By Ryan Marth, Robins Kaplan L.L.P
To succeed, manufacturers must know how to manage and control the relationships with suppliers, retailers and their customers. Minimum advertised price (MAP) policies are a popular tool to accomplish this goal. MAP policies particularly benefit manufacturers who rely on service and brand recognition to make their products a success.
The rise of the consumer behavior known as ‘showrooming’ has led many manufacturers to consider MAP policies for their products. Showrooming is the practice of using one retailer, often a traditional brick-and-mortar store, to learn the benefits and drawbacks of a given product while actually purchasing the product from another retailer, often an online-only or discount seller. One recent study showed that roughly half of shoppers viewed products in a traditional store before buying them online. While this may seem like a retail problem, many manufacturers stand to lose hard-earned investments in their brands if this trend continues.
If brick-and-mortar retailers lose the incentive to provide the level of service manufacturers require for their products, the market will likely skew toward the largest manufacturers making the lowest cost alternatives. Manufacturers who may be impacted by showrooming can use an effective MAP policy as a way to protect their business and relationships. But MAP policies are risky if not planned and executed properly. For the formulation of a successful MAP policy, review and then avoid these five common mistakes that often pose significant legal risks.
Mistake #1: Not Working with Antitrust Counsel
If designed incorrectly, a court could find your MAP policy an illegal restraint of trade under state, federal or foreign antitrust laws. The penalty for such a violation can be disastrous – antitrust laws allow claimants to pursue treble (triple) damages and the government may impose additional civil penalties.
It is not enough to establish a policy and then work to prevail against any retailers that file antitrust suits against you. Defending against allegations of anticompetitive conduct is expensive. An attorney who understands antitrust law in general, and MAP policies in particular, can help you determine if a minimum advertised price policy is right for your business. Antitrust counsel can give you the guidance you need to accomplish your business goals efficiently and effectively, with the goal of avoiding those hefty litigation costs.
Mistake #2: Using a Fill-in-the-Blank MAP Policy
You will not find your ideal MAP policy online. Determining whether or not a MAP policy is right for your business requires an understanding of your relationship with retailers, your brand, the business realities of retailers selling your products, the relationship between retailers and the customers who ultimately buy your products, and more. Your must tailor your MAP policy, if you choose to implement one, with those things in mind. Copying and pasting the language of another company’s policy not only fails to maximize the value to your business, it carries the potential to expose you to antitrust litigation and backlash from the retailers you rely on.
Mistake #3: Getting a Price Agreement from Customers
Section 1 of the Sherman Act, the first U.S. antitrust law and still one of the three “core federal antitrust laws” applies only to agreements in restraint of trade. And while entering into vertical agreements on price with your distributors or retailers is not illegal per se under federal law,[1] many states consider any vertical price agreements to be illegal ― no matter how innocuous they may seem. Moreover, defending a lawsuit or investigation even under the more lenient “rule of reason” standard of federal law can be a costly and distracting endeavor for your business.
Obviously, requiring your retailers to sign a MAP policy is an “agreement.” But you must remember that an “agreement” does not require a written contract. Extensive back-and-forth negotiations on price can be called an “agreement” even when neither party “signs on the dotted line.” What’s more, create a MAP policy that clearly communicates your stance on pricing as a best bet for avoiding potential lawsuits and retailer complaints down the road.
Mistake #4: Inconsistently Enforcing Your MAP Policy
Establishing a minimum advertised price policy is an important first step, but it is not the end of the road. You must seek answers to many questions after you create your policy.
- How will you treat retailers who do not follow your policy?
- How likely are your retailers to follow the policy?
- Are there some retailers you cannot afford to lose?
- What will you consider an “advertised” price when enforcing your policy?
- Who will you consider a retailer when considering enforcement of the policy?
Uneven enforcement can harm your business in several ways. If the policy is unclear, you will either have wasted your efforts in creating it, or you will run the risk of litigation or soured relations with sellers who do not comply. As one of the common goals of a MAP policy is to ensure that retailers provide a high level of service in presenting your products, you do not want to take – or fail to take – steps that may inspire bad blood between you and your retailers.
To help ensure consistency, you may want to consider a web-based service that monitors the prices at which your products are advertised online. In addition to harming your business relationships with retailers, inconsistent enforcement will increase the chances that a court could find that you have entered into an agreement in restraint of trade with the retailers who do comply. If one or more of your retailers pressure you into actions against a retailer who does not follow the MAP policy, you may increase your exposure to antitrust litigation.
Mistake #5: Negotiating with Noncompliant Retailers
If you have a clear, well thought out MAP policy in place, you need to be willing and able to terminate a noncompliant seller. If instead you engage in extensive back-and-forth communications with a noncompliant retailer, a court may see those communications as an agreement. And, if other retailers discover that your position is flexible, they will either want to negotiate themselves, or they might simply choose to ignore the MAP and force you to go to court to resolve the matter.
Determining how much communication and what type of communication is permissible is determined on a case-by-case basis with reference to court decisions. This can be a tricky situation requiring careful analysis. Before engaging in any communication with noncompliant retailers, you should speak to an antitrust lawyer familiar with your business.
Conclusion
You can avoid the problems laid out above by creating and consistently enforcing your MAP policy with all of your distributors and retailers. You should also engage in an ongoing analysis of your policy to ensure it remains an effective tool for you.
If you are considering a MAP policy to protect your brand, you should address them to antitrust counsel beforehand. If you don’t, you will likely find out firsthand that a poorly conceived MAP policy is worse than useless – it is an active threat to the health of your business.
Ryan Marth is a Principal at Robins Kaplan L.L.P. He represents manufacturers in a variety of business and antitrust litigation matters. RMarth@RobinsKaplan.com
[1] Leegin Creative v. PSKS, 551 U.S. 877 ( 2007).
Photo by Nic McPhee / CC BY-SA 2.0
