German Federal Cartel Office Imposes €11.5 Million Fine on CIBA Vision for Restricting Online Sales of Contact Lenses and for Resale Price Maintenance

The German Federal Cartel Office (FCO) fined U.S.-based international firm CIBA Vision €11.5 million ($16.8 million) for breaking German antitrust law by restricting online trading of its lenses and improperly pressuring online resellers to follow "recommended" resale prices. The eye-care unit of Novartis AG, CIBA Vision has denied the allegations but announced that it will not appeal the decision. The decision is an example of how national competition authorities and the European Commission are interpreting the concept of an "agreement" with increasing breadth.

The specific measures considered to be anticompetitive by the FCO involved agreements between CIBA Vision and its customers concerning the prohibition of online trading and the prevention of sales of certain types of lenses via eBay. In addition, CIBA Vision had a sophisticated monitoring system in place that was used to monitor and compare the resale prices of the online traders. Whenever the traders undercut the nonbinding recommended prices communicated by CIBA Vision beyond a certain degree, CIBA Vision contacted them and tried to convince them to raise their prices (in many cases successfully).

The German Act Against Restraints on Competition (GWB) does not prohibit unilateral price recommendations, as long as these are nonbinding. Whenever there is evidence of pressure with respect to such a recommendation, however, it is considered an indication that an illegal agreement or concerted practice exists or is being sought. The FCO decision body in charge of the case took the position that every contact (beyond a mere communication of the recommended price) that highlights the recommended price, specifically with a view to the reseller's past pricing behavior, calls the nonbinding nature of the recommendation into question and has to be considered sufficient "pressure." Contacts between supplier and reseller constitute illegal vertical agreements or concerted practices within the meaning of Section 1 GWB when the supplier attempts to coordinate the pricing of the reseller, and both come to an understanding about the future behavior of the reseller.

Despite the vertical nature of the behavior in question, it is noteworthy that such resale price coordination by a supplier may further lead to illegal concerted practices on the horizontal level among the resellers. The FCO considers this to be the case if all of the resellers follow the price recommendations and rely on their competitors to follow them as well. The FCO would not even require direct contacts between the resellers in order to find for a horizontal agreement.

The FCO's decision highlights the risks inherent in managing pricing policies across multiple distribution channels, especially where online sales are involved. Although purely unilateral conduct does not violate Section 1 GWB, the decision reflects the trend among both national competition authorities and the European Commission to interpret the concept of "agreement" and "concerted practice" very broadly. Companies should therefore seek advice from counsel before adopting measures aimed at limiting online sales.

For more information about the issues discussed in this LawFlash, please contact Dr. Jürgen Beninca or Eva Rayle, or any of the following Morgan Lewis attorneys:

Frankfurt
Jürgen Beninca
Eva Rayle

Brussels
Izzet M. Sinan
Jonathan N.T. Uphoff

Paris
Jean Leygonie

New York
Harry T. Robins

Washington, D.C.
Jonathan M. Rich