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Sports bra probe finds no push up of prices

30 June 2014

The competition regulator, the Competition and Markets Association, has closed its investigation into allegations that DB Apparel, a supplier of sports lingerie, unlawfully fixed the resale prices of their retailers: Debenhams, John Lewis and House of Fraser.

Chapter I of the Competition Act 1998 prohibits agreements or concerted practices under which two or more producers prevent, restrict or distort competition, for example, by fixing prices, limiting supply or allocating markets.

Resale price maintenance (RPM) occurs where the supplier of goods imposes the price at which its distributors or retailers must sell to end users. This limits intra-brand competition between retailers of the distributed product and can keep prices artificially high for specific products. 

RPM has been the focus of a number of high profile investigations recently, including in relation to Apple eBooks. RPM can take the form of contractual provisions restricting the pricing freedom of distributors or through extra-contractual arrangements between suppliers and distributors.

It can also arise where understandings are reached between distributors, and sometimes via communications through the supplier itself (an arrangement known as a 'hub and spoke cartel').

The law on RPM is summarised very briefly below:

  • it is unlawful for suppliers to impose specific or minimum resale prices on their distributors, wholesalers or retailers
  • suppliers may (in certain circumstances) issue recommended resale prices (provided re-sellers have genuine freedom to disregard these as they see fit)
  • suppliers may (in certain circumstances) impose maximum resale prices, provided these are set at a level which allows the re-seller genuine flexibility to set its price competitively (a maximum re-sale price just above cost could be a disguised minimum price).

In this specific case, the claims arose from allegations that DB Apparel had refused to supply its 'Shock Absorber' brand of sports bras to a third party retailer who did not follow the minimum resale prices. 

Following a 17-month investigation into the sports bra market, the competition regulator found in September 2013 that DB Apparel concluded nine anti-competitive agreements to impose minimum prices with the stores between 2008 and 2011. During this period, 'Shock Absorber' bras had a 15% share of the market.

It was further alleged that this collusion had added between 50p and £1.50 to the cost of bras.

The regulator reversed these findings in May, following further investigation and representations from the parties concerned. However, this was only after the parties had withstood more than a year of intensive regulatory scrutiny and incurred hefty legal fees to defend themselves.

Following recent changes to the legal landscape, it has become easier for collective actions to be brought on behalf of consumers, which can result in hefty damages awards.

Had the investigation gone the other way, they would have been at risk of fines of up to 10% of group turnover, as well as the possibility of damages claims from third parties alleging loss (and possibly consumers). 

An interesting aspect of the case is that the investigation did not examine the distribution agreements between DB Apparel and its resellers, but the commercial practices which they had applied (as evidenced through correspondence).

This is a further reminder that competition compliance (in distribution situations) does not end once the agreement is drafted. The conduct and commercial practices of suppliers and re-sellers must be carefully monitored on a day to day basis and staff must be appropriately trained. 

This word of warning applies not only to resale price maintenance but also other thorny competition law areas, such as restricting solicited or unsolicited sales into other territories or online sales.

This article was written by Paul Henty.

For more information please contact Paul on +44 (0)20 7427 6506 or paul.henty@crsblaw.com