Interpretation of the Supreme Court’s Ruling on Resale Pricing Law
Interest in minimum advertised pricing (MAP) has been rising recently. Are you considering the implementation of a resale pricing policy? Perhaps you’re wondering about the legal implications too, right? Well, you might want to review the US Supreme Court’s interpretation of resale pricing law, so you have an idea about what it means for your business.
The Law and Resale Pricing PoliciesThere are four types of reseller pricing policies, including:
1. Minimum resale price (MRP)
2. Minimum advertised price (MAP)
3. MRP unilateral policy
4. MAP unilateral policy
MRP and MAP MAP or minimum advertised pricing is the reseller pricing policy that allows a brand owner to set restrictions on the prices resellers can advertise the brand products. There is no mention of the actual resale price with reference to MAP. While there are no restrictions on in-store advertising, MAP concerns off-site advertising.
For brick-and-mortar stores, there is a dividing line between the resale and advertised price under the antitrust law. Emails, text messages, flyers, newspaper ads, and radio spots sent to subscribers are considered advertised pricing outside the retailer’s store. MAP policies are analyzed under the antitrust law.
Until 2007, the law considered any written or oral agreements between manufacturers and resellers on setting prices as “per se illegal.” This meant that, before 2007, such MAP and MRP agreements were considered inherently illegal, as the courts found them violating the Section 1 of the Sherman Antitrust Act. However, in the 2007 Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the federal court reversed its century-old “per se illegal” rule. The Supreme Court held that the minimum resale price maintenance should be subject to the more relaxed antitrust “rule of reason.”
This new legal interpretation required a case-by-case analysis of whether a practice’s acts were meant to be anti-competitive or unreasonably restraining competition. The interpretation meant that a MAP and MRP agreement will be deemed legal unless their anti-competitive effects offset the pro-competitive benefits. In practice, such an interpretation meant that an agreement between a manufacturer and its resale partners might not be deemed illegal on its face.
But that does not mean your resale pricing policy should be structured as a two-way agreement. To stay in line with the law, you may want to draft a unilateral resale pricing policy.
MRP and MAP Unilateral Pricing Policies
Now you might be wondering why these unilateral resale pricing policies are considered legal compared to MRP and MAP agreements.
To understand this, let’s explore the Supreme Court ruling of 1919 – US v. Colgate.
In this century-old price-fixing case, a new legal principle came up to establish resale prices. Since the Supreme Court considered the product manufacturer and the reseller different from each other with their own independent sets of rights, it agreed that the right to decide the limits on product pricing rested with the manufacturer. The Supreme Court also stated that the product manufacturer can make a decision on choosing resellers for their products. Similarly, resellers had the right to decide whether they want to abide by the manufacturer’s preferred pricing limits.
Considering this arrangement, the Supreme Court determined that, since both were separate independent entities, with their own rights, such policies were legal unless there was an agreement in place. Under such an arrangement, there could be no breach of the antitrust laws.
But that does not mean any unilateral MAP or MRP policy is legally safe because the resale arrangement can be subjected to challenges from a federal or state regulator. To be on the safer side, you may want to structure your policy unilaterally, without ever entering into any pricing negotiations with resellers, as any such act could be viewed as an “agreement.”
Therefore, it is important to draft your MAP policies with care. It should be expressly stated in the MAP policy that there are no limits on a retailer’s right to set prices. Besides, the policy should expressly state that it is unilateral, without any agreement with the retailer. All in all, your MAP policy should be clear and easy to understand so that there is no sort of confusion that could create legal hurdles later.
Write a comment...