Federal Cartel Office fines CIBA Vision and Phonak for unlawful retail price maintenance

26 October 2009

Dr Jörg Witting, Fabian von Busse

With two close decisions against contact lens manufacturer CIBA Vision and hearing aids maker Phonak, imposing fines amounting to EUR 11.5 million and EUR 4.2 million, the Federal Cartel Office has continued its intensified enforcement against anti-competitive vertical practices.  The Federal Cartel Office found that both companies had conducted unlawful resale price maintenance, i.e. influenced their retailers in order to maintain a certain retail price level.

CIBA Vision was accused by the Federal Cartel Office of having restricted internet sales of contact lenses, in particular via the sales platform eBay, by influencing the pricing of eBay sellers. According to the Federal Cartel Office, CIBA Vision established a price monitoring system in which several employees controlled the retail prices of internet sellers. If the retail prices undercut CIBA Vision’s recommended retail price, CIBA Vision contacted the relevant sellers and urged them to raise their prices. In many cases the internet sellers followed CIBA Vision’s request.

In the Phonak case, the Federal Cartel Office found that Phonak had illegally cut supply to a hearing aid seller. Prior to the cut, the seller had published its prices on the internet; the prices for Phonak aids fell significantly below the minimum price level on the market.  Competitors subsequently complained to Phonak about the price-breaker, which Phonak then forced to raise its prices through a refusal to supply.

The Federal Cartel Office stated that competition on the German hearing aids market is characterised by a lack of price competition. According to the Federal Cartel Office, this is due to the lack of product and price transparency for the end customer when purchasing a hearing aid. Against this background, the Federal Cartel Office attributed significance beyond the individual case to Phonak’s conduct. The Federal Cartel Office argued that, when price competition at the retail level is already restricted, any further prevention of competition is all the more serious.  It therefore imposed a relatively high fine of EUR 4.2 million.

Both companies announced that they would not appeal the respective decisions. The Federal Cartel Office stressed that unilateral recommended retail prices are generally permissible under German competition law, as long as they are non-binding. However, the Federal Cartel Office made clear that any exertion of pressure in the context of a recommended retail price can indicate that the recommendation has a binding character and thus constitutes an infringement of the German Act against Restraints of Competition.  The Federal Cartel Office stated that it would consider any approach adding authority to a prior recommendation, for example, if actual retail prices are discussed with regard to the recommended retail price, as an anti-competitive exertion of pressure.

The two decisions show that the Federal Cartel Office is taking anti-competitive vertical practices very seriously and is willing to impose high fines for reasons of deterrence. Companies distributing their goods and services through a network of independent sellers in Germany must thus be aware that they are not unrestricted in respect of retail prices and that the Federal Cartel Office is vigilant in relation to vertical price fixing practices and other restrictions such as market partitioning.

Source: http://www.bundeskartellamt.de

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