Distribution, Competition, and Antitrust / IP Law

Archives for April 2011

Minimum Advertised Price Programs and the Internet

Minimum Advertised Price (MAP) programs should be directed at advertised prices, not actual prices.  That distinction is relatively straightforward in the case of brick-and-mortar retailers.  In that case, actual, in-store prices are not subject to the program, but prices advertised in magazines, or on television or radio, are.

Internet sales present a murkier picture.  It is not always easy to distinguish between advertised prices and actual prices on websites.  For example, what if a website receives advertising co-op money, but links to pages with discount pricing that do not receive co-op money?  Can the Internet retailer undercut MAP pricing on that other web page?

Similarly, is there a difference between “advertising” a price in a box at the top of a webpage, but “listing” a price in connection with an order at the bottom of a webpage?  Does it make a difference if the latter price is only visible after a customer indicates he or she wants to buy the item (i.e., after he or she fills the shopping cart)?

And what about online retailers who come up with creative ways to offer discounts, such as by e-mailing coupons to customers, or offering free shipping at a discount on a product not covered by a MAP policy?  In that case, can the manufacturer deny co-op funds?

There are no easy answers to these questions.  The law is sparse and unsettled.   Companies that sell on the Internet should thus be careful, and exercise appropriate judgment, about the structure of Internet MAP programs.

In an upcoming post, I will start to address some criticisms of MAP programs that are presented in this interesting piece.

BMW Has To Face Tying Charges

BMW of North America last week failed to dismiss a complaint alleging that it tied certification of body shops as “certified collision repair centers” (CCRCs) to the sale of BMW-branded paint.  The Northern District of California (Judge Illston) analogized the claim brought by a competing paint distributor to a claim brought against a franchisor, and found that the plaintiff had adequately alleged (i) two separate products (the BMW paint might not be an “essential ingredient” of the CCRC branding and thus part and parcel of a single product) and (ii) an unlawful tie.

The tying of products to a franchise always requires careful analysis.  This case again demonstrates the very real possibility that an outsider to the distribution system (an aggrieved, competing supplier of product precluded from selling to franchisees) may complain about a tie.

Nicolosi Distributing, Inc. v. BMW of North America, LLC, No. 3:10-cv-03256SI (N.D. Cal. Apr. 19, 2011).

Minimum Advertised Price Programs

Under federal law, it is no longer per se illegal for a manufacturer to agree on resale prices with its distributor.  State laws still vary, however, and even under federal law the practice can be unlawful under a detailed market analysis that weighs all the pro-competitive and anti-competitive effects of the resale price maintenance.

However, manufacturers and distributors can avoid these complexities if they do not agree on resale prices, but agree on minimum advertised prices.  The distributors are free to set their own prices, but if they want advertising co-op funds (or other benefits), then they cannot advertise lower prices.

I’ll post more on MAP programs in a bit.


Some Things Never Change

This print shows lawyers for the defendant on one side and lawyers for the plaintiff’s case on the other side of the defendant tugging at his clothing, which is labeled with various legal terms. Elements or “part of defendant’s case” are piled on the ground on the left, while the plaintiff’s case is neatly contained in a bundle on the right. Captioned: “Oh! the glorious uncertainty of the Law!” and “As if a Defendant were dissected to see how by Law he is affected.” Published 1786.


Price Discrimination II

The answer to the hypothetical below is generally “no.”  This is classic price discrimination, and it is unlawful under the Robinson-Patman Act.

But there are some exceptions that may justify different prices to different dealers or distributors.

More on that next.



Wal-Mart is Trying Online Delivery of Groceries

According to yesterday’s Wall Street Journal.  Amazon and others are seen as a competitive threat.

Price Discrimination I

You sell widgets, and you make sales across state lines.  You have a number of distributors in California.  They focus on different areas of the state, but not exclusively.

Can you offer to sell the same types of widgets to your different California distributors at different prices?

Short answer, in two posts.



The Vast Online Distribution Market

The Wall Street Journal reported today that Web ad revenue in the U.S. rose 15% to $26 billion last year, more than the $22.8 billion spent on newspaper advertising, the $22.5 billion for cable TV advertising, the $17.6 billion for broadcast television, and the $15.3 billion for radio advertising.

$26 billion is a huge number.  It illustrates how important online sales are today, and how important it is for both manufacturers and distributors to be aware of the rules regarding pricing through different channels and regarding channel restrictions.

NPR Explains The History of Coupons and Price Discrimination

Fascinating April 8 podcast from NPR’s Planet Money.  It covers the history and rationale of coupons (dating back to the first coupon deals by Coca Cola and Post cereal), which were created to allow price-discrimination in a post-haggling, price tag world.  The discrimination discussion starts around 8 minutes in.  Interesting discussion of Groupon as the next, new type of coupon / price discrimination.

(It’s generally legal to engage in price discrimination vis-a-vis end users/customers.)

So, What’s the Point?

When I decided to start this blog, I resolved that it would not be simply a collection of legal case squibs — although there will certainly be room for those. I commit to writing about some issues in the news and more general issues of direct or tangential relevance to distribution law.

But first, a basic question: why distribution law? Aside from its own charms, why should anyone pay attention to it?

The answer is that distribution systems — defined and circumscribed by applicable law — have a fundamental impact on our quality of life. In the former Soviet Union, before the late 1980s, distribution was (at least in theory) highly planned and completely centralized. Bureaucrats decided which factories made which products, and in what quantities. They decided how those products were sent to market, and where they were sold. The result was a society with an impressive military machine but which could not provide basic appliances or products (washing machines, dishwashers, cars) to most of its people, and which witnessed repeated shortages of food and other household consumable goods.

The USSR was, of course, an extreme case. But in between it and a completely open, anarchic market are many points in between. How should one choose where on this spectrum to land?

Probably no one, and certainly not me, has the definitive answer. European law and U.S. law often diverge, yet both serve their societies reasonably well. What I can suggest is that distribution law has two primary, and sometimes contradictory, goals. First, efficiency.(*) Distribution law should attempt to ensure that high-quality products get to market in the fastest, cheapest way possible. And second, fairness. Sometimes the law decides to protect certain categories of persons because of values society attaches to their work or function. Sometimes this sense of fairness is merely sentimental; sometimes it is grounded in something deeper. Often, upholding a rule based on perceived fairness will result in decreased theoretical efficiency. There are almost always tradeoffs.

The federal Robinson-Patman Act sits squarely in the center of the efficiency v. fairness debate. It was enacted during the Great Depression in a deliberate effort to protect “mom and pop” retailers whom Congress thought were faced with potential commercial extinction. The Act strongly emphasizes fairness to such an extent that many have argued it fosters inefficiency.

We will see the Robinson-Patman Act often in this blog. More on it in a bit.

(*) Competition may be thought of as a goal of distribution law as well. But competition is not a goal in itself; competition is valued because it is thought to promote efficiency (lower cost, higher quality goods and services).

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