In our first two posts, we covered the basics of MAP programs and compliance as well as some of the common misconceptions around MAP programs. If you missed those posts, there may be value in going back to them for a refresher. In this post, we’re going to examine some of the legal aspects that brands should consider when implementing a MAP (Minimum Advertised Price) policy. MAP policies can be a valuable tool for brands to maintain pricing integrity and protect their market positioning while honoring relationships with retailers of all sizes. However, implementing MAP policies requires careful navigation of legal frameworks to avoid some potentially damaging pitfalls and today we’ll cover some of the most common. We know talking about legal issues can raise those tiny hairs on the back of your neck, but don’t fret. MAP policies – when structured and enforced correctly – are generally beneficial and very legal. When they go awry, it’s typically because the brand didn’t do the necessary diligence to craft its policy with a clear understanding of antitrust laws and other regulatory requirements. Come along with us as we explore the key legal considerations that brands must consider when implementing a MAP policy.
Understanding MAP Policies and the Law
MAP Policies vs. Price-Fixing
One of the most critical distinctions brands must understand is the difference between MAP policies and price-fixing. If this concept is new to you, Price-fixing is when a manufacturer dictates the final sale price of a product; think about the final price a consumer pays at checkout, after any promotion or sale price. This final price is executed at the discretion of the retailer and for any brand or manufacturer to dictate this price is generally illegal under antitrust laws in many jurisdictions, including the United States. However, MAP policies differ because they focus on the advertised price, not the actual selling price.
Let’s use a hypothetical example to illustrate this best. For the sake of this lesson, assume that I’m a brand that manufactures dripless water bowls for messy dogs. My company, Atomic Dogs, sells to the retailer PetDepot and has a MAP policy in place that prohibits my retail partners, including PetDepot, from advertising these bowls for less than $19.99. Generally, PetDepot is considered a valuable partner and has a history of honoring my MAP prices. For their Memorial Day sale, PetDepot is offering a 15% off promo code that applies at checkout to any purchase between $100 and $500. When the customer adds an Atomic Dog bowl to their cart, meets the promotional requirement, and applies the promo code, the bowls normally listed at $19.99 can be purchased at $16.99. Because this promotion was not specific to the Atomic Dog bowls, PetDepot is not in violation of my MAP policy.
This practice is very common and the hypothetical retailer, PetDepot in this case, is not violating the brand’s MAP policy. However, if Atomic Dog were to offer PetDepot a special rebate for this promotion, both parties would be skirting close to the edge of the law. MAP policies are legal as long as they are implemented unilaterally by the manufacturer. This means that the manufacturer sets the advertised price guidelines without requiring retailers to agree to them as a condition of doing business. Retailers are free to sell the product at any price they choose, but they must comply with the advertised price limits set by the MAP policy.
The Sherman Antitrust Act
In the United States, MAP policies must comply with the Sherman Antitrust Act, which prohibits agreements that unreasonably restrain trade. MAP policies that cross the line into price-fixing or involve collusion between manufacturers and retailers could be seen as violating the Sherman Act and are considered criminal acts in the US. Collusion and price-fixing agreements are considered criminal violations and can be prosecuted by the Department of Justice (DOJ). Penalties can include up to 10 years in jail and $100 million per violation. Therefore, it is essential that MAP policies are unilaterally established by the manufacturer and not the result of behind-the-scenes negotiations or agreements with retailers.
Crafting a Legally Sound MAP Policy
Unilateral Implementation
To ensure compliance with antitrust laws and avoid fines and/or jail time, brands must implement their MAP policies unilaterally. This means that the manufacturer sets the MAP guidelines on its own, without requiring retailers to sign an agreement or commit to following the policy as a condition of selling the product. The policy should be communicated to all retailers, but it should not involve any formal agreement or contract that could be interpreted as price-fixing.
Clear and Transparent Language
The best way to avoid any confusion with retailers around your MAP policy is to ensure you’re using clear and transparent language in your policy. It should explicitly state that it only applies to advertised prices, not the final sale price. It should also outline the consequences of non-compliance in a straightforward manner, such as a reduction in product allocation or termination of the retailer’s authorized status. Avoid using language that could be construed as coercive or suggest that the policy is a condition of doing business.
