Author: Jarod Bona
We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.
The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.
Today, we will talk about MAP Policies and how they relate to the antitrust laws.
What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?
A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.
In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.
As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.
The typical targets of a MAP policy are online retailers. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies are usually the ones that emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.
In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies.
We receive a lot of calls and emails with questions about MAP policies, from both those that want to implement them and those that are subject to them.
Do MAP Policies Violate the Antitrust Laws?
MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.
But we can add further context to better understand the level of risk for particular MAP policies.
There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility. The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.
Because of the limited case law, you should consider, as we do, that there will be a greater variance in expected court decisions about MAP policies, which creates additional risk. This may particularly be the case at the state level because state judges have little experience with antitrust.
In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.
If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.
A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.
Resale Price Maintenance
Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.
Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California, New York, and Maryland may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.
Under federal law, courts now usually analyze resale-price-maintenance agreements under the antitrust rule of reason.
Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.
The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.
Back to MAP Policies and Antitrust
Continue reading →