In a seminar on Navigating Vertical Pricing Policies at the recent ALA Conference, anti-trust lawyer Herbert Allen detailed the acronyms that have made many heads spin in the industry.
With the highest recorded, most profitable online holiday shopping period barely in our collective rearview mirror, internet pricing remains a hot button topic among brick-and-mortar showrooms selling merchandise in virtually every category you can think of — and naturally lighting is no exception.
Getting down to the nitty-gritty of the subject matter can be tricky as a lot of misconceptions remain as to what is legal and illegal when it comes to online pricing.
Washington, D.C.-based anti-trust lawyer and compliance specialist Herb Allen, of the Polsinelli law firm, specializes in advising trade associations and companies on the design and implementation of antitrust compliance programs and serves as outside legal council on antitrust issues to several trade associations, including the American Lighting Association (ALA). He is also a trusted resource for advising manufacturers and distributors on Retail Price Maintenance (RPM) strategies, including Minimum Advertised Price (MAP) policies and Unilateral Pricing Policies (UPP). Other similar terms that industry members often hear grouped in this same category are Internet Minimum Advertising Price Policies (IMAP) and Unilateral Minimum Resale Price (UMRP).
During his seminar at the ALA Conference in Phoenix, Allen laid down some ground rules. “Antitrust law requires companies to make their own independent decisions about how to implement vertical pricing restraints,” he notes, explaining that this eliminates concerns of collusion and price-fixing.
Retail Price Maintenance (RPM) involves practices where manufacturers set minimum or maximum prices for their downstream resellers. “Some apply only to internet sales, and some apply to all sales,” Allen states. Having RPM gives retailers the ability to advertise that they have the “best” price – since conceivably everyone should be selling at the same price – and promotes competition by leveling the playing field between larger and smaller retailers. According to Allen, smaller retailers may be less willing to carry products without the manufacturer having an RPM in place. When the customer knows that the price will be the same across all outlets, it simplifies the customer’s shopping experience because it eliminates the need to do price comparisons.
This is all a perfect world scenario, however, because unauthorized deep discounting occurs online and not only from third-party sellers.
“There are risks and challenges to enforcing RPM, according to Allen. “You might have to make hard decisions regarding particular resellers, especially if they’re an important channel,” he advises, adding, “Retailers with multiple distribution channels may have greater difficulty identifying how RPM violators are obtaining products.” Another challenge is that online marketplaces often permit seller anonymity and typically will not police price disputes.
When it comes to the commonly referenced MAP policy, the keyword to remember is “advertised,” as in Minimum Advertised Price. Consumers frequently encounter ways that adhering to MAP policy is skirted when they are asked on an eCommerce website to “add item to cart for a special price.” In those instances, the “special price” is not immediately shown for all to see — therefore, it is not technically “advertised” below MAP.
“Technically, MAP is not a restriction on the final sale price, only the advertised price,” Allen remarks. “Resellers are free to sell below MAP, but can’t advertise that fact; however, they may permit below-MAP price in the shopping cart,” he comments. “MAP can be part of an ‘agreement’ between the manufacturer and reseller on price, but it can also be unilateral.”
Allen’s advice is for manufacturers to institute a Unilateral Pricing Policy (UPP), which is also known as the “Colgate Policy” or “Unilateral Minimum Retail Price Policy” (UMRP). Unlike MAP policies where an “agreement” is spelled out, UPP does still apply to the ultimate sale price, but there is no “agreement” on price because the policy is the same across the board. According to Allen, the penalty for infringement is typically for the manufacturer to cut off sales to resellers or distributors who violate the policy.
When manufacturers become aware of sellers who violate the UPP, Allen says it’s okay to publicly announce the company’s intention to no longer sell to those distributors. He recommends sending “periodic, uniformly written reminders” about the UPP and to monitor compliance, including informing sellers of violations and cutting off those who are noncompliant. Having a unilateral pricing policy avoids federal and state scrutiny because there’s no “agreement” between parties.
The word “agreement” is paramount here because of the Sherman Antitrust Act of 1890, which prohibits “agreements” that “restrain trade” such as with price-fixing or collusion. Muddying the waters are the states of California, Maryland, and New York, which apparently can occasionally – on the state level – view vertical agreements on price between manufacturers and sellers as price-fixing.
Again, terminology is key. Allen points out that vertical price agreements remain per se illegal in California, Maryland, and New York. “Per se illegal,” he says, means there is no need to show harm to competition to establish a violation; vertical agreement on price is enough. Furthermore, Allen notes there has been a big change in federal law regarding vertical price agreements. “Pre-2007, vertical price agreements are per se illegal, akin to price-fixing,” he explains, adding, “Since 2007, the more lenient and flexible ‘rule of reason’ applies.”
There are risks and challenges of RPM. Allen mentions that the RPM policies themselves may not create a basis for taking direct legal action against third-party violators. He adds that companies may need to revise distribution agreements “to create basis for tortious interference and trademark claim against third parties” and that manufacturers “may need to show you are willing to take real action (including litigation) to disrupt persistent violators.”
Complicating matters further are those gray areas that no one likes to talk about, such as white labeling and so-called “MAP Holidays.” Pricing challenges will continue to crop up and ideally need to be addressed; however, at least understanding the basics of these acronyms is a good start.