Consistent Enforcement
As we mentioned in our Introduction to MAP Compliance blog, legal scrutiny can arise if a brand enforces its MAP policy inconsistently. To avoid accusations of favoritism or anti-competitive behavior, brands must apply their MAP policy uniformly across all retailers. This means taking the same enforcement actions against all violators, regardless of their size or importance to the brand. MAP policies are not meant to be subjective or left up to interpretation, especially by those in charge of the day-to-day enforcement. Consistent enforcement helps demonstrate that the policy is being applied fairly and is not a tool for manipulating the market. One best practice is to remove any internal parties who may have a vested interest in looking the other way or not uniformly enforcing violations. The team at Pervasive Mind has rich experience in this and can offer some additional best practices to help you enforce without bias.
Avoiding Collusion and Vertical Agreements
Avoid Collaborative Agreements
One of the key legal risks associated with MAP policies is the potential for them to be seen as collaborative agreements between manufacturers and retailers, which can violate antitrust laws. To mitigate this risk, brands must avoid any appearance of collusion or agreement. Retailers should not be involved in the development of the MAP policy, and there should be no negotiation over its terms. The policy should be presented as a unilateral decision by the manufacturer without any consideration for your key retail partners or channels.
Be Cautious with Incentives
Offering incentives or rewards to retailers for complying with a MAP policy can also raise legal concerns. While it’s important to maintain good relationships with retail partners, incentives that are tied directly to MAP compliance can be viewed as a form of coercion or an agreement. Instead, focus on providing general support, such as marketing assistance or training that is not directly linked to MAP compliance.
International Considerations
Varying Legal Frameworks
If your brand operates in multiple countries, it’s important to recognize that the legal landscape for MAP policies can vary significantly from one jurisdiction to another. In the European Union, for example, restrictions on retail pricing are more tightly regulated under competition laws. What is permissible in the U.S. may not be allowed in the EU or other regions, so brands must tailor their MAP policies to comply with local laws.
Consulting Legal Experts
Given the complexity of international laws, it’s advisable to consult with local legal experts in each region where your brand operates. Legal counsel can help ensure that your MAP policy complies with local regulations and provide guidance on how to implement and enforce the policy in different markets.
Legal Risks and How to Mitigate Them
Monitoring and Documentation
To protect your brand from legal challenges, it’s important to establish a system for monitoring MAP compliance and documenting all enforcement actions. For most brands, this includes working with a partner like Pervasive Mind that can monitor, maintain and facilitate the communication with retailers who have violated your MAP policy. Having a partner to relieve the burden of monitoring is key because the onus is on brands to produce documentation of policy violations, and to keep track of the steps taken to address non-compliance. In addition to working with a third party, having a well-documented process can be invaluable if your brand faces legal scrutiny or challenges from retailers. Legal battles add up and brands can incur hundreds of thousands of dollars in legal costs to fight a single retailer. Staying on top of your retailers’ published prices is going to be the most important piece of a well-executed MAP policy.
Educating Retail Partners
While MAP policies must be implemented unilaterally, an ounce of prevention is worth a pound of cure. As such, it’s vital to educate – and overcommunicate to – your retail partners about your policy and its purpose. This can help prevent misunderstandings and reduce the likelihood of disputes. However, be cautious in how you communicate this information—focus on providing unbiased education rather than seeking agreements or commitments. Taking the time to be thorough, patient and impartial in your communication will likely result in a deeper, more meaningful relationship with your retailers.
Regular Policy Reviews
If you’ve made it this far in our post, we appreciate your curiosity and interest in Pervasive Mind’s guidance. However, while we have a wealth of experience to offer customers, you should not take this post as legal guidance. Laws and market conditions change over time, so it’s essential to regularly review and update your MAP policy to ensure continued compliance. Periodic reviews with your legal advisors can help identify potential legal risks and allow you to adjust your policy to reflect new regulations or market dynamics.
Conclusion
Here at Pervasive Mind, we pride ourselves on being good partners, listening closely to our customers’ needs and doing all we can to empower brands every day. We’re rooting for you as you work to implement your MAP policy, using a careful balance between protecting your brand’s pricing integrity and navigating complex legal frameworks. By understanding the legal considerations, crafting a clear and transparent policy, and enforcing it consistently, brands can effectively use MAP policies to safeguard their value while minimizing legal risks. If you are interested in learning more about how Pervasive Mind’s AI-powered MAP solution can help, please reach out. We’re here to help.
