Distribution, Competition, and Antitrust / IP Law

Is Resale Price Maintenance Illegal Under New York Law?

In People v. Tempur-Pedic International, Inc. (May 8, 2012), the appellate division of the New York Supreme Court affirmed a trial court’s decision dismissing the New York Attorney General’s complaint and finding  that Tempur-Pedic had not violated New York General Business Law Section 369-a by entering into Resale Price Maintenance (RPM) agreements with its retailers.

The appellate court agreed with the trial court that Section 369-a does not make RPM illegal as a matter of law — it only provides that RPM agreements will not be enforceable or actionable at law.  In other words, manufacturers cannot enforce RPM agreements under New York law, but they do not violate the law by entering into such agreements.

The appellate court also found that the Attorney General did not actually establish any RPM agreements, but merely that Tempur-Pedic had enacted its minimum price policy and that retailers independently decided to acquiesce to the pricing scheme in order to continue carrying Tempur-Pedic products.  An agreement as to advertising (apparently a sort of coop advertising program) could not be the subject of a vertical RPM claim, the court ruled, because such an agreement does not restrain resale prices, but merely restricts advertising.

This decision largely keeps New York law consistent with federal law and many other states’ laws — although New York is somewhat unique in not allowing the parties to RPM agreements to enforce them in court.

Are Minimum Advertised Price Programs Good or Bad? (Continued)

Sorry for the delay in posting.

Returning to the article linked below, I’ll briefly address some more criticisms of Minimum Advertised Price (MAP) programs.

6. MAP pricing hurts customers, because it makes it harder for an end user to compare prices among a variety of dealers.  There may be a cost to consumers from MAP programs, but it has to be weighed against the manufacturer’s avoided costs.  MAP programs can, at least in theory, address the problem of free-riding.  For example, an Internet-only dealer might be able to offer slightly lower pricing because it has no brick-and-mortar costs.  But it might also be able to do so because it is not making an investment in the brand or product and is relying upon the investment of other dealers, who might not make such investments if they fear low advertised prices.  In that case, the manufacturer’s business may be hurt.

7. MAP pricing makes purchasing more time-consuming for end users.  The idea here is that MAP programs prohibit prominently displayed website pricing, but allow “shopping cart” pricing.  To see the true price, a consumer has to jump through a few hoops.  This is generally true, but how much effort does it really take to click the mouse a few times?

8. MAP pricing may hurt a manufacturer’s sales.  Here, Mr. Pierce mentions implementation costs and enforcement costs, but these are likely to be small.  He also  argues that MAP programs can tip competitors off and allow them to undercut pricing.  But if MAP programs truly were not in the economic interests of manufacturers, why would manufacturers ever want to use them?  Additionally, whether MAP programs really make pricing more transparent to competitors is not entirely clear.  In any event, lower pricing is generally good for consumers.

9. Browsing in a store is no different than advertising online.  In a brick-and-mortar store, consumers can just browse various competing items and see their prices.  Why shouldn’t they be allowed to do that online?  The answer is that a properly structured MAP program does not interfere with actual online “shopping cart” pricing.  It may impose certain restrictions on site-wide price advertising.  It is not clear whether or not this restraint is more significant than a restraint prohibiting brick-and-mortar stores from advertising prices below $X on street signs or in a newspaper but allowing independent store pricing inside the store.

10. MAP pricing can be circumvented.  Dealers can use instant rebates, coupons, and other incentives to offer special deals that may avoid the precise terms of a MAP program.  This is also true — and is a factor to be weighed by a manufacturer when considering whether it is worthwhile to institute a MAP program.  However, it is not an indictment of MAP programs per se.

Obscure New York Law Does Not Render Resale Price Maintenance Illegal

This is from a few months back, but I haven’t mentioned it yet on this blog.

Resale Price Maintenance (RPM) is no longer per se unlawful under federal law.  Nor is it per se lawful.  Since Leegin, 551 U.S. 877 (2007), some states have been stepping up their own RPM enforcement efforts.  New York, for one, had been advocating that New York law automatically barred RPM agreements.

In making this argument, The New York Attorney General did not rely upon the Donnelly Act, New York’s version of the Sherman Act, but rather upon Section 369-a of the N.Y. General Business Law and Section 63(12) of the N.Y. Executive Law.  The AG’s arguments were rejected in New York v. Tempur-Pedic Int’l, No. 0400837 (N.Y. Super. Ct., Jan. 14, 2011).  The court held that Section 369-A makes contracts for resale price maintenance unenforceable and not actionable, but not illegal.  The court also held that Tempur-Pedic’s minimum advertised pricing program was not a retail price agreement.  This despite the fact that the program was part of a contract with retailers, and n0t a unilateral policy.

Tempur-Pedic aside, it remains generally advisable to structure MAP programs as unilateral policies, rather than agreements, precisely to avoid debates about whether or not RPM agreements are involved.

Are Minimum Advertised Price Programs Good or Bad?

In a previous post, I linked to an article laying out a number of criticisms of Minimum Advertised Price (MAP) programs.

I won’t address each and every one of the numerous critcisms, but starting in this post I will briefly address some of them.

1. MAP programs discriminate against the online sales channel: it’s not obvious what Mr. Pierce means by this criticism.  Perhaps he is referring to the difficulties of determining whether or not an online price is “advertised” or not (see my previous post).  In any event, generally speaking, cooperative advertising incentives need to be reasonably available to all distributors or dealers.

2. Successful online dealers have significant costs: Undoubtedly true.  And if a MAP program were justified on the grounds that e-commerce is cheap and therefore needs price controls, it might be objectionable.  But MAP programs rarely are so justified.

3. Manufacturers should not protect inefficient dealers: All things being equal, cheaper distribution is better distribution.  But MAP programs do not necessarily prevent cheaper distribution.  They prevent the advertising of prices below a certain threshold — or, more precisely, in most cases, present such advertising if the dealer wants to receive some advertising coop monies.  Would manufacturers really want to keep distribution costs up?

4. MAP pricing is not automatically legal: The author appears to be conflating MAP pricing and resale price maintenance (RPM).  It is certainly true, however, that RPM is not per se lawful.

5. MAP pricing may facilitate unlawful collusion: This is a potential danger, and requires that MAP programs be structured appropriately.  Usually, however, this potential danger can be mitigated adequately.

I’ll address more of the criticisms in an upcoming post.

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.

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.


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