September 9, 2008, 12:00 AM

E-retailers say they are being forced to raise prices by manufacturers

BabyAge.com has filed suit claiming that Toys ‘R’ Us has forced manufacturers of baby products to enforce minimum pricing policies on e-retailers. When BabyAge.com refused to raise prices, the manufacturers stopped supplying items, BabyAge says.

A big reason why online retailers have taken market share from stores is that web merchants have lower overhead and can offer lower prices. At least one retail chain is fighting back by pressuring manufacturers to insist that e-retailers not sell below the manufacturer’s suggested retail prices, according to a lawsuit by e-retailers BabyAge.com and BabyCatalog.com.

The suit alleges that the Babies ‘R’ Us unit of Toys ‘R’ Us has threatened to discontinue buying from baby products manufacturers that do not impose minimum pricing rules on Internet retailers. BabyAge.com became aware that Babies ‘R’ Us was applying such pressure as early as 2003, and it intensified after the U.S. Supreme Court issued its Leegin decision last year in favor of minimum-pricing rules in some cases.

“Before Leegin there were a dozen manufacturers that agreed with Babies ‘R’ Us to do this,” says Jack Kiefer, CEO, of BabyAge.com. “After Leegin there are a hundred or so.” Kiefer says his company has lost tens of millions of dollars worth of sales because of high-end items like baby strollers and car seats that it can no longer sell because the manufacturers are insisting on minimum prices.

Among the manufacturers that have cut off BabyAge.com is Medela Inc., a manufacturer of breast pumps. While BabyAge.com used to sell the Medela Pump In Style breast pump for $209.99, it’s now selling across the Internet at $279.99. “Nobody is selling it below that because that’s mandated,” says Jacob Weiss, president of BabyAge.com. Medela, one of several baby products manufacturers being sued along with Toys ‘R’ Us, did not immediately respond to a request for comment. Toys ‘R’ Us said it would not comment on pending litigation.

In arguing for a dismissal of the BabyAge.com suit, the defendants in the case said the Leegin decision “revolutionizes the law of vertical resale price maintenance.” They contend that the court in that decision found minimum pricing rules can in some cases provide consumers greater choice by ensuring the survival of retailers that provide higher levels of service in exchange for charging higher prices. Otherwise, such retailers might be driven out of business by discount retailers that charge low prices and provide little service, the court reasoned.

That motion to dismiss was rejected in May by U.S. District Court Judge Anita B. Brody of the eastern district of Pennsylvania. A consumer suit against minimum pricing has been added to the BabyAge.com suit, and the judge is considering a request that it be made into a class action suit. A trial could take place in about a year, Weiss says.

BabyAge.com is No. 296 in the Internet Retailer Top 500 Guide. Keifer’s audio-visual presentation at IRCE 2008 is available on CD-ROM.

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