MAP & 3rd Party Marketplace (3P) Seller Questions & Answers – Past Webinar

19 Minute Read Time
Written by David Howell

I wanted to share a Q&A session from a past webinar I hosted/moderated. Many might find this helpful and if you happened to attended this Webinar, you will defiantly appreciate the information. Please note that this is not intended as legal advice and conversational only, one should consult an attorney for specific UMAP, IMAP or MAP policies.

Q: Can a manufacturer selectively decide to enforce the MAP program and to treat different distributors differently when it comes to enforcement?

A: Keep in mind that there typically are two types of policies used to address resale price erosion. The first is a resale price policy that sets a minimum price for all offers, as Ill as the actual selling price. The second is a minimum advertised price (MAP) policy, which only applies to certain forms of advertised price and does not set the selling price. Sometimes, “MAP policy” is incorrectly used to refer to either one or both of these.

As a unilateral policy—regardless whether addressing resale prices or just advertised prices—the principal U.S. laws against vertical price fixing do not apply. However, the failure to enforce a policy uniformly creates a rebuttable presumption that the supplier and the reseller which is given favorable treatment reached an agreement on resale or advertised prices. If there is such an agreement on resale prices, it is judged according to a supplier-friendly standard known as the “rule of reason” under federal law in the U.S., but it is unlawful on its face in a number of states. So, if possible, it is best to avoid this presumption in the area of resale price policies.

There is less risk with respect to a MAP policy. So, while it is better to maintain it as a unilateral policy, the failure to do so means that it is an agreement. At both the federal and state levels, MAP agreements are judged under the rule of reason.

If instead of or in addition to cutting off product access, one or more of the penalties for resale price or MAP violations is the loss of discounts, allowances, rebates or promotional benefits, disparate treatment can create a Robinson-Patman Act problem, as that statute bans certain forms of price and promotional discrimination.

 Q: Are there public examples of good MAP programs, or could I get a copy of a MAP program from the likes of Apple, Samsung or HP?

A: You may wish to Google “MAP Programs” or variations of this search term, as I understand that many are available online. Keep in mind that the quality varies. Also, if you have a relationship with A Channel Management Company, the people there may be able to provide you with publicly-available MAP programs.

By the way, according to The Wall Street Journal, Samsung had a MAP program and replaced it with a resale price policy some time ago.

 Q: What is the most effective and efficient way to distribute the policy to customers? Mass emails, letters, etc.?

A: Most clients use a mix of hand delivery (usually to the larger customers), mail and email. In addition to these methods or sometimes in the alternative, they post on their websites (using password-protected portals for their customers), such things as their policies, lists of covered products, minimum prices and do-not-sell lists. Such portals can be further divided by type of customer or even individualized to particular customers. I recommend that every time a change is made to what is posted, an e-mail be sent to alert each affected customer, as it is unrealistic to expect it to monitor the websites continuously.

The key knows who the direct and indirect-buying customers are, so they can be contacted. Of course, the directs are easy, as it is the indirect that is often the most difficult to find. The best approach here is using authored distributor or dealer agreements, so the relevant information is readily available. (Distributors or wholesalers usually do not cooperate in providing their customer lists.)

Q: How vulnerable (legally) are you making yourself if you choose to enforce with one retailer and not another. (Going back to the slide about taking a bullet)

A:  Keep in mind that there typically are two types of policies used to address resale price erosion. The first is a resale price policy that sets a minimum price for all offers, as Ill as the actual selling price. The second is a minimum advertised price (MAP) policy, which only applies to certain forms of advertised price and does not set the selling price. Sometimes, “MAP policy” is incorrectly used to refer to either one or both of these.

As a unilateral policy—regardless whether addressing resale prices or just advertised prices—the principal U.S. laws against vertical price fixing do not apply. However, the failure to enforce a policy uniformly creates a rebuttable presumption that the supplier and the reseller which is given favorable treatment reached an agreement on resale or advertised prices. If there is such an agreement on resale prices, it is judged according to a supplier-friendly standard known as the “rule of reason” under federal law in the U.S., but it is unlawful on its face in a number of states. So, if possible, it is best to avoid this presumption in the area of resale price policies.

There is less risk with respect to a MAP policy. So, while it is better to maintain it as a unilateral policy, the failure to do so means that it is an agreement. At both the federal and state levels, MAP agreements are judged under the rule of reason.

If instead of or in addition to cutting off product access, one or more of the penalties for resale price or MAP violations is the loss of discounts, allowances, rebates or promotional benefits, disparate treatment can create a Robinson-Patman Act problem, as that statute bans certain forms of price and promotional discrimination.

Of course, while not a legal issue, the failure to enforce a policy uniformly can adversely affect credibility and trade relations, something that is often a bigger problem than the legal concerns.

Q: Amazon tells us all of the time, you’re losing the buy box because of third parties undercutting MAP or offering a lower price. You’re responsible for distribution and they are going to violate MAP until I can control our distribution. Can I go after Amazon’s third-party division for allowing unauthorized sellers to advertise below MAP?

A: This is typical Amazon excuse, particularly if you are also selling to Amazon directly—“I have an algorithm that follows prices in the market. Make the other guys take up their prices first, and then I will follow your MAP policy.” The correct response to this is: ”I take our violators as I find them. So, if Amazon is violating our MAP policy, I enforce it against Amazon now, rather than put it at the end of the line.”

But regardless whether you are selling to Amazon directly, it has shown no interest whatsoever in cooperating with manufacturers or other suppliers to permit only authorized resellers on its marketplace and in enforcing MAP policies. Amazon takes the point of view that authorizing resellers and policing a MAP policy are the sole responsibility of the manufacturer or supplier. (We understand that eBay is far more helpful in this respect.)

