The vertical fight continues: two more cases on vertical restraints
Companies should be aware of the continued focus of competition authorities on vertical restraints.
Cross-border restrictions have been on the European Commission's radar for some time now.
In its judgment of 27 September 2023, the EU General Court confirmed the Commission’s decision that Valve (an online platform operator for video games) and five game developers had infringed the cartel prohibition by restricting cross-border sales through geo-blocking.
The ACM has shown an interest in practices where under the pretence of ‘price reccomendations’, suppliers coordinate price increases of retailers. Two years after fining Samsung, it imposed a fine on LG on 11 July 2023 for such conduct. Suppliers may only give retailers non-binding price recommendations and LG did (much) more than that.
Companies are well advised to ensure that in the context of supply relationships, commercial practices do not lead to online or offline territorial restrictions nor amount to resale price maintenance.
Vertical restraints continue to be hotter than ever. The EU General Court rendered its judgment in the Valve case on 27 September 2023, in which it found that Valve, together with five video game developers, had infringed the cartel prohibition by restricting cross-border sales. Moreover, on 11 July 2023 the ACM imposed a fine on LG for resale price maintenance by means of practices that went beyond the genuine use of recommended retail prices.
The EU General Court's Valve judgment
The Valve case demonstrates the continuation of the Commisison’s focus on combatting cross-border restrictions (see for example the Sanrio, Guess, and NBCUniversal and Meliá cases).
The case concerns territorial restrictions in relation to Valve’s online PC video gaming platform called Steam. In order to play a video game on Steam, users must first apply an activation key. However, certain video games could only be activated in certain low-priced countries and not in other territories.
Following the European Commission ("Commission"), the EU General Court found that this qualified as illegal territorial restrictions agreed between Valve and five video game developers. It dismissed Valve's claims that Valve would have merely implemented the territorial restrictions as a service provider at the request of the five video game developers. Several factors were relevant for this. For instance, Valve in fact proactively referred the video game developers to the possibility of using territorial restrictions to restrict use from countries where the video games were sold at a lower price.
The EU General Court emphasised that the territorial restrictions did not have the objective of protecting the video game developers' copyrights. They were aimed at eliminating parallel imports in order to protect the sales and high royalties outside the low-priced countries. Therefore, the fact that copyrights were at play did not preclude the Commission from qualifying the conduct as a by object restriction.
The EU General Court's Valve judgment may still be overturned by the Court of Justice (if Valve decides to lodge an appeal). However, it confirms that companies should refrain from implementing any online and offline territorial restrictions in their supply relationships.
The ACM's LG decision
The ACM has demonstrated to be vigilant against disingenuine use of recommended retail prices. Reccomended retail prices have to be genuinely non-binding and are illegal if in practice they are used to fix or increase prices. Two years after fining Samsung for such behaviour, on 11 July 2023 it fined LG for similar conduct.
According to the ACM, LG effectively determined its retailers' online consumer prices, under the pretense of 'recommended retail prices'. The ACM found evidence that LG for instance requested its retailers to increase their online consumer price when it was lower than the recommended retail price. LG also provided those retailers comfort that others would equally follow these recommendations. As a consequence, the ‘recommended’ prices could no longer qualify as a true recommendation but they resulted in illegal resale price maintenance. The fact that the relevant written contracts with LG's customers did not contain any resale price maintenance did not alter the ACM's conclusion. LG's behaviour in practice sufficed.
It is noteworthy that, as in the Samsung case, the ACM chose not to fine the retailers. This is of particular interest here because the ACM confirms that retailers themselves regularly approached LG to complain about other retailers and requested LG to act against them. It remains to be seen whether the ACM will fine retailers for such conduct in the future. Moreover, just as Samsung, LG received a 20% discount on the basic fine, because at the time of the infringement the ACM had not yet imposed fines for similar vertical restraints. Thus, companies might need to be prepared for higher fines in the future.
In short, the LG case confirms that companies should use recommended retail prices for their genuine purpose: actual non-binding recommendations. Companies should be careful not to engage in illegal price restrictions, such as resale price maintenance, by influencing retail prices under the pretense of 'recommended retail prices'.
Conclusion
The EU General Court's Valve judgment and the ACM's LG decision once again confirm that companies should not take competition rules lightly in their supply relationships. The authorities’ attention for vertical restraints cannot be called an outlier and appears to be here to stay. Companies are therefore well advised to ensure that in the context of supply relationships, commercial practices are compliant with the applicable competition rules.
This article was published in the Competition Newsletter of October 2023. Other articles in this newsletter:
