with RPM cases.

2.2 United Kingdom & European Union

In the United Kingdom, prior to the enactment of the Competition Act, 1998 had encountered
cases relating to agreements in restraint of trade as part of the contract laws. For the first time
in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd31 , the House of Lords decided a case

27
250 U.S. 300 (1919)
28
See PC Bona, The Colgate Doctrine and Other Alternatives to Resale-Price-Maintenance Agreements, Apr.
19, 2015, Available at:
https://www.theantitrustattorney.com/2015/04/19/the-colgate-doctrine-and-other-alternatives-to-resale-price-
maintenance-agreements/
29
127 S. Ct. 2705 (2007)
30
See James Mulachy, Resale Price Maintenance: What Happened To Leegin Ten Years Later?, August 8,
2017, Available at:
https://www.jdsupra.com/legalnews/resale-price-maintenance-what-happened-66535/
31
[1915] AC 847
on resale fixed pricing, even though at that point of time, the case was plainly pertaining to
breach of contract. In that case, Dunlop, a tyre manufacturer intended to penalise retailers
who sold Dunlop’s tyres at a lower rate than what was specified by them. Selfridge, the
defendant in this case purchased tyres from an intermediary and the case was decided based
on the principle of privity of contract. In the subsequent case of Dunlop Pneumatic Tyre Co
Ltd v New Garage & Motor Co Ltd32 , the House of Lords however, enforced the fixed
minimum price clause in the agreement. This formed the genesis of competition law in the
UK.

In 1964, the Resale Price Act was passed, which subjected almost all resale price agreements
to be illegal and shifted the burden on the defendant to prove that the act was not contrary to
public interest. This was subsequently replaced by the UK Competition Act of 1998 which
applied the whole of UK only. A minimum RPM is ‘almost inevitably’ infringing Art.81 or
Chapter I prohibition of the Competition Act, 1998. However, the governing act in case of
cross border transaction inside the European Union is the Treaty of the Functioning of the
European Union (TFEU). Article 101 of the TFEU prescribes a “hard core”33 approach to
dealing with vertical agreements like price fixing, tie-in arrangements etc. Despite creating
exceptions, the TFEU prescribes a stringent mechanism to make price fixing agreements
illegal.

The European Commission is showing an increased interest in anti-competitive distribution

practices, in particular in online and cross-border sales. Competition authorities
across Europe have fined brand-name manufacturers for re-sale price maintenance
(RPM). Unlike in US federal law, where RPM can often be justified under the rule of reason,
the majority of EU competition authorities continue their crackdown on RPM. However,
signs of change are emerging. RPM is presumed anti-competitive in the EU. In theory,
manufacturers or dealers can attempt to rebut this presumption but in practice no European
competition authority or court is known to have considered the benefits of RPM to outweigh
its anti-competitive effects. A number of these cases led to significant fines; the German
Federal Cartel Office fined food manufacturers34 and supermarkets a total of EUR 151.6

32
[1915] AC 79
33
See Slaughter and May, The EU Competition rules on vertical agreements, January 2018, Available at:
https://www.slaughterandmay.com/media/64575/the-eu-competition-rules-on-vertical-agreements.pdf
34
FCO, Draft guidance note on the prohibition of vertical price fixing in the brick-and-mortar food retail sector,
2017
million for RPM35, which was achieved through RPM’s combined with pressure and
incentives aimed at influencing sales prices. Similarly, the Austrian competition authority
concluded a number of RPM cases with high fines. One investigation eventually led to fines
of approximately EUR 30 million against supermarket chain SPAR36. The door for RPM
is not firmly shut. EU law acknowledges the potential efficiencies of RPM which may , albeit
rarely suffice to rebut the presumption of illegality. Suppliers or distributors should only
consider RPM where relevant market characteristics and efficiencies can be demonstrated.
The Dutch and Swedish NCAs have discussed inter-brand competition and the lack of
parallel restrictions. A German court recently relied on a lack of appreciable effects to
dismiss a claim. Hence, there is some room for an effects-based assessment of RPM in
European competition policy

