You’ve got a MAP violator. Someone on your team just caught a retailer advertising one of your products online at far below the minimum-approved price stated in your Minimum Advertised Price (MAP) policy.
Now what? How should you go after that MAP violator?
MAP pricing enforcement requires a very careful, well-thought-out plan that takes into account the many legal pitfalls involved in working with your resale channel on how your products are priced in the marketplace. Even a single misstep in your MAP enforcement — and even if you make this misstep innocently — can put your company at risk of violating the price-fixing clause of the federal Sherman Antitrust Act.
Here’s what you need to know.
First, make sure you’re enforcing the correct policy in the first place.
One of the most common legal landmines manufacturers and brand owners step on when it comes to pricing enforcement is drafting and enforcing the wrong reseller policy. Many of these companies default to a MAP policy because that’s the only one they’ve heard of for managing reseller pricing.
But as we’ve discussed in detail in a previous post, your company might need a different type of reseller policy altogether. (The key distinction, if you’d like the short version, is that MAP policies are generally appropriate only for manufacturers that offer cooperative advertising dollars to their retail partners.)
Second, make sure you’re not threatening the wrong consequences.
Okay, let’s assume your MAP policy is indeed the right reseller policy for your company: You offer cooperative ad funds to your resellers and you’ve drafted a smart, legally sound MAP policy document. (Need help with this step? Talk to a Brand Protection Expert now.)
What’s critical to understand here, from a legal standpoint, is that MAP policies typically allow for only a single enforcement mechanism for violators — withholding some of your cooperative ad dollars from those resellers until they clean up their act.
Often a manufacturer that has a MAP policy but doesn’t understand this important legal principle will innocently contact a retailer it catches violating the policy and threaten to cut off their supply of inventory or to remove them from the company’s list of authorized retailers, if they don’t correct their MAP violation.
The problem here is that a MAP policy is a very specific type of agreement in which the manufacturer supplies its retailers with cooperative advertising funds in exchange for those retailers advertising the company’s products at or above a specified amount. That’s what keeps these agreements on the right side of the law: In exchange for helping to pay for its retailers’ advertising, the manufacturer earns some degree of say in how the ad dollars are spent — including how its products are priced in those ads.
But if the manufacturer tries to step outside this narrow agreement, and threaten its retailers with consequences other than withholding ad support, the manufacturer can find itself at risk of legal action for price-fixing.
Think of it this way: A manufacturer can tell its retailer, “If you don’t start advertising our products at the prices we want you to, we will hold back some of the funds we’ve been giving you to pay for that advertising.” That’s perfectly legal, because the manufacturer is in fact helping to pay for the ads in which its products are advertised.
But that manufacturer may not want to say, “If you don’t start advertising our products at the prices we want you to, we’ll kick you out of our resale network and stop supplying you with inventory.” That’s probably not legal, because it could be deemed as coercive and an attempt at pricing fixing.
Third, make sure you understand the limits of threatening even the right consequences.
Another important legal principle to keep in mind when going after a MAP violator is that courts have held in several cases that manufacturers should be limited in how much of a retailer’s cooperative ad dollars they can hold back as punishment for a violation.
In other words, you can’t simply tell a violating retailer that you’re cutting them off completely from all future advertising support, if you’ve been offering that company (and others) cooperative ad funds in the past.
There’s no specific dollar amount or percentage you can apply to every case, so you’ll have to use your judgment in terms of what constitutes a fair but effective punishment for any given MAP violator.
You might want to establish a given amount or percentage of advertising-dollar withholding for each type of violation and then consistently use those amounts whenever you have to enforce your MAP policy, with any retailer. This way you can help protect your company from being viewed as playing favorites with one retailer over another — which could also land you on the wrong side of antitrust law.
Fourth, be careful about how you publicize your reseller pricing enforcement efforts.
Finally, one mistake manufacturers make — often entirely innocently — is in how they publicize their enforcement successes against MAP violators.
It’s fine to issue press releases, write blogs or tell industry reporters about your efforts to stop grey-market or unauthorized resellers from getting their hands on your inventory and sellingg it online without your permission.
Those reseller pricing enforcement efforts are all perfectly legal, because — assuming you have an authorized dealer program or some other network that retailers must apply for to sell your products — you can target unauthorized retailers as aggressively as you wish. They don’t have your approval to represent your products in the first place, after all.
But if you publicize your success in taking down an authorized retailer in your network who violated your MAP policy — even if you don’t mention the reseller by name — you are putting yourself at some legal risk. That’s because a court or an antitrust regulator could view such a public action as coercion — publicly punishing and humiliating one of your retail partners as a way of forcing compliance from the rest of your resale network.
Violating your MAP policy is just one way resellers can undermine your brand and your company’s bottom line. To learn about other threats to watch out for, sign up for our free webinar: 13 Tricks that Rotten Resellers Use to Devastate Your Brand’s Value.
And if you’d like help developing your MAP program, we can help you today.