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Legal - Minimum Sell Price Policy for Internet Sales

- January 2009

Minimum Sell Price Policy for Internet Sales

In June 2007, in a sharply divided 5-4 decision, the U.S. Supreme Court overruled its own 1911 decision in the Dr. Miles case and held that a manufacturer does not necessarily violate the federal antitrust laws by establishing a minimum resale price for its products and enforcing the policy by terminating a distributor or other reseller who sells below the minimum price. (Leegin Creative Products, Inc. v. PSKS, Inc. d/b/a Kay’s Kloset…Kay’s Shoes, Docket No. 06-480)

The Court ruled that “vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed.” Thus, these agreements should no longer be per se (or automatically) unlawful, as previously ruled in the Dr. Miles case. Rather, courts should apply the “rule of reason” standard to decide, on a case-by-case basis, whether a particular vertical price restraint violates federal antitrust law. It should be emphasized that the Court’s decision still leaves vertical minimum resale price restraints open to antitrust challenge under federal and state antitrust laws.

Following the Leegin decision, manufacturers have generally moved with caution and not imposed ironclad minimum resale price restrictions on their distributors and dealers. This caution is well founded since such restrictions may still be considered unlawful if the manufacturer has significant market share; and the uncertainty of how state antitrust laws will be applied to these restrictions remains, at best, unclear.

A less restrictive policy being considered by some manufacturers is a minimum advertised price for its products by a reseller selling on the internet. The basic features of such a policy are discussed below.

Example of a Minimum Sell Price Policy for Internet Sales

The following is a formal Minimum Sell Price Policy for Internet Sales developed and adopted in January 2008 by a major manufacturer and supplier of foodservice equipment. According to the manufacturer, this policy received legal review by its counsel as well as the input and comment from several of its key dealers, most of whom were highly complimentary toward the manufacturer for initiating this step.

It is important to note that this policy only address the minimum price at which a dealer may advertise a product for sale on the internet. It does not prevent the dealer from selling the product to an internet customer at a lower or different price.

The policy is summarized below.

[the manufacturer] will be reviewing all internet commerce via an outside, third party monitoring service to assure consistent adherence to this policy. If and when a deviation from our Minimum Resale Price is noted, the Dealer will be contacted by phone and in writing with a two-day notice to make the necessary changes to be in compliance with this policy. If no change is made within the two-day period, all shipments will be discontinued until the necessary changes are made. In addition, repeated violations of this policy (defined as 3 or more warnings in a quarter) will result in that Dealer’s base rebates for that quarter being forfeited.

With this formal internet policy, our minimum levels for the [two specified] brands remain at the two price points [specified in the policy]. While this formal policy is for the internet at this time, our informal minimum advertised pricing policy remains in effect for flyers and catalog.

This is a sample policy provided only as an example of a minimum sell price policy for internet sales. Each company is encouraged to consult its own advisors before adopting such a policy to assure it meets the firm’s marketing objectives and is within legal bounds.