Egypt: For the first time, the ECA prohibits retail price maintenance and most favoured nation clauses in vertical agreements

In brief

The Egyptian Competition Authority (ECA) recently issued its first vertical restraints case prohibiting the vertical agreement between eight manufacturers and suppliers, along with their distributors (organized/hypermarkets and independent merchants). The ECA stated that were they found to have agreed on setting the minimum fixed resale price maintenance (RPM) and adopted Most Favoured Nation clauses (MFN) in distribution contracts of household electrical appliances. This conduct was deemed a violation of Article 7 of the Egyptian Competition Law No. 3 for 2005 ("ECL").


Contents

In more detail

The ECA initiated a market study in the household electrical appliances market in Egypt, following repetitive price increases. Consequently, the ECA closely investigated the vertical chain involving manufacturers, suppliers and distributors (organized/hypermarkets and independent).

Upon investigation, the ECA established that the upstream companies set a minimum and fixed price for the products resale and unifying prices through MFN clauses with the downstream distributors and retailers.

Further, the upstream companies imposed sanctions or threatened the distributors and retailers in case of non-compliance with the imposed minimum RPM. For instance, they would stop dealing with the non-compliant company by not supplying the agreed quantities of the relevant products.

As a result, last week, the ECA's Board issued its decision prohibiting these conducts and imposing the following remedies:

  1. Immediately ending all vertical restraint conducts (RPM and MFN);
  2. Amending all the contracts signed with retailers; and
  3. Removing all clauses, directly or indirectly, that impose minimum or maximum RPM and/or MFN.

It is worth noting that all the parties have begun implementing the imposed remedies issued by the ECA.

The ECA emphasises that RPM restricts competition in the market by restricting intra-brand competition by limiting (i) price competition between distributors and (ii) discounts to attract consumers.

The ECA has also added that MFN clauses are also anticompetitive as a supplier would not be able to offer the products at a lower price or on better terms to a more efficient distributor.

Conclusion and main takeaways

A number of enforcement trends can be noted from the above case including the following:

  • Following several announcements, this is the first case where the ECA has officially prohibited RPM and MFN in vertical agreements (Article 7 of the ECL). Previously, these clauses were prohibited under the abuse of dominant position (Article 8 of the ECL), as previously seen, please refer to our client alert.
  • This development is fundamental because the risk associated with RPM and MFN clauses has increased significantly in Egypt, as it is no longer a pre-requisite to have a dominant position to be considered a high-risk practice.
  • To confirm, in vertical restraint cases, all parties to an agreement (i.e., supplier and distributor), are part of the violation under the ECL.
  • ECA reconfirmed its previously stated position, in line with international best practices, that maximum or recommended RPM are not prohibited under the ECL, however, minimum and fixed RPM are prohibited.

* * * * *

Updated 2023 LOGO_Egypt Helmy Hamza & Partners Cairo

© 2024 Helmy, Hamza and Partners. All rights reserved. Helmy, Hamza and Partners is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.


Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.