As Amazon, eBay and other Internet marketplaces continue to dominate the retail industry, manufacturers and distributors face increasing numbers of on-line counterfeit and gray market resellers. These resellers list products at lower price points cutting into manufacturers’ sales, disrupting approved seller networks, and harming the company’s brand and product reputation. In response, manufacturers and distributors have, for some time, sought to implement Minimum Advertised Price (“MAP”) policies.
As the name implies, a MAP policy sets forth the minimum price at which a reseller may advertise a product. Given that MAP policies could be viewed as restraints on price, it necessarily raises antitrust and price fixing concerns, which begs the question – are MAP policies legal?
The short answer is – most likely – yes. In Leegin Creative Leather Prods. v. PSKS, Inc., the Supreme Court held that vertical price restraints, such as MAP policies, are not a per se violation of the Sherman Antitrust Act. Instead, such restraints are to be reviewed under the rule of reason, which only prohibits unreasonable restraints on trade. While the courts have provided some guidance on what constitutes an unreasonable restraint, there are no clear cut rules. This means manufacturers must be careful when implementing a MAP policy in order to avoid any antitrust concerns. With that said, there are a few basic rules to follow when creating a MAP policy.
- Unilateral Agreement. A MAP policy is a unilateral contract; in other words, it is merely a policy of the manufacturer. It is not binding on resellers, but it puts resellers on notice that if they violate the MAP policy, the manufacturer will no longer conduct business with that reseller.
- Purpose. The MAP policy should explain that its purpose is to protect a company’s brand and to promote competition among resellers, for example, by incentivizing resellers to offer better customer service. Importantly, the MAP policy should not say its purpose is anything related to a price restraint on the products.
- Sale Price. A MAP policy needs to clearly state that it does not apply to the actual price at which a product is sold. Resellers should be free to sell a product at any price they choose, but they are not permitted to advertise the product in violation of the policy.
- Enforcement. Manufacturers should be sure to enforce their MAP policy across all resellers. While it may be tempting to let larger customers get away with MAP policy violations, it is crucial that all MAP policy violations, whether by a big or small customer, be enforced in the same manner.
- State Law. The Sherman Antitrust Act is a federal law, but manufacturers should be aware that each state has its own set of antitrust laws. Some states, such as California, have not adopted the Leegin doctrine, so companies need to be aware of these various state laws when implementing a MAP policy.
MAP policies are an effective tool at protecting a company’s brand while incentivizing healthy competition among resellers; however, implementing a MAP policy is not without risk. Manufacturers thinking of creating a MAP policy should speak with an attorney to avoid any antitrust issues. KJK’s eCommerce Practice Group can assist in creating legal and enforceable MAP policies.