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2023 | OriginalPaper | Chapter

Vertical Agreements in the Competition Law of Ukraine and the EU: A Closer Look at Resale Price Maintenance

Author : Hanna Stakheyeva

Published in: Competition and Intellectual Property Law in Ukraine

Publisher: Springer Berlin Heidelberg

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Abstract

The chapter examines resale price maintenance (RPM) in Ukraine in detail with reference to the practice of the Antimonopoly Committee of Ukraine (AMCU) and compares this with the current approach of the European Commission (EC). The comparative analysis goes beyond identifying the gaps between Ukraine and the European Union (EU) in this legal area; it provides a constructive normative analysis on means for Ukraine to advance. Following the Introduction, Sec. 2 focuses on the overview of the strict approach towards RPM in the legal framework of Ukraine. Cases of the AMCU as well as the courts are also cited here to understand the Ukrainian specifics of the subject matter. Section 3 provides highlights of RPM in the EU and its approach in this regard under the new Vertical Block Exemption Regulation, where such practices are viewed as restrictions of competition by object which may be exempted. Section 4 deals with the discussion on the weaknesses and strengths of the per se and rule of reason approaches to RPM, as well as further legislative reforms. It is suggested that when a supplier does not have significant market power, from an economic standpoint, such a small firm should be allowed to benefit from RPM. The strict approach should be relaxed at least de facto. Additionally, it is highly recommended that the AMCU improves its case search engine to allow any interested party to benefit from it.

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Footnotes
1
The English version of the Law of Ukraine on Protection of Economic Competition 2001 is available at https://​www.​oecd.​org/​countries/​ukraine/​2381565.​pdf accessed 27 October 2022.
 
2
OECD, ‘Directorate for Financial and Enterprise Affairs Competition Committee: State-owned Enterprises and the Principle of Competitive Neutrality’ DAF/COMP(2008)37, 2009, 9.
 
3
OECD, ‘Directorate for Financial and Enterprise Affairs Competition Committee: Roundtable on Resale Price Maintenance’, DAF/COMP(2008)37, 9.
 
4
Dennis W Carlton and Jeffrey M Perloff, Modern Industrial Organization (Pearson 2005) 426.
 
5
This is an argument related to the manufacturer’s investment in the image of the quality of the brand. RPM in this case may be justified as a means of preventing price reductions that may affect the sales volumes, OECD, DAF/COMP(2008)37 (n 3), 28.
 
6
See for instance, Kenneth G Elzinga and David E Mills, ‘Leegin and Procompetitive Resale Price Maintenance,’ (2015) The Antitrust Bulletin. Also Roger D. Blair et al., ‘Resale Price Maintenance and the Private Antitrust Plaintiff’ (2005) 83(3) Washington University Law 657(659).
 
7
Paul W Dobson and Michael Waterson, ‘The Competition Effects of Industry-wide Vertical Price Fixing in Bilateral Oligopoly’ (2007) 25(5) International Journal of Industrial Organization 935 (935–962).
 
8
We see similarities here with the US regime, where RPM was viewed as illegal per se, but the Supreme Court ruled in 2007 that the efficiencies of RPM must be taken into account in the analysis of RPM on a case-by-case basis (see US Supreme Court Leegin Creative Leather Products, Inc. v. PSKS, Inc (2007) 551 U.S. 887). The EU is expected to move in this direction. In 2010 the EC started a review of the framework on vertical agreements. There has been a debate on whether it should change its strict approach towards RPM. “However, the EU policy on vertical restraints did not change substantially after the review in 2010. Despite the emphasis on economics after the modernisation process the approach taken towards RPM in the EU is still hostile.”: Rebecca Johnsson, ‘RPM and Object Restrictions—A Need for Change in EU Competition Policy?: A Comparative Analysis of the Different Approaches Towards RPM in EU and US Antitrust Law’ (2020) Uppsala University. This is still applicable under the new VBER adopted in May 2022. According to it, the RPM is still treated as a hardcore restriction, although not illegal per se.
 
9
Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (2022) OJ L134/4, 4–13.
 
10
Treaty on European Union and the Treaty on the Functioning of the European Union, OJ C202/1 (2016).
 
11
Order of the Antimonopoly Committee of Ukraine on Approval of the Standard Requirements for Vertical Concerted Actions of Business Entities and Amendments to the Standard Requirements for Concerted Actions of Business Entities for General Exemption from the Prior Authorization of the Bodies of the Antimonopoly Committee of Ukraine, No. 1364/31232.
 
