Below is a “Supplier Essentials” interview with one of the AASA Summit’s thought leaders, Brian Schneider, an antitrust expert with the Arent Fox law firm. He will lead the Summit discussion of resale pricing tactics, “Minimum Advertised Price: the Legal Ramifications and Alternatives.” He answers a few key questions below that he will address in more detail at the Summit.

Arent Fox will have a representative on site during the Summit to ensure that antitrust guidelines are followed at all times. The goal of this discussion is to provide attendees with the tools and information that will enable them to reach their own conclusions about how their individual companies should proceed.

AASA Q&A: Resale Prices and the Aftermarket

Question: How do U.S. courts currently view manufacturers’ efforts to control resale prices?

Schneider: Manufacturers have long tried to control resale prices. While federal antitrust law has grown friendlier to these tactics, risks remain.

Q: What tactics are manufacturers using to control resale prices?

Schneider: Tactics being used today across industries to balance antitrust risks against market strategy. Two tactics most commonly applied are unilateral pricing controls and minimum advertised price (MAP). Unilateral pricing controls generally are policies announced by a manufacturer to its reseller noting that if the reseller sells the product below the manufacturer’s minimum price, the reseller may lose access to the product. By contrast, MAPs impose strategic penalties if a reseller advertises a product below the specified minimum price. Such penalties could range from denial of program elements, such as co-op advertising, to termination of the retailer.

Q: What are some of the risks associated with these tactics?

Schneider: Both of these tactics present some advantages and risks. One area of risk associated with both programs is the variation between federal and state laws. For example, California, New York, and Maryland have strong state laws that restrict resale price maintenance in instances that might be permissible under federal law. Meanwhile, MAP policies can raise serious concerns if they are the result of, or facilitate, cooperation by resellers in an effort to control prices.

Q: Have there been antitrust suits as a result of a company using MAP policies?

Schneider: Yes, there have been enforcement actions based on manufacturers’ MAP policies. Those cases illustrate the risks from implementing an ill-advised MAP program, not prompted by efforts to strengthen a manufacturer’s marketing and brand value.

Q: How does a MAP policy actually work?

Schneider: Typically, a manufacturer will announce and distribute to resellers a policy setting the minimum price that may be advertised. The policy should describe the product lines that apply, the types of advertisements that must comply, and the penalties that will be imposed for violations. Penalties can range from reduced co-op, to shipping delays, to termination. The question is then whether the manufacturer is prepared to monitor and enforce the policy in order to make it effective. This can be costly and, in some cases, create tension with important customers.

Q: Why would a manufacturer use unilateral pricing instead of MAP?

Schneider: Both programs are most valuable for products that involve differentiation based on “premium” training, services, or other efforts by resellers. Unilateral policies more effectively avoid competition based solely on price – MAP policies only get half-way there, since the reseller still may offer substantial discounts below the minimum prices. In light of the legal risks regarding unilateral pricing systems, manufacturers also may choose to use unilateral policies for products in less concentrated markets where the risk of antitrust claims may be greater and brand value may produce greater differentiation.

Q: What other strategies are you going to discuss at the AASA Special Summit?

Schneider: There are more tailored strategies that may work for certain product lines or certain markets. For example, some manufacturers are using so-called “eMAP” policies, applicable only to online sales.

Brian Schneider’s presentation at the AASA Special Summit will include an analysis of the strategic and legal pros and cons of these tactics. Summit attendees will receive the information to launch discussions within their individual companies to develop their unique corporate strategies to address resale price maintenance. Click here for more information on the AASA Special Summit on Monday, Aug. 26.

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