SaaS suppliers and SaaS resellers should be aware that price fixing is illegal under UK and EU competition law. Often SaaS resellers are not aware that the terms of their SaaS reseller agreement include price fixing clauses. For example: If the SaaS reseller agreement includes clause on resale price maintenance (RPM). This will usually be deemed to be price fixing by the Competition and Markets Authority (CMA) who investigates breaches of competition law in the UK.
What is Price Fixing
Price fixing occurs when competitors agree (i.e. SaaS suppliers or SaaS resellers) what price they will charge SaaS customers for their SaaS services.
Price fixing occurs between a SaaS supplier and a SaaS reseller where a SaaS supplier tries to control the price at which SaaS services can be resold to SaaS customers for example by using RPMs.
What is RPM
An RPM is when a SaaS supplier controls the resale price of the SaaS services to customers, by agreeing with the SaaS reseller that the SaaS services will be resold at, or above, a particular price. RPM can be achieved directly by including this restriction in the terms of the SaaS reseller agreement.
RPM can also be achieved indirectly:
- By including terms in the SaaS reseller agreement that restrict discounts on prices; or
- Where financial incentives are offered to the SaaS reseller, to resell at a particular price.
RPM involves parties at different levels of the supply chain i.e. the SaaS supplier and the SaaS reseller.
Why RPM is Price Fixing
RPM is usually deemed to be “price fixing” and illegal because it prevents SaaS resellers from offering lower prices and setting their own independent prices at which they can resell SaaS services to SaaS customers.
The CMA recently fined a fridge supplier £2.3 million for imposing a minimum advertised price on goods sold by a reseller because this restricted the price that goods could be advertised online by resellers. The supplier threatened to charge resellers “higher cost prices for its products” or to stop supplying products altogether if its resellers advertised fridges below the minimum price. This amounted to price fixing.
In a similar case involving a bathroom fitting company, the CMA imposed a fine of £786,000 for the use of RPMs. The supplier had threatened to penalise online resellers for not pricing its products at, or above, its recommended prices.
It should be noted that fines can be imposed on SaaS suppliers as well as SaaS resellers for breaches of competition law.
How to Avoid Price Fixing
In order to avoid direct or indirect price fixing and the risk of being fined by the CMA,
SaaS Suppliers should, in the terms of the SaaS reseller agreement:
- Not dictate the price at which SaaS services can be resold, either online or through other sales channels;
- Not include provisions that set a minimum advertised price for any sales of SaaS services;
- Not use threats, financial incentives or take any other action, such as withholding supply or offering less favourable terms, to make SaaS resellers stick to recommended resale prices.
SaaS Reseller should in the terms of the SaaS reseller agreement:
- Ensure that they are entitled to set the price of the SaaS services they resell to SaaS customers, regardless of whether sales are made online or through other sales channels;
- Ensure that SaaS suppliers cannot dictate the prices at which a SaaS reseller can advertise their products online.
Consequences of Price Fixing
If a SaaS reseller has agreed with a SaaS supplier to resell SaaS services at fixed or minimum prices, both be could be found to be breaking competition law. In addition to both being fined up to 10% of worldwide turnover the SaaS supplier and SaaS reseller could also be:
- Sued for damages;
- Sent to prison for up to 5 years;
- Disqualified from being a company director for up to 15 years.
Irene Bodle is an IT lawyer specialising in SaaS, with over 14 years experience dealing with SaaS, cloud computing matters and IT law issues. If you require assistance with any SaaS agreements, cloud computing matters or any other IT legal issues please contact me at:
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