MAP Pricing Policy and the Federal Rule of Reason

By: Andrew Schydlowsky (TrackStreet) September 28, 2017

If you’ve ever tried to conduct your own research into how your company’s MAP pricing policy is regulated by federal law, you probably quickly found yourself overwhelmed.

MAP Pricing Policy

The FTC publishes hundreds of pages of documents offering guidance on its antitrust laws. The legal cases that guide regulators’ current enforcement approaches are also long and complex documents — written, of course, in legalese. And if you review the papers written by prominent law firms specializing in antitrust law, you’ll find many of these firms point to different cases to interpret how legal precedents affect a manufacturer’s MAP pricing policy.

 

Fortunately, understanding how federal law will interpret your MAP pricing policy is far less complicated than your initial research might have made it seem. And there’s more good news: Federal regulators and the courts typically apply a more relaxed legal standard to your MAP pricing policy than they do for other pricing policies. That standard is called the rule of reason.

 

GOOD NEWS: YOUR MAP PRICING POLICY IS REGULATED UNDER THE MORE RELAXED ‘RULE OF REASON’

 

Under the FTC’s Sherman Antitrust Act (the set of federal laws governing price fixing, monopolies and other anti-competitive business behavior), violations fall into two primary categories — a “per se” violation or a violation of the “rule of reason.”

A per se violation is illegal on its face, requiring no further investigation. An example would be a group of manufacturers or retailers working together on a price-fixing scheme to prevent competitors from entering the market.

But as the American Bar Association points out, regulators typically treat manufacturers’ advertising policies under the other category, applying the rule of reason. This is good news for your MAP pricing policy. Here’s why.

Antitrust regulators are concerned primarily with price fixing, and your MAP pricing policy — assuming you craft and enforce it properly — sets guidelines only for how you allow your resellers to advertise those products.

 

As the Roadmap to Minimum Advertised Price Policies feature published on the ABA’s website also points out, as long as your retailers are free to sell your products at any price they choose, your MAP pricing policy will be treated as a non-price restraint — and therefore legal under antitrust law.

 

WHAT THE US DEPARTMENT OF JUSTICE HAS TO SAY (AT LEAST INDIRECTLY) ABOUT YOUR MAP PRICING POLICY

 

Still not convinced that if you draft and enforce your MAP pricing policy according to best practices your company will be legally compliant? Consider this statement published in the US Justice Department’s Antitrust Resource Manual: “Virtually all antitrust offenses likely to be prosecuted by a United States Attorney’s office will be governed by the per se rule.”

This is why a properly drafted and enforced MAP pricing policy will be on safer legal ground than you might realize — far safer than a superficial examination of antitrust law might have led you to believe.

 

As the ABA points out, regulators in most cases will analyze a MAP pricing policy issue under the rule of reason — while almost every antitrust issue deemed worthy of prosecution will fall under the per se rule.

 

2 ELEMENTS NEEDED FOR CREATING A LEGALLY COMPLIANT MAP PRICING

 

Of course, crafting and enforcing your MAP pricing policy to keep it on the right side of antitrust law will take preparation and expertise. For example, two of the key elements you’ll want to think about are:

 

  1.    Drafting the policy unilaterally

The safest way to ensure your MAP pricing policy complies with the law is to draft it unilaterally, without the input of your resale channel, and to clearly state this in the policy’s language. This demonstrates to regulators that your company has not colluded with your downstream sales partners to set either the selling or even the advertised prices of your products.

 

  1.    Making enforcement decisions without negotiating with your resellers

A related component of your unilateral MAP pricing policy should be to alert resellers that if they violate the policy’s terms, you will enforce a set of consequences — without negotiation of any type. This further demonstrates to regulators the unilateral nature of your policy, which is necessary to stay compliant, because negotiating with one violator while not negotiating with another (or coming to different negotiation terms with different violators) could be deemed as collusion.



If you’d like help drafting your MAP pricing policy and deploying a fully automated MAP enforcement platform, contact us anytime for a consultation and a free demo.

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