Israel Antitrust Authority Published Statement regarding Vertical Price Arrangements – Resale Price Maintenance (RPM)
Recently, the Israeli Antitrust Authority (IAA) published a final version of its statement regarding Resale Price Maintenance (RPM) arrangements. In this statement, the IAA presents its position with regard to the circumstances under which a supplier is able to dictate the resale price of its products to its distributor (either retail or wholesale) for the next link in the supply chain, without such an arrangement being considered an illegal restrictive arrangement.
The draft statement comes in the wake of the precedent set about two years ago by the Israeli Supreme Court in the Shufersal judgment (AR 5823/14).
Until this judgment was handed down, RPM arrangements in Israel were trapped within the scope of the peremptory presumption of being restrictive arrangements. This meant that many of the common practices in the market of vertical arrangements (i.e. arrangements between non-competitors, such as supplier–distributor), including RPMs, were deemed unlawful restrictive arrangements, even if they did not pose any substantive harm to the competition. The only way to “legalize” such arrangements was through one of the mechanisms prescribed in the Israeli Restrictive Trade Practices Law.
According to the Shufersal judgment, RPMs are to be examined according to the extent of their probable impact on competition, even if such arrangements concern matters included in the law’s peremptory presumptions. This means that vertical arrangements having no potential restraining or curbing effect on competition will no longer be classified “automatically” as restrictive arrangements.
The purpose of the Antitrust Authority’s recent statement is to clarify how it will examine RPM arrangements and to make clear that it will be examining RPM arrangements more meticulously than other vertical pricing arrangements.
The draft statement outlines the “rules of thumb” to be applied when examining whether RPM arrangements could potentially harm competition. According to the statement, an RPM arrangement will not be deemed a restrictive arrangement if the specific market characteristics in which the parties are involved indicate sufficient competition, and, furthermore, that the RPM serves a clear purpose of boosting competition. It is important to note that the Antitrust Authority’s statement differentiates between an RPM arrangement between a supplier and a retail distributor (or any other party that markets products directly to the end customers) and an RPM arrangement between a supplier and a wholesale distributor.
In its statement, the Antitrust Authority advises parties to engage in retail segment RPM arrangements only if the following two conditions exist: (1) the RPM is not in a market characterized by scant competition, or it is not in a market plagued by a concern of collusion between the players in the market; (2) the RPM is needed in order to promote inter-brand competition and in a way that is beneficial to consumers. Insofar as the market characteristics indicate scant competition, an RPM arrangement must irrefutably justify that it is directly and concretely geared toward improving competition. As for arrangements not relating to the retail segment, their classification as restrictive arrangements will depend upon the nature of the relations between the supplier and the distributor.
The statement, coupled with the Shufersal judgment, heralds important news for the Israel trade market, since it clarifies matters considerably for both suppliers and distributors.