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21 November 2018

Serbia: "Baby-boom" and other RPM cases before the Competition Authority

The Serbian Commission for Protection of Competition (the "Commission") is taking steps to encourage the birth rate in Serbia, one of the country's primary political objectives. Its contribution to achieve that objective is current antitrust investigation on the baby care product market, which could ultimately lead to a price decrease and reduction of costs of raising a child in Serbia. 

Almost 200 undertakings are under investigation for applying resale price maintenance ("RPM"), making this investigation the biggest in the history of Serbian antitrust enforcement. This case was initiated ex-officio in April 2018, when the Commission raided Keprom d.o.o. and Yuglob d.o.o, two importers and distributors, and several retailers of baby care products. Following the dawn raid, the Commission opened four more investigations against the same distributors and their retailers (four cases in July) and, finally, on 22 September 2018, the Commission proudly announced that it had initiated investigations against 172 undertakings (the "Baby Products Investigation").

The most recent antitrust infringement decision also refers to the illegal practice of RPM. It relates to the automotive sector and the practice of Auto Čačak d.o.o, the importer and distributor of Škoda in Serbia, and its authorised dealers and repairers to respect the minimum prices when participating in public procurement for Škoda brand spare parts and maintenance service (the "Škoda Decision"). Finally, one of the Commission's most important decisions is last year's decision against N sport and 14 sports shoes retailers, sanctioning them for applying vertical price fixing (the "N sport Decision").

1. What is RPM? 

Under the Law on Protection of Competition and the Regulation on the Exemption of Vertical Restraints, it is illegal to restrict the buyer's ability to determine its sale price. RPM exists when the buyer is obliged to respect a fixed/minimum resale price or a fixed/minimum price level.

The RPM clauses are "blacklisted" and cannot benefit from block exemption and de minimis rules, while it is less likely that it could benefit from individual exemption as well. So no matter how big or small the undertaking, it can always be sanctioned for applying RPM.

1.1 Direct and indirect RPM

There are two types of RPM: direct and indirect.
The most obvious example of direct RPM is a contractual provision by which the buyers are obliged to respect the resale prices determined by the supplier. The indirect way to impose RPM is when the supplier fixes the distribution margin or maximum discount that the buyer can offer its buyers.
The Commission dealt with both types of RPM, but in almost all cases, the predominant evidence consisted of explicit contractual provisions that prevented retailers from applying prices below those determined by the supplier. This is clear-cut evidence of RPM, so it looks like the Commission should be able to easily prove the existence of wrongdoing in Serbia.
Importantly, in the cited decisions, the Commission stated that if the agreement contains an RPM clause, it is irrelevant whether the parties actually applied it. RPM is illegal by object and the Commission will not examine its actual effects.

1.2 Maximum and recommended prices

In principle, maximum and recommended prices are permitted, but are legal only if they do not amount to a fixed or minimum sale price as a result of incentives or pressure from the supplier. This means that these clauses are not blacklisted, but the undertakings should be careful when drafting the contracts and applying these clauses, since they can also be a subject of an antitrust investigation.

2. Why RPM is frequently scrutinised by the Commission

The fight against RPM is at the top of the Commission's enforcement priorities. It seems that RPM is ubiquitous on the Serbian market and proof is easy to obtain, making it an easy catch for the Commission. These cases also help the Commission build its enforcement record and promote competition culture in Serbia. The cited cases attracted huge public attention, especially the N sport Decision and the Baby Products Investigation. With the dearth of cartel investigations, they helped the Commission create a positive image in the eyes of consumers, and we should expect more RPM cases in the future.

Another reason why the practice of RPM has expanded in Serbia is the lack of awareness of competition law rules. Particularly small retailers (apparently 90 % of the undertakings under investigation) are not sufficiently informed and knowledgeable to identify and assess restrictive clauses. They also do not have the economic strength to influence the content of the agreements offered by big suppliers.

3. Sanctions for RPM in Serbia – retailers also have to pay fines

The Commission took a very lenient approach to fines. In the N sport Decision, the Commission imposed a fine of 0.62 % of the total annual turnover of N sport, the supplier which instigated the RPM. In the Škoda Decision, the Commission penalised the instigator of the RPM in the car distribution sector with a fine of only 0.22 % of the annual turnover. These fines are surprisingly low, considering that under the Serbian guidelines on setting fines in antitrust cases, RPM is qualified as the most severe restriction of competition.

Unlike in most EU jurisdictions, in Serbian RPM cases small retailers that are economically dependent on their relationships with suppliers are also fined by the Commission. In the Commission's interpretation of the law, if it establishes that the agreement is restrictive, then each party to that agreement should have to be sanctioned for breaching the Competition Act.

We will see if the Baby Products Investigation changes this strict approach and retailers escape the fines.

4. Comment

As RPM is the focal point of the Commission's enforcement, undertakings of all sizes and market power should comply with strict rules and practice stating that RPM is per se illegal. If the Commission finds contracts that contain RPM clauses, it is almost impossible to avoid liability and fines. Therefore, undertakings should carefully draft their agreements, annexes and commercial policies. Recommended or maximum prices are not blacklisted, but they also do not guarantee that the contract is fully compliant.

The fines are now low, but the Commission will likely increase fines for instigators, since the current lenient policy could also be considered an "incentive" for RPM in Serbia.



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author: Srdjana Petronijević and Zoran Šoljaga.