12
For instance, Decision No. 420-r dated 2 July 2020, in relation to LLC Grundfos Ukraine and 11 other companies/distributors. The supply contracts contained RPM (the minimum level of the recommended price for household goods and the minimum selling prices for household goods to third parties (resellers)). Such actions were considered as anticompetitive concerted actions relating to price setting. All 12 companies were fined a total of 5,192,736 UAH. The decision is a good source of clarification of the AMCU’s approach and practical application of the Ukrainian Competition Law. For instance, see para 78 of the decision, where the AMCU emphasizes that “vertical concerted actions that contain hard-core restrictions, namely, restrictions on the ability of the buyer to determine the selling price of the contract goods, are prohibited. The hard-core restrictions contained in the supply contract concluded by ASTER-M LLC with Grundfos Ukraine LLC are prohibited, even if the supplier’s shares and buyer in the market in which they, respectively, sell and buy contracts goods do not exceed 30%”.
 
13
For instance, Ukrainian Commercial Court of Kyiv, Decision No. 98558978 (2021) in relation to the appeal submitted by Novo Nordisk A/S (Denmark) and Novo Nordisk Health Care AG (Switzerland) against the infringement decision of the AMCU. The court ruled that AMCU’s Decision No. 680-r was made with incorrect application of substantive law; there was a failure to prove the circumstances that were relevant to the case; there was incomplete clarification of the circumstances relevant to the case; the conclusions of the AMCU did not correspond to the circumstances of the case; finally, the AMCU violated procedural law, which led to an incorrect decision. Although the judgment was repealed by the Appeal Court of Kyiv later on (the text thereof is currently unavailable), it is still important to see the logic and reasoning of the Court in this case. Another case is in relation to Roche Ukraine, an indirect RPM case, i.e. in relation to the bonus mechanisms that led to allegedly (by the AMCU) unjustified overpricing of Hoffmann-La Roche Ltd medicines through public procurement procedures. For details see Sec. 2.
 
14
According to art 8(2) of the Law.
 
15
Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part (2014) OJ L161/3.
 
16
This is a copy-and-paste version of the EU approach to the RPM.
 
17
Antimonopoly Committee of Ukraine, Grundfos, No. 143–26.13/128–18 (2020).
 
18
I.e. Geiser LLC, Leon Service Plus, Vikom LLC, Romstal Ukraine, Climate Technologies, VIK XXI LLC, Unick Trading Company, Research and Production Association “Ecosoft”, Aster-M LLC, LLC Propex, Snab-Reserve Group LLC.
 
19
Paragraph 43 of the Decision.
 
20
Standard Vertical Requirements concerted actions of economic operators in relation to supply and use goods approved by the order of the Antimonopoly Committee of Ukraine from October 12, 2017 No. 20-rp, registered with the Ministry of Justice of Ukraine, 9 November 2017, No. 1364/31232.
 
21
LLC No. 35-pv. In accordance with Ukrainian Law on Economic Protection Competition, Art 14 in order to prevent violations of legislation on economic protection competition, increasing the predictability of its application, the Committee may provide to the business entities on the basis of the information provided by them conclusions in the form advisory explanations on the compliance of the actions of economic entities provisions of art 6 of the Law.
 
22
Paragraph 79, Grundfos decision.
 
23
Paragraph 83(b), Grundfos decision.
 
24
Paragraph 83(d), Grundfos decision.
 
25
PhD, Associate Professor of Civil Law No. 1 Yaroslav the Wise National University of Law (98), at the meeting of the Committee on 2 July 2020, the request of ASTER-M LLC was granted from 2 July 2020 No. 2/07–20 f.
 
26
See para 100 of the AMCU’s decision.
 
27
Paragraph 101 of the AMCU decision.
 
28
Item 12 of the Resolution of the plenum of the Supreme Economic Court of Ukraine of 26 December 2011 No. 15 on Some Issues of the Application Practice of Competition Law.
 
