If you had to explain the differences between a resale pricing policy that a court would deem perfectly legal, versus one that might tip over the line into illegal price fixing, could you do it?
Most manufacturers can’t. At least, that’s our experience here at TrackStreet, where the manufacturers and brand owners who approach us for help setting up a reseller pricing policy often add that they’re “worried about violating antitrust law.”
No manufacturer can ever be 100% certain that the minimum advertised price (MAP) policy or minimum resale price (MRP policy) it drafts and enforces will withstand any legal challenge, prior to going to court. But there are definitely steps a business can take to significantly minimize the risks of its reseller policy landing on the wrong side of the law.
So if you are considering implementing a resale pricing policy and you’re worried about the legal implications, this post should come as good news for your company.
Let’s review the US Supreme Court’s current interpretation of resale pricing law, and what that interpretation means for your business.
How the Law Views Various Types of Resale Pricing Policies
For the sake of simplicity, we can break down the various types of reseller pricing policies into four categories:
- Minimum resale price (MRP) agreement
- Minimum advertised price (MAP) agreement
- Minimum resale price (MRP) unilateral policy
- Minimum advertised price (MAP) unilateral policy
We’ve listed them in this order because the historical legal record (both state and federal) tells us this is the order in which such policies are most likely to receive a challenge from antitrust regulators or and/or an unfavorable ruling in the courts.
Courts view agreements with more scrutiny than one-way policies.
MRP and MAP agreements
Until 2007, the legal community’s prevailing view of written or oral agreements to set prices between manufacturers and resellers was that such agreements were “per se illegal,” meaning inherently illegal. Specifically, the courts — including the US Supreme Court — found that these pricing agreements violated the federal Sherman Antitrust Act’s outlawing of any “conspiracy” among businesses to fix prices.
But in the 2007 Leegin case, the Supreme Court overturned its longstanding “per se illegal” rule regarding resale price agreements and substituted the more relaxed “rule of reason” standard. Under this new legal interpretation, a practice — even an agreement to set advertised or resale prices — will be deemed lawful unless it can be demonstrated that the anti-competitive effects of such agreements outweigh the pro-competitive benefits.
What this means in practice is that an agreement between a manufacturer or brand owner and that company’s resale partners might withstand an antitrust legal challenge.
Of course, just because it will no longer be deemed on-its-face illegal does not mean you should structure your resale pricing policy as a two-way agreement. In fact, the far safer path from a legal standpoint will be to draft and enforce a unilateral — that is, one-way — pricing policy for your resale channel. Here’s why.
Unilateral Resale Pricing Policies Are Safer from a Legal Standpoint
MRP and MAP unilateral policies
To understand why courts look far more favorably at price-setting unilateral policies than at agreements, we need to go back even further — to a 1919 Supreme Court ruling.
In this 100-year-old price-fixing case, US v. Colgate, the Supreme Court established a new legal principle for establishing resale prices.
The Court viewed both parties — manufacturer and reseller — as two separate entities each with their own independent sets of rights. The product manufacturer has the right to decide where to set the limits on its products’ pricing, and then to decide which resellers they will do business with and which they won’t. Similarly, each of those resellers has the right, after reviewing the manufacturer’s preferred pricing limits, to abide by those prices or not.
When they viewed manufacturer and reseller as two independent actors, each free to exercise their own rights and behave as they chose, the Court determined that as long as there was no agreement in place — in other words, as long as the manufacturer structured its pricing rules unilaterally — such policies were perfectly legal.
Unless there was an agreement, the Court reasoned, there could be no conspiracy and therefore no violation of the antitrust laws.
Of course, we can’t categorically state that any unilateral MAP or MRP policy will be legally bulletproof. You can’t ever know for sure when a federal or state regulator will decide to challenge your resale arrangement. But by structuring your policy unilaterally — and never engaging with your resellers in any pricing negotiations or discussions that could be determined to constitute an “agreement” — you can feel more confident that your policy will be on the right side of the law.