Is Your Reseller Pricing Policy Even Legal?

By: Andrew Schydlowsky (TrackStreet) December 20, 2017

When manufacturers and brands start thinking about developing reseller pricing policies, they understandably focus on the business details. Which specific guidelines to draft into the policy? Where to set their minimum price levels? How aggressively to go after violators?

But as important as these details are, there is an even more fundamental question that every brand needs to ask and answer before it deploys any reseller pricing policy: Is the policy even legal?

Reseller Pricing Policy

That means before you publish your pricing policy — and, ideally, even before you begin drafting it — you need to know if it has the potential to cross any antitrust lines and put your company on the wrong side of regulators.

So, are these reseller pricing policies legal? Short answer: It depends.

This is why it’s so important to work with experts — either antitrust lawyers or brand protection experts like those at TrackStreet, or both — in drafting any reseller price policy. The good news is that as long as you follow some simple guidelines and avoid a few basic pitfalls, your pricing policy should keep your company on the right side of the law.

Let’s review the standard policies — the Minimum Advertised Price (MAP) policy, and the Unilateral Price Policy (UPP) — and the legal issues surrounding both.

 

Minimum Advertised Price Policies: The Legal Story

 

Historically, MAP has been the reseller pricing policy of choice for manufacturers that support their resale partners with cooperative advertising dollars.

Because MAP policies are often drafted as agreements — signed by both parties — you might wonder how such a policy wouldn’t violate The Sherman Antitrust Act (a federal law that restricts illegal price fixing.)

How can a manufacturer work directly with one of its resellers to set a price for its products? Isn’t that by definition price fixing? Actually, no, not in this case, for two reasons.

 

The legal justifications for MAP policies:

  1. A MAP policy limits only how a reseller may advertise the price of a product. That reseller is free to actually sell the product for any price it chooses. In this sense, the manufacturer and reseller are not technically price fixing; they are agreeing only on the price a product will be advertised.
  2. Because the manufacturer is offering cooperative advertising funds to resellers that adhere to its MAP policy, the manufacturer can assert it has a legal right to influence how those dollars will be spent. As long as the manufacturer doesn’t use the MAP policy in any other way to attempt to fix prices with its reseller, there should be no antitrust issues.

 

Unilateral Price Policies: The Legal Story

 

Dating back to a 1919 Supreme Court Case — the US v. Colgate — the Unilateral Price Policy (sometimes called a “Colgate Policy”) is a one-way statement in which a manufacturer sets the prices at which it is willing to allow resellers to advertise and actually resell its products.

The Supreme Court in the Colgate case considered the separate rights of both manufacturer and reseller. Viewing each “independent actor” as exercising its own rights, the Court determined that such a pricing policy — as long as it remains unilateral — would be entirely legal. Here was their reasoning.

 

The legal justifications for Unilateral Price Policies:

  1. The product manufacturer has a legal right to unilaterally determine which companies they will do business with, and under what circumstances. 
  2. The reseller has a right to decide unilaterally at what price it will advertise and sell products.
  3. If a reseller advertises or sells a manufacturer’s products below the prices written in its unilateral policy, that manufacturer also has the right to unilaterally refuse to continue doing business with that reseller.

In short, as long as both parties are free to make unilateral decisions as “independent actors” — without agreements, negotiations, or other types of collusion that could be deemed price fixing — a Unilateral Price Policy probably does not violate the law. 

The key is that the Unilateral Price Policy is drafted and enforced as a one-way policy. The manufacturer unilaterally sets its pricing as it sees fit. The reseller, also acting unilaterally, advertises and sells those products at whatever prices it sees fit. And then the manufacturer unilaterally decides whether or not it wants to keep doing business with the reseller.

 

Warning Signs That Your Reseller Pricing Policy Could Land You in Legal Trouble

 

A MAP policy can get close to the antitrust line if:

  • The manufacturer and reseller are negotiating or agreeing on actual resale price, as opposed to just the advertised price, of a product.

 

  • The “MAP policy” is actually closer to a Unilateral Price Policy — where no cooperative advertising dollars are in play, and the policy also discusses resale price — but the manufacturer has drafted it as an agreement which both parties must sign.

 

A Unilateral Price Policy can get close to the antitrust line if:

  • It reads more like an agreement than a one-way statement.
  • It appears coercive, where the manufacturer demands certain actions or concessions from resellers in exchange for continuing to supply them with inventory.
  • The policy becomes undermined by the manufacturer’s employees (salespeople, product managers, etc.) having conversations or exchanging emails with resellers about price. Even if these conversations are innocent, they could still be construed as a bilateral agreement and, therefore, possibly illegal price fixing.

 

One more legal warning: If you punish a reseller for violating your reseller policy, you need to be careful about how you publicize the actions you’ve taken. Letting your resale channel know you are taking steps to protect their interests against unauthorized resellers is fine, but a full-blown press release announcing a retail partner you’ve punished for pricing violations could be risky, because a judge might interpret such a move as coercive of the rest of your channel partners. Be careful and consult with experts before making any such public statements.

 

Want more insights and tips on drafting and enforcing a successful reseller pricing policy?

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