29
Antimonopoly Committee of Ukraine (Decision) (2020) No. 680-r.
 
30
Commercial Court Kyiv, Case No. 910/508/21. The claimants were Novo Nordisk A/S (Denmark) and Novo Nordisk Health Care AG (Switzerland). In this case, Nordisk-1 and Nordisk-2 were interrelated by relations of control within the meaning of art 1 of the Law, i.e. belonged to one business entity (“Novo Nordisk Group”). During 2011–2017, Novo Nordisk Group cooperated with Medfarkom LLC, Medfarkom-Center PJSC, BaDM LLC, ZI Pharmacy LLC, Hansa PJSC, Pharmadis LLC and Medpharm LLC based on typical/standard agreements developed by Novo Nordisk Group. It was almost impossible to change any terms of cooperation under the distribution agreement (only in relation to insignificant issues). The prices for medicines remained unchanged throughout the term of the contracts. At the same time, clauses 17.1 Agreements 44–60 and clauses 16.1. Agreements 61–71 stipulated that price was subject to renegotiation and could be amended in subsequent versions of annexes to distribution agreements by mutual agreement of the parties.
The case is essentially about the discounts that the distributors received from Novo Nordisk Group in the form of credit notes and overpricing by distributors during sales in pharmacies and through public procurement. Upon receipt of a credit note containing a reference to product items, BaDM LLC reflected those discounts by reducing the price of available inventory balances or reduced the price of goods in advance by considering only the expected discount. So, in such cases, the selling price of Novo Nordisk Group drugs decreased. In some cases, credit notes were reflected in the form of reduction of total debt (additional income) of BaDM LLC, e.g. credit notes provided as compensation for exchange rate differences, in which case the received credit note did not have a direct impact on the selling price of BaDM LLC, but it did not deprive the latter of the right to reduce the selling price for its own customers based on its own decision. In this case, the company’s revenue grew, but the selling price for buyers did not change, despite the possibility of BaDM LLC to reduce it.
According to the AMCU, the system of contractual relations between Novo Nordisk Group and its distributors contributed to the formation of (i) nominal pricing (on the basis of which the prices for medicines manufactured by the Novo Nordisk Group were formed on the territory of Ukraine, which is specified in the distribution agreements and serves as a basis for the calculation of customs duties, prices for end consumers), and the (ii) real pricing, which took into account the discounts introduced by the parties in the distribution agreements in force in 2011–2017, and which existed only in relations between Novo Nordisk Group and its distributors. The overpricing by distributors in pharmacies and through public procurement procedures sometimes reached 82%.
It should be noted that on 2 December 2021, the Court of Appeal recognized as legal the decision of the AMCU, which imposed a fine on the company due to non-transparent pricing of medicinal products and distortion of competition. The text of the judgment is not available. The announcement about it can be found at https://​amcu.​gov.​ua/​news/​apelyacijnij-sud-viznav-zakonnim-rishennya-amku-shchodo-farmgrupi-novo-nordisk accessed 26 October 2022.
 
31
This is due to the fact that the subject of procurement (lot) consists of a large number (range) of different drugs from different manufacturers, and the choice of the winner is based on the total cost of the lot. In such conditions, fixing the price for one lot position does not fix the price of the entire lot.
 
32
See Decision of the AMCU no 680-r, 106 onwards.
 
33
Resolution of the Plenum of the Supreme Economic Court of Ukraine of No. 15 (2011) on Some Issues of Practice of Competition Law, clause 8(3).
 
34
Resolution of the Plenum of the Supreme Economic Court of Ukraine No. 15 (2011) on Some Issues of Competition Law Practice, para 14.
 
35
Ukraine has been regulating drug prices since the 1990s. In 2008, the government of Ukraine introduced centralized price regulation, which provided for national restrictions on wholesale and retail prices for a wide range of medicines. At the time, it was explicitly provided that the maximum mark-up should be calculated on the basis of discounted prices, i.e. discounts were allowed, but they reduced the basis for calculating the maximum mark-up and the possible maximum allowable selling price of regulated medicines. However, already in 2009 the pricing rules in Ukraine were significantly revised. The government changed the levels of mark-up restrictions and the volume of regulated products while removing any references to discounts. Therefore, according to the legislation in force since 2009, including in 2011–2017, the maximum allowance had to be calculated based on the stated price. The AMCU did not take proper note of this change in the provisions and did not consider the legislation in force during the period of the alleged offense.
 
36
First-tier distributors as defined in paras 188 and 25 of the Decision.
 
37
In situations where the contract between the supplier and the distributor provides for the provision of bonuses, as well as the obligation to take them into account in full resale, if the distributor adheres to its usual pricing algorithms, such as the size of the mark-up, the resale price may be predicted for the supplier. In this way, the supplier will be able to manipulate the resale price of the distributor, for example, to create barriers to entry for other suppliers.
 
