Before you issue any rules to your retailers or distributors about the minimum prices you’re willing to allow them to sell your products for — not advertise, but actually sell—you’ll first want to review the law on resale price maintenance. Is your resale policy legal? Hint: the law does not provide an easy answer to the question.
Resale price maintenance, in case you’re unfamiliar with the term, is when a manufacturer or brand owner tries to set and control the prices its retailers are able to sell the company’s products.
Supreme Court Ruling On Resale Price Maintenance
Courts once deemed these practices “vertical price-fixing” and therefore always illegal under antitrust law. But a game-changing 2007 Supreme Court ruling (Leegin Creative Leather Products, Inc. v. PSKS, Inc.) overturned this long-held view and found that resale price agreements were no longer per se illegal but would instead need to be evaluated on a case-by-case basis according to the “rule of reason” under antitrust law.
In practice, this means it is very difficult to know upfront if regulators or a federal court will view your plans for resale price maintenance, or the way you execute those plans, as legal or illegal. Complicating matters even further is the fact that some state governments, notably California, Illinois, New York, Michigan, and Maryland, have ignored the federal Leegin ruling and continue to treat resale price maintenance as on-its-face-illegal vertical price-fixing. That means if your company does business in one of those states, the use of a resale policy to control your retailers’ sales prices could still land you on the wrong side of lawsuits, state regulators, and state courts.
Drow The Line Between “Resale” And “Advertised” Price For Effective Resale Price Maintenance
As if the law weren’t murky enough when it comes to resale price maintenance, you also need to understand under what conditions the law views a price as “resale” and when it deems that price “advertising” instead.
This is an important distinction — because, under programs such as a Minimum Advertised Price (MAP) policy, it can be perfectly legal for manufacturers or brand owners to establish the minimum prices they are willing to allow retailers to advertise their products. Indeed, such policies often explicitly state that they refer only to how retailers advertise the company’s products and that those retailers are free to actually sell the products for whatever prices they choose.
But by misapplying these concepts in your MAP Policy—for example, establishing a minimum resale price when you think you’re setting only a floor on advertised prices—you could accidentally step into resale price maintenance territory and put your company in legal jeopardy without even realizing it.
So if you are concerned not only with how retailers advertise your products but with the prices they actually sell them for, you might want a different type of pricing policy: a Minimum Resale Price (MRP) policy. This policy covers both advertised prices and the actual sale price.
Because this policy, like MAP, covers reseller pricing and is therefore subject to antitrust law, the general consensus is that an MRP policy should be drafted as a unilateral statement and never as a two-way agreement. A written contract between a manufacturer and reseller agreeing on resale pricing would likely fit the very definition of illegal vertical price-fixing.
Moreover, we still have to answer an extremely important but murky question: where is the line between an advertised price and a resale price?
Generally speaking, federal law defines “resale” prices as any prices posted or discussed within a retailer’s store.
Federal antitrust law is quite clear in the physical world about where to draw the line between the resale price and advertised price: the retailer’s front door.
This means that any prices posted around the store, discussed with salespeople, negotiated at the cash register, or even broadcast over the store’s PA system, will constitute resale prices as opposed to advertised prices. Advertised prices, on the other hand, will consist of all prices published anywhere beyond the store’s walls — in magazine ads, flyers, mailers, billboards, TV or radio commercials, etc.
Again, these distinctions are important to understand. If you publish a reseller pricing policy in which you attempt to control the resale prices of your retail partners—as opposed to their advertised prices—that pricing policy document might be deemed an attempt at resale price maintenance. Will it be deemed legal if it’s ever challenged? It’s difficult to know beforehand, which is why the safe bet is to avoid any guidelines or verbiage in your policy that could leave it open to being interpreted as a resale price agreement or resale price-fixing.
Online eCommerce Companies As Your Resale Partners
It gets even murkier, of course, when your resale partners aren’t brick-and-mortar retail stores, but rather online eCommerce companies. Where’s the front door for those businesses?
Yes, you can include language in your MAP policy stating that your company will consider it a violation for a retailer to include an “Add to cart for best price” option on its sales pages for your products if clicking on that link presents the shopper with a price below your MAP-approved levels. And yes, a court might determine that such a price would still be considered advertising.
But that court might also determine that your online retailer’s “front door” is its home page or the main sales-listing page for your product. Once a shopper goes deeper into your retailer’s site—by clicking on a “view cart” button, for example—the court might reason that the shopper has crossed over the threshold of the front door. That means any prices they view from this point forward are resale prices—and therefore your attempts to control them might constitute illegal price-fixing.
You will have more leeway with an MRP policy because that policy allows a manufacturer to set its guidelines for both resale price and advertised price. This means, for example, that whereas a MAP policy could not legally include pricing guidelines for a retailer’s checkout price in an online shopping cart (because that would clearly represent the final “sale” price), an MRP policy could cover the online checkout price.
But you will still have potential legal pitfalls when drafting and enforcing an MRP policy, just as you will with a MAP.
A legal nightmare, isn’t it?
There are so many legal pitfalls to be aware of when drafting and implementing these programs—and trying to accurately the advertising-versus-resale price line in every situation—that a business shouldn’t try to do it alone.
This is why we at TrackStreet strongly recommend any manufacturer looking to protect its resale prices, while staying on the right side of the law, should do two things:
- Seek help from Brand Protection Experts and antitrust counsel before drafting any reseller pricing policy.
- Automate the monitoring and, to the extent possible, the enforcement of your reseller pricing policy — to remove as much potential for human error or bias in the policy’s enforcement as you can.