1. Avoiding the pitfalls of Hub & Spoke Arrangement
IPR Connections – International Food and Beverage Law Conference – London, 2 June 2015
Ingrid Copé/Gaucho Rasmussen/Gabriel McGann/Bertold Bär-Bouyssière

2. Structure of panel discussion
Hub & Spoke Arrangements as hybrid forms of information exchanges
Structure of Hub & Spoke arrangements
Examples and open questions
Practical guidance for take home
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

3. "Classic" horizontal information exchanges
EU Horizontal Guidelines
- reduction of uncertainty of future market conduct
- unilateral passing on of sensitive information
- passive reception of sensitive information
T-Mobile Netherlands
once is enough
Dole (Bananas)
discussion of price trends - cannot fail to take into account
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

4. "Classic" vertical information exchanges
EU Vertical Guidelines
Monitoring of Resale Price Maintenance ("RPM")
Monitoring of Product destination (to avoid parallel trade)
But: "classic" vertical intelligence gathering is considered lawful
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

5. Another "classic": Price signaling
Announcement of future price or output intentions
If unilateral and "genuinely public": reduces uncertainty but does not as such amount to a concerted practice
Grey area where unilateral announcement is echoed by competitors
Gap between announcement and implementation matters
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

6. Two types of Hub & Spoke Arrangements
Retailer-Supplier-Retailer Supplier-Retailer-Supplier
supplier
supplier A
supplier B
retailer A
retailer B
retailer
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

7. The A-B-C Test
Retailer A disclosed to Supplier B its future pricing intentions;
Retailer A could be taken to intend that Supplier B would make use of that information to influence market conditions by passing that information to other retailers (such as C);
Supplier B in fact passed that information to Retailer C;
Retailer C may be taken to know the circumstances in which the information was disclosed by A to B; and
Retailer C in fact used that information in determining its own future pricing intentions.
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

8. Scenario 1:   from Judy Graves – account manager for ChicChoc (FoodCorp’s best-selling biscuit product)
3. From: Judy Graves, EMEA Sales - To: You : "Please see below. What should I do?"
2. From: Ann Cho, CostCorp (large multinational retailer) - To: Judy Graves: "Judy, This is illegal and I have forwarded it to my legal team.  Anne"  
1. From: Judy Graves - To: Ann Cho : "Dear Ann, We have for a while been discussing the cost pressures we are facing on ChicChoc due to the move in the commodity markets for cacao and wheat. For us to continue to be able to supply CostCorp, we need to have your agreement to a 17% increase on last year’s cost price. You will recall that we have not had a cost increase on ChicChoc for well over a year. You have previously raised your concern that any cost price increase would leave you with uncompetitive retail prices. While retail prices are entirely your domain, I can give you some comfort that our cost price increases have been accepted by all your main competitors and we expect to see moves in their retail prices within the next two weeks. Hope this helps move our discussions forward. Judy"
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

9. Scenario 2: Email from Peter Thomas – account manager for Health Foods UK
"We are preparing to launch a new health supplement. We have invested heavily in branding and medical research to support our claims of the health-giving properties of the product. We have also secured the endorsement from Dr Frank (yes! He of the hit TV show).
We are keen to try out new distribution channels, including online health-oriented retailers. The success of the product depends on the positioning of the brand. I am particularly worried that some of the online retailers would offer the product at a discount as soon as we launch. I am of course aware that we cannot dictate retail prices, but Is there a way we can prevent the onliners from advertising discounts– or limiting any advertised discount to, say, 10%?"
Avoiding the pitfalls of Hub& Spoke Arrangements
9/22/2018

10. Risky practices (BKartA)
Handover of list with recommended retail prices + one additional contact
Any discussion of retail resale price, recommended resale price, retail price strategy (if part of coordination strategy)
Joint (S+R) monitoring of retail prices, price trends,
Making available to Rs of retail price calculation aids
Stickers with recommended retail price
Incentives or threats re recommended retail price
Conditioning marketing support on observance of retail price recommendation
Discussions re minimum retail margins
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

11. Risky Hub & Spoke practices (BKartA)
Supplier makes available to retailer conditions granted to other retailers
Most Favored Nation clauses
Passing on information about future prices (S tells R1 about future retail price increase of R2)
Coordination of portfolio, strategy, promotional actions (including timing) between R1 and S if part of coordination with R2
Rewards for observing retail price recommendations
Complaints by R1 to S about retail prices of R2
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

12. Practical guidance 1
The culture of the retail environment has evolved following the investigations we have discussed (in particular in the UK) - it is important for commercial teams to fully understand the rules they should follow, and to adopt a sophisticated approach when discussing retail prices.
In order to help your commercial teams to understand the do’s and don’ts in this area, regular training sessions are useful, particularly for junior commercial employees, who may be facing difficult commercial negotiators, or in teams where there is high staff turnover.
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

13. Practical guidance 2
Set out some simple ‘Red Flags’ on information sharing for your commercial teams. If the answer to these questions is ‘yes’ – you are in danger; for example:
Are you using this information to alter your commercial behaviour? 
Does this information take the guesswork out of your commercial decision-making or commercial strategy?
Does this information allow you to co-ordinate your behaviour with a competitor?
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

14. Practical guidance 3
Rather than just setting out the law in this area, equip your commercial team with the skills to handle a negotiation when discussions turn to pricing issues. This can be done, for example, by:
issuing a FAQ with suggested responses: these questions can be developed in association with the commercial team, and can provide model responses for legal and commercial issues when seeking to implement a cost of goods increase or in relation to pricing;
carrying out training using a role play format, showing the commercial team facing a tough buyer. This can help junior commercial employees not only with a robust legal response to difficult questions, but also improve their commercial negotiating skills when seeking to implement a cost of goods increase, which is a great win for the business.
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018

15. Practical guidance 4 – Price announcements
Announce as little about the future as possible
Consider the gap between announcement and taking effect
Try to announce only final decisions
Do not mention competitors in your announcement, or make your announcement contingent on what competitors do
Avoiding the pitfalls of Hub & Spoke Arrangements
9/22/2018