The good news is that as a manufacturer or brand owner, your company is perfectly within your legal rights to establish guidelines regarding the prices you’re willing to allow retail partners to advertise and even sell your products.
But that doesn’t mean drafting and enforcing your Minimum Advertised Price (MAP) policy or your Minimum Resale Price (MRP) policy will be entirely without legal risk. The practice of manufacturers and their retail partners working together in any capacity regarding pricing falls under the jurisdiction of federal and state antitrust laws.
In other words, the bad news is that although there are ways to roll out a reseller pricing policy that will keep you largely insulated against the scrutiny of antitrust regulators, there are also plenty of ways even a manufacturer developing its pricing policy in good faith can accidentally find itself on the wrong side of the law.
Here are some of the biggest red flags you should avoid in drafting and enforcing your MAP policy.
5 Legal Pitfalls to Avoid with Your MAP Policy
1. Don’t make your resale pricing policy a two-agreement that your resellers must sign. Structure your policy as a unilateral statement.
If you are developing a Minimum Resale Price (MRP) policy — in which you seek to influence all reseller pricing, including both advertised and actual resale prices — you must structure your policy as unilateral.
This is based on the Colgate ruling, in which the US Supreme Court held that as long as both parties — manufacturer and reseller — are independent actors free to make their own pricing decisions, then such unilateral price policies were perfectly legal. (This is why unilateral price policies are often referred to as “Colgate policies.”)
The Court’s reasoning worked like this: The manufacturer is free to establish its own reseller pricing guidelines and to let all retail partners know about those prices and the consequences for violating them. All resellers are then free to make their own decisions about whether to abide by those price guidelines or to violate them and face the consequences. As long as both parties have that independence — as long as they haven’t reached an agreement about setting prices — these unilateral policies are perfectly legal.
Warning: Although the law leaves a bit more wiggle room for MAP policies than it does for MRPs — because MAP by definition addresses only advertised prices, and never the actual sales price — creating a MAP program built on a two-way agreement that you ask your resellers to sign could still put you at greater risk of antitrust scrutiny. So to stay on the safe side, it’s best to structure even your MAP policy as a unilateral set of guidelines rather than an agreement.
2. Don’t confer with your resale channel when developing your MRP or MAP policy.
The legal language of the federal Sherman Antitrust Act (still in effect, amazingly, even though it was passed in 1890) deems illegal such practices as a “conspiracy in restraint of trade.”
And although the US Supreme Court has removed some of the law’s teeth — by ruling for example that not every restraint of trade is on its face illegal, only those that are unreasonable — regulators have discretion as to what they deem a conspiracy.
The simple act of talking with your big retailers about where to set your MRP or MAP policy minimum prices before drafting your policy could be deemed a violation of antitrust law.
3. Avoid referencing “pricing” in your communications — particularly your written communications — with resellers who have violated your policy.
When communicating with a retail partner that has violated your policy, do not describe the infraction as a “pricing” violation but rather as a violation of your “branding guidelines.”
This might sound like an academic legal point, but it could help an antitrust regulator or court to view your policy enforcement in a slightly more positive light. Here’s why.
When you refer in your message to a policy violator that they’ve disobeyed your “pricing” guidelines and will need to take the following steps to get back into your company’s good graces as a retailer in good standing, the law could perceive that as stepping very close to the line in establishing a pricing agreement. That’s risky legal territory. Much safer and smarter, then, to refer only to offenses against your MAP or MRP — even if they are clearly price-related — as “branding-guideline violations” or “violations of your retailer policy guidelines.”
4. Don’t enforce your policy inconsistently.
This might be one of the easiest traps for a manufacturer to fall into. It can happen completely innocently.
Imagine your company discovers one of your major retail partners is advertising your products below your MAP-approved prices — again. Your MAP policy is very clear on such violations: The first instance gets a warning, but the second triggers some penalty, maybe withholding inventory from the violator for a period of time. Your company already gave this retailer a warning, but when your colleague calls this time, the rep at the retailer begs for forgiveness and promises never to do it again.
Now, if your colleague agrees, and lets this second violation go with a second warning, your company could have unknowingly committed an illegal act. One of the key legal principles behind antitrust law is to combat companies getting together to fix prices and restrain the trade of other companies. By granting this type of favorable treatment to one retailer over another when it comes to enforcing your pricing policy, an antitrust court could view your behavior as price fixing.
It might be completely innocent, just a matter of a sales rep at your company not wanting to unduly punish a contrite retail partner. But you need to be careful, because it could still be illegal.
5. Don’t just grab a “MAP template” from the Internet and add your company’s name.
This is one of the most common mistakes manufacturers and brand owners make when rolling out their reseller pricing programs.
Some companies grab the wrong template to copy — a MAP policy, for example, when what their company needs is an MRP. Others include legal language inappropriate to their company’s specific situation, or even outright illegal, because they don’t know where the legal lines are (and neither did the company whose MAP template they copied).
Although you can find plenty of existing reseller policy documents online, and although a lot of the language in these policies might read like standard legal boilerplate, deploying a policy for your company requires a thorough understanding of both the legal and business nuances of attempting to influence the advertising and selling practices of your resale channel.
For this reason — and a thousand others we’d be happy to discuss with you but can’t squeeze into this article — we highly recommend you work with brand protection experts and/or antitrust counsel to draft and roll out your MAP or MRP policy.
Developing an effective but legally sound reseller price policy requires years of experience in recognizing and being able to avoid the many legal pitfalls. It’s simply too important an initiative to take on alone.