Resale Price Maintenance (RPM): is it Allowed or Prohibited Under Business Competition Law?

Resale Price Maintenance (RPM) refers to the business practice where upstream entities, such as manufacturers, producers, or suppliers, control the price at which their products are resold. This practice involves an agreement between two or more business actors operating at different levels of the production or distribution chain.¹ This practice has significant implications within the context of business competition law, as it may lead to anti-competitive outcomes, limiting free market competition, and disadvantages consumer. According to Indonesian business competition law, specifically under Law Number 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition (hereinafter referred to as “Law No. 5/1999”), RPM is considered a prohibited action and a violation of the Law No. 5/1999 under certain conditions. The following is an elaboration on this matter:

TYPES OF RPM AND THEIR IMPLICATIONS

Indonesian law recognizes three types of RPM:²

1. Maximum Resale Price: Suppliers may set a ceiling price to prevent retailers from charging excessively high prices, which can benefit consumers by keeping prices in check.
2. Specified Resale Price: This occurs when a supplier mandates a fixed price at which retailers must sell their products. It eliminates price competition among retailers within the same brand but can encourage competition in service quality.
3. Minimum Resale Price: This is the most contentious form, where retailers cannot sell below a certain price. It may limit competition and lead to higher prices for consumers. 

Among these, the specified resale price and minimum resale price are more likely to have anti-competitive effects and are thus more frequently scrutinized under competition law.³ These practices can disadvantage consumers when businesses implement these RPM as a means to facilitate collusion. By setting RPM, upstream companies can ensure that the prices consumers pay align with the collusive agreements made by those companies. Moreover, consumers are also disadvantaged when retailers, who have stronger bargaining power than producers or suppliers, can force producers or suppliers to set resale prices that benefit the retailers, ensuring that consumer prices remain high.⁴

LEGAL FRAMEWORK IN INDONESIA

The prohibited RPM under the Law No. 5/1999 is the Minimum Resale Price, as stipulated in Article 8 of the Law No. 5/1999, as follows:

“Business actors are prohibited from entering into agreements with other business actors that contain requirements that the recipient of goods and/or services will not sell or resupply the goods and/or services received by them at a price lower than the agreed price, which may result in unfair business competition.”

This article clearly defines Minimum Resale Price as an illegal practice if it results in unfair competition. The prohibition of RPM under this law is governed by the principle of the “rule of reason,” meaning that RPM is not automatically illegal but becomes so if it is proven to cause anti-competitive effects. RPM that can lead to unfair business competition are also typically associated with other prohibited actions in Law No. 5/1999, such as;⁵

Related Provisions:

• Article 25 regarding to Dominant Position: Minimum Resale Price Maintenance (RPM) will have a significant impact if carried out by sellers/suppliers/recipients who hold a dominant position.
• Article 5 regarding Price Fixing: Minimum Resale Price Maintenance may be carried out by business actors to facilitate collusion.
• Article 50 (d) related to agency agreements: Minimum Resale Price Maintenance may be implemented by business actors within the context of agency arrangements.

ECONOMIC RATIONALE BEHIND RPM PROHIBITION

From an economic standpoint, RPM can have both positive and negative effects. The positive impact arises when RPM, particularly the Specified Resale Price type, is used to eliminate price competition within the same brand, thereby encouraging retailers to improve their service levels, which in turn leads to service competition among retailers, benefiting consumers.⁶ Additionally, if a retailer holds a monopolistic position, RPM in the form of Specified Resale Price and Maximum Resale Price, can be applied by producers or distributors to prevent the imposition of excessively high margins by the monopolistic retailer.⁷ However, the negative effects often outweigh these benefits, particularly when RPM is used to facilitate collusion, maintain high prices, and eliminate competition. 

The Indonesian Competition Law, therefore, requires that any RPM practice be assessed on a case-by-case basis to determine whether it restricts competition. 

ASSESSMENT OF THE IMPACT OF MINIMUM RESALE PRICE MAINTENANCE

To prove that a violation of Article 8 Law No. 5/1999 has occurred, the Komisi Pengawas Persaingan Usaha (KPPU) (Indonesia’s Competition Supervisory Commission) must first establish that the following two conditions have been fulfilled:

1. The price is lower than the agreed-upon price ⁸

KPPU must obtain evidence of an agreement, in written and/or unwritten, between two or more business actors operating at different levels of production or operations, in which the setting of a minimum resale price is stipulated. Furthermore, the provision or evidence of sanctions imposed for failure to comply with the minimum resale price agreement is also important thing to be assessed.

