Denon & Marantz (AT.40469)

1. CASE SUMMARY

A. Summary of facts

D&M is an international manufacturer in the audio/video consumer electronic and home entertainment sector. The company is headquartered in Kawasaki, Japan. It markets audio and video consumer products under the Denon, Marantz and Boston Acoustic brands.

D&M introduced a new standard selective distribution agreement in 2011. This agreement aimed at maintaining the premium image of D&M’s branded products and ensuring high levels of pre- and post-sale services. It included support by D&M to its retailers and protection for their investments via e.g. ‘margin stabilization’. On paper, the D&M retailers were free to set their resale prices independently. In practice, D&M Germany and D&M Netherlands implemented various measures to maintain a stable resale price level in the market.

In Germany, this objective was attained by a gentleman’s agreement between D&M Germany and its retailers, whereby these retailers guaranteed to not price Denon branded products aggressively. D&M Germany also expected its retailers to adhere to minimum resale prices, so-called “street prices”. D&M Germany moreover sent individual resale-price related requests to specific retailers when D&M Germany noticed that such retailers had reduced their prices below a certain price level. In addition to these individual requests, D&M Germany contacted several retailers simultaneously to increase the overall resale-price level for one or more products in an orchestrated manner. Retailers who adhered to the desired resale prices were rewarded with financial benefits. Those who did not were threatened and subject to retaliatory measures. D&M Germany for instance ceased supplies and temporarily blocked customer accounts. D&M Germany also informed retailers if and on what conditions they were allowed to determine their resale prices independently.

In the Netherlands, the same objective was pursued by D&M Netherlands by requiring its retailers to adhere to the recommended resale prices (instead of the aforementioned street prices. D&M Netherlands took initiatives aimed at “cleaning up the prices” in the market to achieve internet-wide price increases for its products. This consisted of approaching different retailers on the same day and getting them to increase prices simultaneously. In addition thereto, D&M Netherlands issued individual resale-prices related requests. Also in the Netherlands, pressure was exercised in the form of threats and retaliatory measures were taken against retailers that undercut desired price levels.

Both D&M Germany and D&M Netherlands occasionally gave instructions to implement a controlled price decrease when these were deemed necessary to avoid a wider, more drastic, price decrease in the market.

These practices started on 19 April 2011 and continued until 19 January 2015 in Germany and started on 30 May 2011 and lasted until 6 February 2014 in the Netherlands.

B. Legal analysis

B.1 - Article 101(1) TFEU – restriction by object / single and continuous infringement

The Commission found that the conduct described above constituted one or more agreements and/or concerted practices within the meaning of Article 101(1) TFEU. Via that conduct, D&M Germany and D&M Netherlands expressed their intention to act with their retailers in Germany and the Netherlands respectively in such a way as to limit resale price competition.

This conduct constituted in the Commission’s view two single and continuous infringements. The agreements or concerted practices were all in pursuit of an identical anti-competitive objective, namely, to stabilize or increase the resale price of the relevant D&M products in Germany and in the Netherlands. The conduct followed a similar pattern throughout the relevant period, the same individuals were involved and there was a continuity and similarity of method.

The Commission concluded that the conduct, by its very nature, restricted competition within the meaning of Article 101(1) TFEU because it restricted the ability of retailers to determine their resale prices independently. Moreover, price monitoring and adjustment software programmes may multiply the impact of price movements. Consequently, by closely monitoring the resale prices of its retailers and intervening with the lowest pricing retailers to get their prices increased, D&M could according to the Commission avoid price erosion across, potentially, its entire (online) retail network. Lastly, the Commission took the view that the conduct was also capable of affecting trade between Member States, meaning that all the conditions for a breach of Article 101(1) TFEU were fulfilled.

B.2 - Article 101(3) TFEU – no block exemption nor individual exemption

The Commission concluded that the conduct could not be exempted under the VBER because its object was to restrict the ability of retailers to independently determine their sale prices (hardcore restriction, Article 4(a) of Regulation 330/2010). The conduct did in the Commission’s view and it did not meet the conditions set out in Article 101(3) TFEU. The Commission emphasized that there were no indications that the conduct of D&M was indispensable to induce retailer investment in certain promotional measures or pre-sale services or to alleviate the repercussions of free riding between online and offline sales channels.

