ISLAMABAD, 14 MARCH 2022: The Competition Commission of Pakistan (CCP) passed an order against Haier and DEL/Dawlance for violation of Section 4 of the Competition Act, 2010 for entering into resale price maintenance (RPM) arrangements with its dealers, which is a form of price-fixing under Section 4(2)(a) of the Act and by object an anti-competitive practice. The Bench comprised of the Chairperson, Ms. Rahat Kaunain Hassan and Member, Mr. Mujtaba Ahmad Lodhi.
CCP held that the contravention is a hardcore restriction and serious violation of competition law and imposed the following penalties:
(i) For DEL/Dawlance, considering its change in management, which discontinued the RPM agreement/practice, the fact that it voluntarily committed to refund the penalties to its dealers and had a cooperative and compliance-oriented approach throughout the proceedings, CCP restricted the penalty amount to PKR 100 million, not exceeding 1% of its annual turnover in FY 2020-21. CCP, therefore, held that the conduct, circumstances, approach and the duration of the contravention did not justify the same treatment for both parties.
(ii) Whereas, Haier was ‘blowing hot and cold’ throughout the proceedings. Nevertheless, although its conduct called for a much higher and stricter penalty, considering the violation is a case of first instance for Haier and in order to promote a compliance-oriented approach, with good faith, CCP restricted the penalty amount to PKR 1 billion, not exceeding 3% of its annual turnover in FY 2020-21.
Briefly, by way of background, the Commission had initiated an enquiry under Section 37(1) of the Act into the alleged contravention of Section 4 of the Act by “electronic appliance manufacturers, distributors/dealers and their respective trade associations”. To gather evidence, search and inspections were also carried out at both Haier’s and DEL/Dawlance’s premises under Section 34 of the Act. CCP found evidence of price circulars sanctioning dealers and price control policies in place through which both Haier and DEL/Dawlance had restricted its dealers from selling below a certain price, provide any discounts or package deals and imposed penalties/sanctions on their dealers to monitor and implement their respective pricing policies.
The parties had also not obtained any exemption from CCP for its RPM agreements under Section 5 of the Act on account of any efficiency grounds specified under Section 9 of the Act, i.e., that the agreements substantially contribute to improving production or distribution, promoting technical or economic progress, while allowing consumers fair share of the resulting benefit, or the benefits of the agreements clearly outweigh the adverse effects of absence or lessening of competition.
CCP observed that RPM agreements in any form including restricting discounts and imposing minimum/maximum pricing levels are by object anti-competitive and void under Section 4 of the Act. In this connection, it was observed that the choice to offer forms of discount or package deals is an important part of the negotiating process. Restricting the same along with fixing prices lessens consumer bargaining power. RPM may also lead to price hikes for consumers. Also, the argued pro-competitive effects could by no means be upheld and justified where the parties imposed penalties/sanctions on its dealers.
Alarmed by the potential likelihood of RPM agreements being rampant in any market in Pakistan as well as the possibility of dealers requesting to implement the same, CCP has cautioned all retailers, suppliers, manufacturers, dealers and any other party in all sectors as follows:
RPM Agreements are ‘by object’ anti-competitive in nature and a violation of Section 4(2)(a) of the Act. The Commission considers the same to be a serious violation of competition law. Any party wishing to implement the same must notify such agreements/arrangements and first seek clearance from the Commission through exemption under Section 5 of the Act addressing the efficiencies specified under Section 9 of the Act. In the absence of such exemption, such agreements/arrangements are void.
Forms of RPM include imposing minimum and maximum pricing restrictions and discount restrictions.
iii. If a party has been involved in an RPM arrangement, it may benefit from lenient treatment by coming forward and filing a leniency application.
Parties cannot, directly or indirectly, impose any sanction, monitor compliance and/or coerce other parties.