2. Resulting in Unfair Business Competition ⁹

According to Article 1, paragraph 6 of Law No. 5 of 1999, unhealthy business competition is defined as competition among business actors in conducting the production and/or marketing of goods and/or services in a manner that is unlawful or obstructs business competition. 

Therefore, in the assessment of alleged violation of Article 8 of Law No. 5 of 1999, evidence of lower-than-agreed pricing is not sufficient to establish a violation of Article 8. It must be accompanied by evidence of negative effects on competition. Market competition can be disrupted when anti-competitive behaviour is carried out by companies that hold a dominant position in the market. However, dominant position still does not automatically negatively impact competition unless it can be proven that competition has indeed been disrupted.

Some of the market elements included in the assessment of proof of unfair business competition includes, but are not limited to:

• Market Structure: To determine that minimum resale price maintenance has a negative impact on competition, it is important to assess whether there has been a change in market structure. This can occur if the business actor who violates the minimum resale price maintenance agreement receives sanctions from the supplier, which can cause to forcing them out of the market.
• Cost-Benefit Analysis: Setting resale prices that eliminate price competition can trigger service competition. Cost-Benefit Analysis is to determine the extent of the benefits received by consumers as a result of resale price maintenance (due to the emergence of service competition from the absence of price competition) compared to the losses incurred from the elimination of price competition.

CASE EXAMPLE: THE SEMEN GRESIK CASE 

This case involves the distribution of Semen Gresik in areas of East Java, covering the regions of Blitar, Jombang, Kediri, Kertosono, Nganjuk, Pare, Trenggalek, and Tulungagung. The violation is alleged to have been committed by 10 Semen Gresik Distributors and PT Semen Gresik Tbk., as the Producer of Semen Gresik (“PT SG”).

Before the formation of the consortium, there was a price war among the 10 distributors due to the freedom to distribute Semen Gresik to regular customers/Langganan Tetap (LT) outside their designated areas. To resolve this price war, the 10 distributors formed a consortium. The formation of this consortium was approved by PT SG. PT SG implemented a Vertical Marketing System in which PT SG and the distributors in the consortium would work together to market Semen Gresik. Each member of the consortium entered into a sales and purchase agreement with PT SG that included provisions such as:

• PT SG determining the redemption price for the Distributor in consortium, the selling price of Semen Gresik from the Distributor to LT, the selling price of Semen Gresik from the Distributor and/or LT to the Store, and the minimum retail price.
• All distributors within the consortium are prohibited from offering discounts or selling at a price lower than the set price.
• Distribution quotas of Semen Gresik were divided among the distributors in the consortium.
• Distributors were prohibited from selling Semen Gresik to other distributors or to LT and/or retailers outside their designated areas, as well as from selling cement brands other than Semen Gresik.
• Violations of these provisions would result in sanctions, such as written warnings, quota reductions, suspension of delivery orders, fines, forfeiture of guarantees or collateral, and revocation of rights or termination of distributor status.

Fulfilment of Article 8 Elements in UU NO.5/1999:

1. PT SG entered into a purchase agreement with its distributors.
2. To maintain price stability for Semen Gresik, PT SG required its distributors to sell at the agreed-upon price and prohibited the provision of discounts.

• The obligation for distributors to sell Semen Gresik at the agreed-upon price led to unfair business competition, as distributors were required to adhere to the predetermined price, reducing the opportunities for distributors to compete in selling Semen Gresik to their retail customers. Non-compliance would result in sanctions, specifically the temporary suspension of orders and revocation of rights or termination of distributor status, which could lead to the distributor being forced out of the market.

Impact on LT and Distributors:

1. There was no competition among distributors to offer the best price to LT as retailers, as prices were predetermined by the agreement.
2. LT in a given area could only obtain Semen Gresik from distributors within that area.
3. LT were unable to negotiate prices with distributors after the formation of the consortium, as the price was determined by the consortium, and each member was prohibited from selling the product below the agreed-upon price.
4. If a distributor did not comply with the price agreement, they would be subject to sanctions, including the suspension of delivery orders for a certain period and revocation of rights or termination of distributor status, which could lead to the distributor being forced out of the market.

