Resale Price Maintenance
It is illegal for a supplier (such as a manufacturer or franchisor) to supply products to another party (such as a retailer or franchisee) on the condition that the goods or services must not be sold at a price less than the price specified by the supplier. The conduct is known as resale price maintenance and is proscribed under section 48 of the Trade Practices Act 1974 (Cth).
There is no prohibition on setting a maximum resale price or a recommended retail price but it is illegal to make it a condition of supply that the retailer or franchisee (for example) does not sell below a specified price.
In a recent case in the Federal Court of Australia, Justice Spender found that, between 1991 and 2003, Jurlique International Pty Limited and Jurlique Distribution Pty Limited breached the Act when they required or attempted to require franchisees not to sell Jurlique’s premium skin care products supplied to them by Jurlique at prices less than the retail prices specified by Jurlique. Jurlique International was ordered to pay the Commonwealth $1,000,000 for its breaches of the Act while Jurlique Distribution was ordered to pay $1,400,000.
Some manufacturers argue that resale price maintenance should be legalised on the basis that the attraction of many products to consumers lies in the fact that they are expensive, which adds an aura of exclusivity to the product. Another argument is that the conduct enables a supplier to maintain a sales profit level and therefore the incentive to distribute the products.
Despite these arguments, resale price maintenance remains per se illegal. As the Jurlique case demonstrates, companies that conduct themselves in breach of the Act may be subject to fines up to $10,000,000.
ACCC v Jurlique International Pty Ltd [2007] FCA 79 (Spender J)