38
Decision No. 80631683 (2019), Commercial Court of Kyiv City, Case No. 910/13306/18.
 
39
According to the AMCU, an important feature of the conditions of circulation of medicines manufactured by the company is that they are included in the range of medicines that are subject to state regulation in Ukraine. Almost all the company’s medicines were included in the list of domestic and foreign medicines that can be purchased by health care facilities that are fully or partially financed from state and local budgets and are subject to state regulation of trade margins. Such regulation of prices for medicines in Ukraine in 2012–2016 was carried out by setting maximum levels of supply and marketing surcharges and marginal trade (retail) surcharges on registered/declared wholesale sales, depending on whether the drugs were included in the relevant state list.
 
40
Commercial Court of Kyiv, Decision No. 80631683 (2019).
 
41
Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (VBER). The VBER and the Guidelines provide up-to-date guidance on vertical restrictions, including RPM and online restrictions, and ensure a harmonized approach to such restrictions across the EU. The documents also incorporate the guiding principles for the assessment of such restrictions drawn from the case law of the Court of Justice of the EU, e.g. Pierre Fabre and Coty (in relation to online sale restrictions in distribution systems).
 
42
Communication from the Commission, Guidelines on vertical restrains (2022) 2022/C 248/01.
 
43
Anne C Witt, ‘EJTN Training on EU Competition Law: Vertical Block Exemption Regulation’ EJTN Refi (15–16 November 2021), slide 27 https://​www.​ejtn.​eu/​PageFiles/​19801/​5.​%20​Vertical%20​BER%20​(Witt)%20​final.​pdf accessed 15 May 2022.
 
44
Guidelines, art 4(a) of Regulation (EU) 2022/720, para 185.
 
45
Guidelines on Vertical Restraints, para 195.
 
46
OECD, ‘Directorate for Financial and Enterprise Affairs Competition Committee: Monopsony and Buyer Power’ DAF/COMP/WD(2008)64.
 
47
See the Communication from the Commission Notice—Guidelines on the Application of Article 81(3) of the Treaty (2004) OJ C101/97, 97–118, points 17–27 and 40–47.
 
48
Andrés Font-Galarza et al., ‘RPM Under EU Competition Law: Some Considerations From a Business and Economic Perspective’ (2013) CPI Antitrust Chronicle.
 
49
See Guidelines on Vertical Restraints, sec 223. See further, in the context of vertical restraints, Pierre Fabre Dermo-Cosmétique SAS, (Judgment) Case C-439/09 (2011), sec 47.
 
50
Paragraph 197 of the Guidelines.
 
51
Paragraph 32, OECD, ‘Directorate for Financial and Enterprise Affairs Competition Committee: Implications of E-Commerce for Competition Policy—Note by the European Union’ DAF/COMP/WD(2018)61, para 32.
 
52
Marc Israel et al., ‘New EU Competition Rules for Distribution Agreements’, White&Case (14 July 2021) https://​www.​whitecase.​com/​publications/​alert/​new-eu-competition-rules-distribution-agreements accessed 29 July 2022.
 
53
Commission Decision of 17 December 2018 relating to proceedings under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the Agreement on the European Economic Area—Case AT.40428 Guess (2018) C(2018) 8455 final (Case AT.40428 Guess).
 
54
Vojtech Chloupek, ‘Retail Price Maintenance in the EU’ Bird&Bird (12 October 2020) https://​www.​twobirds.​com/​en/​news/​articles/​2020/​global/​retail-price-maintenance-in-the-eu accessed 29 July 2022.
 
55
Case AT.40428 Guess (n 53).
 
56
Guess decision, para 136: “[…] agreements that impose upon retailers’ minimum or fixed retail prices, thereby restricting the ability of those retailers to determine their resale prices independently, restrict competition by object within the meaning of Art. 101(1) of the Treaty”.
 
57
Guess decision, para 161.
 
58
Guess decision, para 163.
 
59
Guess decision, para 164.
 
60
Case T-286/09 (Judgment), RENV Intel Corporation v. Commission (2022).
 
61
Tim Blanchard et al., ‘The Intel Effect: The General Court Judgment in Case T-286/09 RENV Intel Corporation v Commission’ Slaughter and May (14 February 2022) https://​my.​slaughterandmay.​com/​insights/​briefings/​the-intel-effect-the-general-court-judgement accessed 29 July 2022.
 