Court Rulings on the Semen Gresik Case:

1. This case was ruled by KPPU in case number 11/KPPU-I/2005 (“KPPU Ruling”), where KPPU declared that all distributors and PT SG were proven legally to have violated Article 8, Article 11, Article 15 paragraph (1), and Article 15 paragraph (3) letter b of Law No. 5/1999.
2. The Surabaya District Court ruling No. 237/Pdt.G/2006/PN.SBY (“Surabaya District Court Ruling”) overturned the KPPU Ruling on the grounds that the Rule of Reason for Article 8 was not properly applied by KPPU. The reason for setting the price was to stop a price war and ensure that no distributor with substantial capital was outcompeted. It also ensured price certainty for consumers and encouraged better behavior from previously unethical retailers due to PT Semen Gresik’s price-setting.
3. KPPU filed a cassation appeal to the Supreme Court, which, through its ruling No. 05 K/KPPU/2007 (“Supreme Court Ruling”), granted KPPU’s appeal. However, the Supreme Court Ruling only granted it with respect to the proven application of Article 15(1) of Law No. 5/1999 in this case. The Surabaya District Court ruling was overturned, as well as cancelling the KPPU Ruling concerning the application of Article 8, Article 11, and Article 15 paragraph (3) letter b of Law No. 5/1999, and all distributors and PT SG were fined 1 billion.
4. Although the Supreme Court annulled the elements related to Article 8 in the KPPU Ruling, the provisions regarding Resale Price Maintenance (RPM) are need further examination, as this is the only decision concerning Article 8 of Law No. 5/1999.

GUIDELINES

To ensure that businesses comprehend the boundaries between lawful and unlawful RPM practices, the KPPU has issued guideline under KPPU Regulation No. 8 of 2011 concerning Article 8 of the Law No. 5/1999. This guideline underscores the importance of evaluating the economic impact of RPM and ensure that businesses are fully aware of the potential legal consequences of engaging in RPM practices.

The types of agreements that fall under the prohibition of minimum resale price, as stipulated in Law No. 5 of 1999 and according to KPPU Regulation No. 8 of 2011, include: ¹⁰

1. Manufacturers or suppliers setting a minimum resale price for their products. 
2. Manufacturers or suppliers requiring retailers not to sell products below a specified minimum resale price.
3. Manufacturers or suppliers entering into agreements with distributors or retailers regarding the procurement of goods that include conditions on a specific minimum resale price.
4. Manufacturers or suppliers ceasing or withholding the supply of goods to distributors or retailers unless they agree not to sell products below a predetermined minimum resale price.
5. Manufacturers or suppliers withholding the supply of goods to distributors or retailers because the distributors or retailers have sold products below the predetermined minimum resale price.

It is not required for an agreement to meet all of the types listed above, and by fulfilling just one of these criteria, it may already be considered as potentially violating Article 8 of the Law No.5/1999.

KEY TAKEAWAYS

During the public seminar held by Hukumonline on July 30, 2024, with the topic “Implementasi Praktik Resale Price Maintenance dalam Distribusi Penjualan Barang berdasarkan Hukum Persaingan Usaha” Mr. Verry Iskandar, S.H., M.H., as one of the speakers, highlighted several important points that business actors should consider before implementing Resale Price Maintenance in their business, as follows:

1. Avoiding the determine of minimum resale price and/or specific set price with associated sanctions in the distribution or sales agreements. It is better to use the highest retail price/Harga Eceran Tertinggi (HET) and/or recommended price. 

2. Conduct a cost-benefit analysis: assess the potential benefits and drawbacks of implementing RPM. Consider how it may impact competition, consumer welfare, and the overall business strategy. This analysis can help to make business decisions and ensure compliance with applicable laws.

3. Monitor market conditions: regularly monitor the market to ensure that the implemented RPM remains compliant with regulations and does not lead to unhealthy business competition. 

4. Seek legal advice: it is advisable for businesses to consult with legal experts specializing in competition law to navigate the complexities of RPM regulations.

1. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 8
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2. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 10-11 ↩︎
3. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 13. ↩︎
4. Ibid ↩︎
5. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 7 ↩︎
6. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 11. ↩︎
7. Ibid. ↩︎
8. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 14-15. ↩︎
9. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 15-16. ↩︎
10. Peraturan Komisi Pengawas Persaingan Usaha Nomor 8 tahun 2011 tentang Pedoman Pasal 8, hal. 14.
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