35
EU Commission, ‘Competition in the food supply chain’, 2009, p. 18
36
See Claudio Lamberdi, The Austrian Cartel court imposes severe fines against spar group for price fixing
conducts, Feb 3, 2017, Available at:
http://www.osservatorioantitrust.eu/en/the-austrian-cartel-court-imposes-severe-fines-against-spar-group-for-
price-fixing-conducts/
 3. Conclusion

RPM has been subject to a rule of reason approach in many jurisdictions after the realisation
that it has plenty of pro-competitive benefits. In India, despite the Competition Act, 2002
envisioning a rule of reason approach to dealing with RPM cases, there has been
inconsistency in the orders passed by the CCI regarding what is the threshold point for
determining when RPM agreements cause Appreciable Adverse Effect on Competition.
Further, some of the recent orders in the Hyundai and the Snapdeal cases have raised new
issues like whether all forms of promotional schemes like discounts, rebates and concessions
form part of RPM restrictions and when does a practise of RPM warrant investigation by the
Director General of Investigation. While, it has been proven that RPM has plenty of pro-
competitive benefits, the CCI, through its erratic history of orders has not focused on the
benefits that could be reaped from RPM agreements. The transition from a per se rule to a
rule of reason has not been smooth considering the nature of orders passed by the CCI. It will
be interesting to follow the developments based on the recent orders in the jurisprudence
relating to RPM.
4. Bibilography

I. Primary sources – statutes, constitution, international conventions and resolutions

 Monopolies and Restrictive Trade Practices Act, 1969
 The Competition Act, 2002
 Treaty of the Foundation of European Union, 1999
 UK Competition Act, 1998
 Sherman Act, 1893

II. Secondary sources – Scholarly articles, books, web articles

 Abir Roy & Jayant Kumar, Competition Law in India, (2nd Edition, 2014), Eastern
law House, Delhi
 Benjamin Edelman, Bias in Search Results?: Diagnosis and Response, 7 IJLT 16
(2011)
 D.P. Mittal, Competition Law and Practice, (Third Edition, 2011)
 D. Daniel Sokol et al., Global Antitrust Compliance Handbook, (2014), Oxford
University Press, New York
 David J. Gerber, Global Competition Law, Market and Globalization, (2012), Oxford
University Press, New York
 DK Sikri, Competition Tracker, Compendium of Orders, CCI, (2014), lexis Nexis.
 T. Ramappa, Competition Law in India, Policy, Issues, and Developments, (3rd
Edition, 2014) Oxford University Press
 Abdullah Hussain, The Reasonableness of Resale Price Maintenance, May 2008,
Available at:

https://www.competitionpolicyinternational.com/assets/0d358061e11f2708ad9d62634
c6c40ad/Hussain,%20GCP%20May-08(1).pdf

 Bhawna Gulati, Resale Price Maintenance Agreements Indian Perspective and

International Practices Apropos, Available at:

http://www.academia.edu/7627001/Resale_Price_Maintenance_Agreements_Indian_
Perspective_and_International_Practices_Apropos_Bhawna_Gulati_Introduction_Res
ale_Price

 Andreas P. Reindl, Resale Price Maintenance and Article 101: Developing a More
Sensible Analytical Approach, 33 Fordham Int'l L.J. 1300 (2011).
 Avanthika Kakkar and Kirthi Srinivas, Resale Price Maintenance under the
Competition Act - Old Wine in a New bottle, 2016, Available at:

https://www.khaitanco.com/PublicationsDocs/Com%20Law%20Reports_Nov%2020
16_Article%20of%20AVK%20&%20KSG.pdf
 Slaughter and May, The EU Competition rules on vertical agreements, January 2018,
Available at:

https://www.slaughterandmay.com/media/64575/the-eu-competition-rules-on-
vertical-agreements.pdf

 Terry Calvani and Andrew Berg, Announcing the Death of Colgate: The Form and
Substance of Vertical Price Fixing Agreements, 20(1) U. Penn J. Bus. L. 1-92 1163,
1167