Düsseldorf Higher Regional Court allows discussion of retail pricing in individual cases
Are manufacturers allowed to talk to their dealers about the price positioning of their products during ongoing contractual relationships? When would such a practice draw the risk of antitrust sanctions? In a recent case, the Düsseldorf Higher Regional Court reviewed these questions and ruled that mere requests for the consideration of one's own economic interests does not constitute a prohibited effect on the pricing sovereignty of the distribution partner (OLG Düsseldorf, Urt. v. 18.09.2019 - VI-U (Kart) 3/19 - not yet in force). The decision provides practical important information for manufacturers in their dealings with distributors.
The case
In 2012, the furniture manufacturer Cor and online retailer Reuter signed a distribution agreement for Reuter to market Cor products via online trade. At the end of 2013, Reuter advertised Cor products with discounts of 10% on recommended retail prices. Several stationary dealers complained to Cor about this and threatened to terminate their distribution agreements. Cor then sought dialogue with Reuter about its pricing and its effect on Cor's trade. The exact content of the discussion is not clear from the judgment. Just under two years later, Cor terminated the contract with Reuter, observing the notice period. In a later letter, Cor explained that the dismissal was the result of weak sales and lack of growth. During the contract period, Reuter promoted Cor's products in several campaigns with discounts of up to 35% on recommended retail prices.
With an action before the Dortmund Regional Court (judgment of 25.2.2019 - 8 O 16/16 Kart), Reuter asserted claims for damages through loss of profit among other things after the end of the contract. Cor had exerted undue pressure on pricing by allegedly making it clear, under threat of termination, that recommended retail prices had to be complied with and that no rebates higher than 5% to 6% were to be granted. The Dortmund Regional Court dismissed the complaint. Cor's appeal to the Düsseldorf Higher Regional Court was also unsuccessful.
In its decision, the Düsseldorf Higher Regional Court denied that Cor had unlawfully influenced Reuter's pricing behaviour pursuant to Section 21 (2) ARC. There had been no inadmissible refusal to comply by threatening to block delivery or to terminate the contract. The Higher Regional Court initially dealt with the prerequisites for the prohibition of circumvention pursuant to Section 21 (2) ARC – namely, that the provision protects the entrepreneurial freedom of decision against external influence and at the same time prevents the circumvention of any statutory prohibitions of competition. To this end, undertakings may not threaten other undertakings with disadvantages in order to induce them to behave in a manner which, according to the ARC or Articles 101, 102 TFEU, may not be made the subject of a contractual obligation. A disadvantage is to be understood as any evil perceived by the addressee which, when objectively assessed, is capable of influencing his will and leading him to restrict competition. This constitutes any serious prospect of exerting pressure where the addressee, under normal circumstances and after a reasonable assessment, must assume that the threatened measure could actually be carried out. Success doesn't matter.
The Düsseldorf Higher Regional Court also tacitly confirmed the view of the Bundeskartellamt in its Reference Paper on the Prohibition of Price Maintenance in Food Retailing that in assessing whether impermissible pressure is being exerted, an existing power imbalance between the companies must be included in the individual case assessment. It is correct that it is not only a question of what is said, but also of who expresses himself and how this expression is to be understood objectively. In this respect, not every exchange between a supplier and his dealer on price formation is to be regarded as an inadmissible influence on freedom of decision-making. An infringement of Section 21 (2) GWB is only present if a comprehensive assessment of the individual case shows that certain pricing behaviour is expected from the customer and that the customer must provide a disadvantage in the event of non-fulfilment.
In the Reuter/Cor case, no such pressure had been exerted. Cor, with an annual turnover of approximately EUR 30 million, was an unlikely candidate to pressure its much larger distributor, which had an annual turnover of approximately EUR 200 million. The distribution of Cor's products accounts for only about 0.1% of Reuter's turnover. Hence, there was no economic dependence. The reverse balance of power was shown by the fact that Reuter had repeatedly launched extensive rebate campaigns, although Reuter knew from contract negotiations that a uniform price level was important for Cor. In such cases, where the supplier is the smaller undertaking, a request that the client's economic interests be taken into account in the pricing cannot lead to undue influence. This view is consistent, bearing in mind that the establishment of business relationships may be made dependent on whether the dealer's views on pricing are compatible with the supplier's ideas about the placement of the product on the market. In this respect, suppliers must be able to point out their pricing strategy during the contractual relationship without this being considered impermissible pressure.
Practical consequences
The decision of the Düsseldorf Higher Regional Court concerns the important practical question of how a supplier may react if his dealer endangers the brand and the product image through excessive discounts. For the benefit of suppliers, the Court ruled that not every exchange on pricing infringes applicable law. Those who merely ask their sales partners to take their interests into consideration when setting prices will continue to respect their pricing sovereignty. In assessing whether such an entreaty involves only a request, the circumstances of the individual case must be taken into account. If there is a considerable power imbalance to the detriment of the dealer, a request expressed with "cast-iron friendliness" can also be objectively understood as a considerable exertion of pressure. Nevertheless, the ruling of the Düsseldorf Higher Regional Court should give medium-sized companies in particular the courage to discuss the price positioning of their products during ongoing contractual relationships with their dealers if excessive discounts endanger their products' basic price worthiness and image.
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Article co-authored by Lukas Fries.