62
Cases AT. 40,465 (Asus), AT. 40,469 (Denon & Marantz), AT. 40,181 (Philips), AT. 40,182 (Pioneer).
 
63
Asus decision, para 101; see also Judgment of 11 September 2014, CB v Commission, C-67/13 P, EU:C:2014:2204, para 51; Judgment of 19 March 2015, Dole Food and Dole Fresh Fruit Europe v Commission, C-286/13 P, EU:C:2015:184, para 115.
 
64
Asus decision, para 109.
 
65
Asus decision, para 117.
 
66
Marc Israel and Jacquelyn MacLennan, ‘RPM comes Back from the Dead – EU Commission Tackles Pricing in E-commerce,’ Bird&Bird (1August 2018)  https://​www.​jdsupra.​com/​legalnews/​rpm-comes-back-from-the-dead-eu-38794  accessed 29 July 2022.
 
67
European Commission, ‘Final Report on the E-commerce Sector Inquiry’, (Report) COM(2017) 229 final.
 
68
In 2019, the German Bundeskartellamt fined bicycle wholesaler ZEG about 13.4 million EUR for imposing minimum resale prices on its 47 retailers. The retailers were asked not to undercut the minimum sales prices set by ZEG for different bicycle models. ZEG’s representatives also checked adherence to the resale prices. They received complaints from retailers about other retailers undercutting the prices and conducted their own price research or had this carried out by others. Retailers which had undercut a certain low price were asked to strictly observe the set price. Available at https://​www.​bundeskartellamt​.​de/​SharedDocs/​Meldung/​EN/​Pressemitteilung​en/​2019/​29_​01_​2019_​Fahrrad.​html accessed 26 October 2022.
Subsequently, in March 2020, upon the complaint of eBizcuss, Apple’s largest premium reseller in France, the French Competition Authority fined Apple 1.1 billion EUR for various vertical restraints, including RPM. Apple’s website displayed the prices offered in Apple stores as “suggested prices”; several clauses relating to the use of the Apple trademark for marketing and communication purposes strictly regulated promotions; and Apple monitored prices and sanctioned resellers which offered unauthorized promotions by withholding deliveries of Apple products. See F Vanherck, The French Competition Authority Fines Apple an Unprecedented 1.1 billion EUR for Resale Price Maintenance, Abuse of Economic Dependency, and Product and Customer Allocation’, Alert 2020.https://​www.​wsgr.​com/​en/​insights/​the-french-competition-authority-fines-apple-an-unprecedented-eur-11-billion-for-resale-price-maintenance-abuse-of-economic-dependency-and-product-and-customer-allocation.​html accessed 26 October 2022.
 
69
Serhii Gluschenko and Olga Bobrovska, ‘Distribution and E-commerce: AMCU’s Practice’ 2(732), Yuridychna Gazeta.https://​yur-gazeta.​com/​publications/​practice/​antimonopolne-konkurentne-pravo/​distribuciya-ta-ecommerce-praktika-amku.​html accessed 26 October 2022.
 
70
Rainer Olbrich and Carl-Christian Buhr, ‘Who Benefits from the Prohibition of Resale Price Maintenance in European Competition Law?—The Case of Food Retailing’ (2005) 26 European Competition Law Review 705 (712).
 
71
Mart Kneepkens, ‘Resale Price Maintenance: Economics Call for a More Balanced Approach,’ (2007) 28 European Competition Law Review 656 (658).
 
72
OECD, DAF/COMP(2008)37 (n 3), 36.
 
73
OECD, DAF/COMP(2009)36 (n 2).
 
74
Andrés Font-Galarza et al., ‘RPM Under EU Competition Law: Some Considerations From a Business and Economic Perspective’ (2013) CPI Antitrust Chronicle.
 
75
DAF/COMP(2008)37 (n 2), 37.
 
76
Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49–50 (1977).
 
77
OECD, ‘Directorate for Financial and Enterprise Affairs Competition Committee: Competition on the Merits’ (2006) DAF/COMP(2005)27, 23.
 
Literature
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Metadata
Title
Vertical Agreements in the Competition Law of Ukraine and the EU: A Closer Look at Resale Price Maintenance
Author
Hanna Stakheyeva
Copyright Year
2023
Publisher
Springer Berlin Heidelberg
DOI
https://doi.org/10.1007/978-3-662-66101-7_6