Brands that are considering adopting a Minimum Advertised Price (MAP) policy frequently wonder if it’s legal, and what types of obstacles they could face in its implementation. As we’ve discussed in other articles, a Minimum Advertised Price (MAP) is a pricing strategy that brand-owners use to set a bottom-line for the price at which their products can be advertised by retailers. MAP pricing does not dictate the ultimate sale price, just a baseline, restricting how low a retailer can advertise the product's price.
Although many retailers may think MAP Policies are illegal, when implemented and enforced properly, they are fine. MAP Policies were deemed to be not illegal by the US Supreme Court in the Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) case, wherein they overruled a century-old precedent and held that minimum resale price maintenance (RPM) is not technically illegal under Section 1 of the Sherman Act.
Why Companies Implement MAP Pricing
Companies adopt MAP pricing policies for several compelling reasons:
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Leveling the Playing Field: MAP pricing promotes healthy competition among retailers by ensuring they all sell the product at a similar price point. This fosters fair competition, enabling smaller retailers to compete more effectively with their larger counterparts.
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Stable and Predictable Margins: Manufacturers tend to charge the same wholesale price to all retailers for their products, then suggest a retail price (aka Manufacturers Suggested Retail Price). This not only helps to show price-based value, it helps retailers know how much money they will make, thus helping them plan their revenue and profits.
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Brand Image Protection: MAP pricing safeguards a consistent and premium brand image by preventing retailers from initiating price wars or excessively discounting products, which can undermine brand value.
Legal Considerations and Obstacles
When it comes to the legality of MAP pricing, there are crucial considerations for companies, along with potential obstacles:
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Antitrust Laws: To ensure compliance with federal antitrust laws, companies must refrain from engaging in price-fixing conspiracies with retailers or any activities that artificially inflate prices, thereby diminishing market competition.
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Resale Price Maintenance (RPM): Companies should differentiate between MAP pricing and RPM, as RPM involves manufacturers directly controlling the resale price of their products, often running afoul of antitrust laws and competition regulations.
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Enforceability: MAP pricing policies are not legally enforceable. As policies (not to be confused with agreements which are signed), they are unilateral statements made by the brands about their products. Repercussions for non-compliance are limited to suspension of discounts, terms, inventory access, authorized account status, etc. Companies should always seek an attorney’s input before implementing MAP.
Common Obstacles:
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First Sale Doctrine: Companies may encounter challenges related to the First Sale Doctrine, which allows individuals or businesses that have legally acquired copyrighted or trademarked goods to resell them without the manufacturer's control over pricing. This doctrine may limit the effectiveness of MAP pricing, as it applies to subsequent sales of the product. We recently discussed this in episode #6 of our podcast, Legal Briefs.
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Unauthorized Sellers: Another significant hurdle is dealing with unauthorized sellers, especially in the ecommerce marketplace for online retailers (Amazon, Walmart, eBay, etc.). These sellers may not comply with MAP pricing policies, leading to potential price erosion and brand image damage. Companies must implement robust monitoring and enforcement mechanisms to address this issue.
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Seller Transparency: Today’s online retailers have greater access to products than ever, and oftentimes, can get it without the brand-owner’s knowledge. This makes cutting off their supply of goods extremely difficult. Even companies that have tight control over their distribution need assistance to determine the identity of online sellers.
MAP pricing can be a legal and effective strategy when executed properly, serving as an essential strategy for perceived value, predictable and stable margins, and fair competition. However, it is paramount for companies to navigate the legal landscape with utmost care and address common obstacles.
Obstacles like the First Sale Doctrine and unauthorized, unidentifiable sellers require proactive strategies and vigilant monitoring to uphold MAP pricing policies effectively. Seeking legal counsel and staying well-informed about evolving legal regulations is essential, ensuring that your pricing strategy aligns with your business objectives while adhering to the law and safeguarding your company's integrity.
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Stay Compliant with MAPP Trap
Though MAP pricing is a valuable strategy commonly employed by many ecommerce brands across the globe, it’s not unusual to wonder whether or not it’s legal to implement MAP policies. While it’s generally legal overall, it’s important that when implementing MAP pricing policies, you’re aware of the nuances associated with those intended policies and where you’re selling. In order to successfully implement MAP pricing without having any legal worries, brands must do their research to stay legally compliant, ensuring they aren’t crossing any legal boundaries, no matter how blurred they might seem.
Part of maintaining legality with MAPP pricing is to also ensure that resellers you work with aren’t violating your policies. In order to do this more effectively, consider employing a tool like MAPP Trap. Not only does our software help you track down those unauthorized resellers, but we also automate notifying them of the contracts they’re breaking.