SCA action recommended prices

13 April 2006

Henrik Nilsson

February 2006

In two recent decisions the Swedish Competition Authority has acted to stop recommended prices, which can be prohibited by section 6 of the Swedish Competition Act.

The most recent decision, from 6 February 2006, concerned franchise agreements between Reitan Servicehandel Sverige AB (Reitan), a franchiser providing retail business under the trade marks 7-eleven and Pressbyrån, and its franchisees. The trade mark 7-eleven is used by 73 convenient stores located in the three biggest cities is Sweden and the trade mark Pressbyrån is used by 320 convenient stores spread all over the country.

Under the franchise agreements, Reitan was to provide the franchisees with recommended prices. The prices were put into a joint computer system used by all franchisees to register sold products and print out price labels. The prices could only be altered by Reitan and any franchisees who wanted to set prices below the recommended prices had to set up a pricing system of their own. Furthermore, the fee for the franchise was based on Reitan’s recommended prices and lower prices would result in the franchisee earning less and thereby paying a greater share of its profits to Reitan.

The Competition Authority concluded that, although a supplier generally is allowed to set recommended prices or maximum prices, this can infringe the prohibition in section 6 of the Swedish Competition Act if the supplier influences or gives the retailer incentives to not go below the recommended price. In the present case, the Competition Authority concluded that the difficulties involved in setting prices below the recommended prices and the calculation of the franchise fee constituted price-fixing, which is prohibited by the Act. However, Reitan offered to alter the computer system in order to make it possible for the franchisees to set their own prices, and this commitment was accepted by the Competition Authority. The measures are to be implemented within seven months from the date of the decision and are to be maintained for two years. To make sure the commitment is fulfilled, the Competition Authority has applied to Stockholm City Court to have the decisions sanctioned with a fine of SEK 3 million.

In another decision, delivered on 11 January 2006, the Competition Authority also acted against recommended prices. This case concerned a letter that was sent from the Swedish Association of Suppliers of Electrical Domestic Appliances (the EHL) to its members. In the letter, the EHL had stated that an environmental fee of SEK 300 excluding VAT would be charged on products delivered after 1 July 2005; this as a result of a new regulation on producer responsibility for fridge-freezer products. Additional reference to the fee was made in general terms and conditions available on the EHL’s website, which were to be used for delivery of products to distributors and to companies in the construction business.

The letter resulted in an investigation, during which the Competition Authority contacted the EHL, members of the trade association, distributors and companies in the construction business. While taking part in the investigation, the EHL informed the Competition Authority that it had sent out a new a letter for clarification purposes. The second letter stated that the first letter was not to be seen as a recommendation on prices and that all members are free to set their own prices. In its decision, the Competition concluded that recommended prices by a trade association can be caught by section 6 of the Competition Act and that the letter and the general terms and conditions in question could have been seen as such. However, as the second letter had been sent out, any possible infringement had been stopped and no further measures were therefore necessary. The Competition Authority therefore decided to cease its investigation of the matter.

Source: Decisions of 6 February 2006, case no. 994/2004, and 11 January 2006, case no. 556/2005, both only available in Swedish.