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An attorney lays out methods available to manufacturers for managing pricing by resellers, including those that skirt legal liability.
Manufacturers often want to control how their brand is presented online, which includes limiting discounts, ensuring proper imagery is displayed and setting standards for customer services. Suppliers to online retailers have a number of legal tools they can use to accomplish these goals, says Gene Zelek, a partner at Chicago law firm Freeborn & Peters LLP.
● Minimum advertised price, or MAP, is a legally binding agreement or unilateral policy between a manufacturer and reseller that sets minimum prices at which resellers can promote a manufacturer’s product. Violation of the policy usually results in the reseller’s loss of cooperative advertising funds from the manufacturer, although the manufacturer can also decide to stop doing business with MAP violators. As a legal agreement, it is subject to a court’s interpretation of the “rule of reason,” which means that the practice is presumed lawful unless shown on balance to be unreasonably anticompetitive under antitrust law.
● Resale price agreement, which is a binding contract under which a manufacturer requires a reseller to sell at a minimum, maximum or an exact price. A manufacturer might set a maximum, for instance, when introducing a hot product that it doesn’t want resellers to price high, for fear of undermining sales.
This type of agreement, which is also subject to rule of reason determinations, is opposed by several states—including in California, Illinois, Maryland, Michigan and New York, which contend it automatically violates state antitrust law without regard to the actual effect on competition—and has been under fire from some members of the U.S. Congress.
● Resale price policy—has the same intentions of a resale price agreement, but instead of setting an agreement between two parties, it is a unilateral policy applied to all resellers. In effect, it is non-binding and not subject to antitrust and rule of reason determinations, and less likely to be challenged in court, Zelek says.
It can also include the aspects of a MAP program, and is popular among brands that strive to maintain a single price for advertising purposes and the final selling price. If a reseller fails to abide by the policy, a manufacturer can take such steps as cutting the reseller’s cooperative advertising dollars or access to products.
● Target price rebates—Manufacturers may issue rebates to resellers who sell products at or above a certain price level, or within a particular price range. This practice is subject to a court’s determination of the rule of reason under antitrust law if done by agreement.
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