Last week, the ACCC issued a draft determination proposing to grant conditional authorisation to Tooltechnic Systems (Aust) Pty Ltd to set minimum retail prices on Festool power tools for a period of three years.
Normally, setting a minimum or actual price at which products must be resold would raise issues under the per se prohibition against resale price maintenance. This is the first ever application for authorisation considered by the ACCC for resale price maintenance.
Tooltechnic imports and wholesales power tools and related products and is the exclusive distributor of Festool branded power tools in Australia. It is proposing to amend its agreements with Festool dealers to provide that they must not sell Festool products at a price below the price set by Tooltechnic.
Interestingly, in 2007, Tooltechnic was fined $125,000 by the Federal Court for engaging in similar conduct back in 2001 and 2002.
Tooltechnic submitted that, given the complex and differentiated nature of Festool products, the provision of pre and post-sale services such as product demonstrations, ‘try before you buy’, repairs, loan tools and training in use of a product, is extremely important to its sales volumes. Tooltechnic noted that customers can access retail services from one dealer but then purchase the product from another (who may or may not provide the services) thereby ‘free riding’ on the services offered by the other dealer.
Tooltechnic was concerned that this could result in dealers ceasing to offer the retail services in the future and therefore a reduction in sales of Festool products. Tooltechnic submitted that the proposed conduct would encourage greater provision of pre and post sales services by requiring dealers to compete on service rather than price.
In its reasoning in the current case, the ACCC accepted that the proposed conduct would eliminate price competition between dealers, resulting in some customers paying a higher price for Festool products. However, the ACCC considered this detriment was likely to be limited as Tooltechnic would have limited incentive to set minimum prices above competitive levels given the numerous alternative premium quality power tools available to customers.
The ACCC also considered that the conduct was unlikely to facilitate coordinated conduct between suppliers of premium power tools given the small market share of Festool products and the number of alternative suppliers, the history of entry and expansion and the level of competition and innovation in the industry.
The ACCC accepted that, in certain circumstances, resale price maintenance can address market failures and arise in public benefits. In particular, the ACCC accepted Tooltechnic’s submissions that the proposed conduct would alleviate the problem of ‘free riding’ by some of its dealers.
On balance, the ACCC considered that the proposed conduct was likely to result in some benefits to consumers, although noted the it is difficult to predict the exact extent to which the proposed conduct would encourage greater provision of pre and post sales services.
In light of the finely balanced nature of the public benefits and detriments, and fact that this is the first application for authorisation for RPM, the ACCC proposed to authorise the conduct for three years as opposed to the five years most authorisations are typically granted for.
Submisisons in relation to the draft determination are due by 7 November 2014. The ACCC will consider these submissions before issuing a final determination in respect of the conduct. We will keep you updated on any developments.
The laws on resale price maintenance have also been considered by the Harper Review as part of its root and branch review on the effectiveness of Australia’s current competition policy and laws. In its draft report published on 22 September 2014, the Panel recommended that the per se prohibition on resale price maintenance be retained, but the streamlined notification process that is currently in place for third line forcing should also apply to resale price maintenance, together with the introduction of an exemption for related bodies corporate. See our blog post for more.