B.3 - Fines – reduction of fine because of cooperation

The Commission required D&M to bring the two single and continuous infringements to an end in accordance with Article 7 of Regulation 1/2003 and to refrain from any measure which has the same or similar object or effect. Additionally, the Commission imposed a fine of EUR 6,327,000 on D&M Germany and EUR 1,392,000 on D&M Netherlands. It held their parent company D&M Holdings Inc. jointly and severally liable for both fines. When determining the amount of the fine, the Commission granted a reduction of 40% under paragraph 37 of the Fining Guidelines. The reduction was granted to reflect the active cooperation by D&M beyond its legal obligation to do so, by providing additional evidence representing a significant added value, acknowledging the infringements and waving certain procedural rights, which resulted in administrative efficiencies.

2. QUOTES

"The agreements or concerted practices described in section 5 with respect to retailers in Germany were all in pursuit of an identical anti-competitive objective, namely to stabilise or increase the resale price of the relevant D&M products in Germany. […]" (§86)

"The evidence demonstrates that such resale price maintenance formed part of an overall business strategy implemented respectively by D&M Germany in Germany and by D&M Netherlands in the Netherlands aimed in each case at maintaining or increasing the resale price of D&M products above the price level that retailers in the territory in question would set independently. Beyond that immediate purpose, the broader objective of the continuous price monitoring and resale price maintenance was to avoid the possibility that, by adjusting to the prices of the lowest pricing retailers, market prices of other retailers would also fall, generating a wider price decrease in the market." (§87)

"Even price decreases which were considered occasionally necessary to react to market conditions were frequently based on instructions by D&M Germany and D&M Netherlands, indicating clearly a particular date and time to achieve a “controlled” price decrease." (§88)

"Price monitoring and adjustment software programmes may multiply the impact of price movements. Consequently, by closely monitoring the resale prices of its retailers and intervening with the few lowest pricing retailers to get their prices increased, D&M Germany and D&M Netherlands could avoid price erosion across, potentially, its entire (online) retail network." (§95)

"The conduct of D&M Germany and D&M Netherlands was not exempted under the VBER because that conduct had as its object to restrict the ability of retailers of D&M products to independently determine their sale price." (§102)

"The conduct of D&M Germany and D&M Netherlands also did not meet the conditions for exemption provided for in Article 101(3) of the Treaty. In particular, there are no indications that it was indispensable to induce retailer investment in certain promotional measures or pre-sale services or to alleviate the repercussions of free-riding between online and offline sales channels." (§103)

"D&M has cooperated with the Commission beyond its legal obligation to do so by: (i) providing additional evidence representing significant added value with respect to the evidence already in the Commission's possession as that evidence strengthened to a large extent the Commission's ability to prove the infringements; (ii) acknowledging the infringements of Article 101 of the Treaty in relation to the conduct; and (iii) waiving certain procedural rights, resulting in administrative efficiencies." (§131)

3. RELEVANT LEGISLATION

• Article 101 TFEU
• Regulation 1/2003
• Regulation 773/2004
• Regulation 330/2010
• Fining Guidelines

4. RELEVANT LITERATURE

On the prohibition of resale price maintenance, see F. WIJCKMANS and F. TUYTSCHAEVER, Vertical Agreements in EU Competition Law, Oxford University Press, 2018, §6.50 – 6.88.

5. PRACTICAL SIGNIFICANCE

The Denon & Marantz decision was issued shortly after the conclusion of the Commission’s e-commerce sector inquiry. On the same day, the Commission also fined, in separate decisions, consumer electronics manufacturers Pioneer, Asus and Philips for imposing fixed or minimum resale prices on their online retailers in breach of EU competition rules. The four decisions marked a renewed interest of the Commission in vertical restraints and maintaining intra-brand competition with a particular focus on restrictions in the context of online sales. In all four cases, the Commission awarded significant reductions on the fines in return for the companies’ cooperation with the Commission.