FCCA v Isojoen Konehalli Oy (MAO:32/22)

1. CASE SUMMARY

A. Summary of facts

IKH is an importer and wholesaler of tools and spare parts. The Finnish Market Court found that IKH had infringed Article 101 TFEU and its Finnish counterpart Section 5 of the Competition Act by engaging in resale price maintenance (‘RPM’).

According to the Market Court, IKH's infringement consisted of two parts:

• First, from March 2010 until February 2015, IKH had required its retailers to price all products supplied by IKH (‘IKH Products’) in accordance with IKH’s recommended resale price (‘RRP’) in the retailers’ own online stores.
• Second, in October 2014, IKH had established its own online store (the ‘IKH Online Store’) for selling IKH Products itself to which only its authorized retailers that had entered into a Sales Cooperation Agreement with IKH could join by signing a separate Online Store Agreement. Pursuant to these agreements, the IKH Online Store directed all orders placed in the store, including the price paid by the customer, to an authorized retailer based on the customer's zip code. All the IKH Products sold through the IKH Online Store were priced according to IKH's RRP, irrespective of whether IKH or an authorized retailer delivered the product. This part of the infringement lasted from the opening of the IKH Online Store in October 2014 until the FCCA ordered IKH to cease the conduct on 20 May 2020.

The FCCA had proposed the Market Court to impose a fine of EUR 9 million to IKH, but the Market Court ended up imposing a fine of EUR 1.75 million.

B. Notes on case history

The Market Court's judgment is based on the FCCA's cease-and-desist-order and statement of objections of 20 May 2020.

C. Legal analysis

Article 101(1) TFEU – object restrictions

The RPM was twofold, first in IKH's contacts with its retailers concerning their own online stores, and second with regard to the IKH Online Store:

• Regarding the retailers’ online store, the Market Court found that IKH had an agreement or at least a concerted practice with four of its retailers concerning the retailers’ pricing of IKH Products in their own online stores. IKH pressured or requested the retailer to alter their online prices to correspond IKH's RRP and the retailer acquiescing to IKH's initiatives.
• Regarding the IKH Online Store, the Market Court found that the relevant agreements did not constitute genuine agency agreements. It concluded that since the Sales Cooperation Agreement explicitly stated that the authorized retailers act as independent undertakings when selling IKH Products, and since the Sales Cooperation Agreement and the Online Store Agreement formed a single whole, it was clear that the authorized retailers were not acting as agents when delivering orders directed to them by the IKH Online Store.

Subsequently, the Market Court found that the RPM constituted restrictions by object:

• Regarding the retailers’ online store, the Market Court stated that IKH's conduct by which it required its retailers to comply with or pressured them to comply with its RRP had at least the potential to have a negative impact on competition, and thus its object was to restrict competition.
• Regarding the IKH Online Store, the Market Court considered the following:
  • First, it noted that IKH had dictated the price of IKH Products sold through the IKH Online Store, and that this price was paid to any party that delivered the order whether it was IKH or an authorized retailer.
  • Second, it added that when fulfilling the orders directed to them by the IKH Online Store, the retailers delivered to the customer an IKH Product from their own stock that they had previously bought from IKH for resale, and thus carried the commercial risk related to that product.
  • Third, it considered IKH's other conduct by which the company had required its retailers to comply with its RRP in their own online stores. According to the Market Court, this conduct combined with the fact that the price visible in the IKH Online Store was IKH's RRP, the IKH Online Store's pricing could lessen the retailers' incentives to deviate from IKH's RRP in their own online stores. Based on this the Market Court stated that with the fixed pricing based on the Online Store Agreements, IKH aimed to influence the resale pricing of IKH Products, and to lessen price competition between IKH and its authorized retailers on the one hand and between the authorized retailers on the other. The Market Court concluded that IKH's conduct concerning the IKH Online Store aimed to restrict competition in the online sales of IKH Products, which by its very nature displayed a sufficient degree of harm to competition, thus having as its object the restriction of competition.

Article 101(3) TFEU – RPM not an indispensable restriction

During the proceedings, IKH had argued that consumers had benefited from the IKH Online Store since it resulted in faster deliveries and better services in connection with the deliveries provided by the authorized retailers. The Market Court underlined that IKH's conduct concerning the IKH Online Store had as its object the restriction of competition, so that the examination of its effects or the definition of relevant markets had not been necessary. It then stated that IKH had not given adequate justifications for why such restriction would have been indispensable to achieve the claimed benefits, and that selling IKH Products through an online store could have been achieved without RPM.

Fines – a significant reduction based on narrower extent of the infringement

The Market Court found that the infringement constituted illegal price fixing restrictive of competition, which was a serious infringement despite its vertical nature. The Market Court also found that, contrary to what the FCCA claimed, IKH had not required its retailers to comply with its RRP in the retailers’ brick-and-mortar stores, but only in their online stores. Second, the Market Court considered that the orders from its online store that IKH delivered itself was IKH's unilateral conduct, and thus were outside the scope of the infringement. Such deliveries made up most of the total deliveries made through the IKH Online Store. Based on these two factors the Market Court concluded that the extent of the proven infringement was significantly narrower than what the FCCA's request was based on. As a result of an overall assessment, the Market Court ended up imposing a fine of EUR 1.75 million instead of the proposed EUR 9 million.

2. QUOTES

"The Market Court considers it proven that IKH has had an agreement or at least a concerted practice with [Retailer A], [Retailer B], [Retailer C] and [Retailer D] concerning resale price maintenance of IKH Products in these retailers' online stores. These do not constitute IKH's unilateral measures, but conduct in a vertical contractual relationship in which the aforementioned retailers have harmonized their pricing of IKH Products in their online stores to match the minimum price level determined by IKH." (free translation of §304)

"IKH's conduct constituted a restriction of competition, by which it has ordered its retailers to comply with a minimum price level it has determined for the resale of IKH Products in the retailers' own online stores and has, when necessary, applied pressure on retailers if they have not complied with the minimum resale price determined by IKH in their own online stores." (free translation of §315)

"The Market Court considers that IKH's conduct described above has at least had the potential to have a negative impact on competition. Consequently, the conduct has constituted a restriction having as its object the restriction of competition, for which it has not been necessary to assess its possible restrictive effects on competition." (free translation of §316)

"The Market Court considers that, when assessing IKH's conduct as a whole, the focal objective of the Online Store Agreements has been, through the fixed prices of the IKH Online Store, to lessen the price competition of IKH Products between IKH and its authorized retailers as well as between the authorized retailers, and to limit the authorized retailers' freedom to price IKH Products in the IKH Online Store. At the same time, the aim of the conduct with regard to the IKH Online Store has been to ensure an artificially high margin for the sales of IKH Products to IKH and the chain of authorized retailers." (free translation of §434)

"Considering the above, IKH's conduct regarding the IKH Online Store has constituted conduct which had as its aim the restriction of competition in the sales of IKH Products online, which has displayed, by its very nature, a sufficient degree of harm to competition. Consequently, the conduct concerning the IKH Online Store has constituted a restriction of competition by object, for which it has not been necessary to assess its possible restrictive effects on competition." (free translation of §436)

3. RELEVANT LEGISLATION

• Section 5 of the Finnish Competition Act (no. 948/2011)
• Article 101 TFEU

4. PRACTICAL SIGNIFICANCE

This was the first statement of objections by the FCCA and the first judgment of the Market Court concerning RPM in Finland for a decade. The judgment shows that, while enforcement has been low, RPM is considered to be a serious infringement of competition law that will attract a fine.

The judgment also underlines the relevance of e-commerce in the enforcement of vertical cases. The FCCA had underlined the effectiveness of e-commerce as a means of enhancing price competition, and the Market Court considered that using IKH's Online Store to dampen price competition was a factor when assessing the infringement's degree of gravity and consequently the amount of the fine. It is noteworthy that the IKH Online Store resembled a so-called 'hybrid platform' as defined in recital 14 of the Vertical Block Exemption Regulation (Regulation 2022/720) and paragraphs 104-109 of the Vertical Guidelines run by IKH and to which its authorized retailers could join. Even though one could thus read the case as RPM conducted by a hybrid platform, one should be careful of drawing such conclusions since the case was decided before the new Vertical Block Exemption Regulation was in force and was assessed based on existing principles from case law based on Article 101 TFEU. However, suppliers and buyers should be careful when establishing a joint online presence, be it in the form of a common store or a platform, in order to avoid RPM or other hardcore infringements.