By contract or policy, Amazon could be forbidden by the manufacturer or supplier from fulfilling for unauthorized resellers or giving them a place on Amazon’s marketplace, but, absent this, there is no claim against it or its third-party division.

 Q: Can MAP and distribution policies specifically state where and how resellers can sell? – For instance, stating no selling as a third-party seller? Or No fulfillment by Amazon.

A: Absolutely. We do this regularly in authorized reseller agreements or by policy, and it typically carries little legal risk.

If done by agreement, these restrictions are judged in the U.S. under the manufacturer- or other supplier-friendly “rule of reason,” where they are presumed to be lawful, until it can be shown that, on balance, they are unreasonably anticompetitive. Moreover, the Supreme Court has put its thumb on scale used—if it helps the manufacturer or other supplier to compete better against other brands (Interbrand competition), competition among its resellers (intrabrand competition) may be restricted.

Q: What to do when your policy or policies conflict with your customers’ policies?

A: There are two aspects to answering this question—the business side and the legal side.

From the business perspective, the result of the conflict depends on who has the greater bargaining power or resolve and is willing to use it.

On the legal side is something called the “battle of the forms.” For example, as a rule and regardless what a manufacturer’s price sheet states, if a customer submits an order on its purchase order form with customer-favorable language that conflicts with the manufacturer’s provisions, the customer’s language will control, unless the manufacturer objects and states that it will fill the order only if the customer agrees that the manufacturer’s terms govern. Of course, almost no manufacturers ever do this. The better approach is to address this clearly in a contract or policy prior to getting the order.

I hope this helps. Feel free to contact me anytime to discuss this e-mail further or anything else.

Q: Does the MAP policy I have in place with Amazon extend to their 3rd party resellers? They tell us they can’t control 3rd party pricing.

A: Does your MAP Policy address this issue? What about any agreements between your company and Amazon?

Assuming the Policy or the agreements are both silent in the regard, Amazon, unlike eBay, historically has shown no willingness to cooperate, absent a contractual obligation to do so. So, this likely is an issue between your company and the third-party resellers, meaning that you will have to enforce the Policy against them and, if they don’t comply, probably dry up their sources of supply by both having an authorized reseller program (which may be done by contract or policy) and agreements or policies in place with wholesalers (if they are relevant) that restrict sales to authorized resellers only.

Q: What about anti-competition laws?

A: If a resale price or MAP policy is designed and implemented properly the risk of a challenge or successful challenge is minimal under federal and state antitrust law, as Ill as the competition law if Canada.

Several states—California, New York, Michigan and Illinois—have taken the position that agreements which set minimum resale selling prices are illegal on their face under state antitrust laws, while Maryland has a statute that says so. No state seems to be concerned about agreements that set maximum prices. Since 2007 at the federal level, minimum or maximum resale price agreements are judged under the supplier-friendly rule of reason, where such agreements are presumed lawful unless they can be shown to be on balance unreasonably anticompetitive.

According to a 1919 Supreme Court case that is still good law, unilateral policies that set resale prices are outside the federal laws against vertical price fixing in a positive sense, as they simply do not apply. No state has taken a contrary position.

If resale price policies are not covered, then MAP policies are not covered either. In addition, MAP agreements have long been held to be subject to the rule of reason. Again, no state, to our knowledge, has taken a different position.

At the same time, I generally recommend that MAP programs be structured as policies. This not only provides greater flexibility, as policies, unlike agreements, can be changed unilaterally at any time, but this approach also provides two defenses in the unlikely event of a challenge: (1) as a policy, the laws against vertical price fixing do not apply and (2), if, because of implementation, the policy is really an agreement, it is subject to the rule of reason.

Q: Can you please address how MAP is handled when some resellers are offering “free freight” and some are not?

A: In dealing with the relatively common provision of free freight, almost all of our clients state in their resale price or MAP policies that free freight is not considered a discount, so it may be offered without causing a violation. So, those resellers that provide it have no issue under the policies, while allowing free freight doesn’t affect those that choose not to furnish it. Of course, the free freight providers may have a competitive advantage.

 Q: What is the difference between a resale price policy and a MAP policy?

A: Let’s take the second one first. A MAP policy sets a minimum advertised price. By definition, it does not apply to actual selling prices. It also does not typically apply to in-store things, like price tags, signage, and displays. (Some suppliers only have the policy apply when the supplier pays for the ad, but this approach is increasingly rare.) MAP policies are typically used to provide a more or less uniform reference price and when suppliers don’t care about actual selling prices.

In contrast, a resale price policy covers all offers (regardless where or how made, including in-store), as Ill as the actual selling prices. In some respects, it is cleaner and more straightforward, as there is no need to quibble over what advertising is covered.

MAP programs can be done by agreement or policy, while resale price policies must be just that. The latter is the case because some states treat minimum resale price agreements as illegal on their face. So, under federal and state law, MAP agreements are presumed lawful, until they can be shown to be unreasonably anticompetitive on balance, a rather supplier-friendly standard. The same is true for resale price agreements at the federal level.

According to a 1919 Supreme Court case that is still good law, unilateral policies that set resale prices are outside the federal laws against vertical price fixing in a positive sense, as they simply do not apply. No state has taken a contrary position. If resale price policies are not covered, then MAP policies are not covered either.

 Q: Amazon says that they do not follow MAP anywhere. Do you know of categories where they follow MAP?

A: Nonsense. This strikes one as one of Amazon’s parade of excuses or justifications for thumbing its nose at suppliers.

I’ll leave it up to the a Channel Management Company folks to provide more detail, but all of our clients with resale price or MAP policies that sell to Amazon either get compliance or cut Amazon off. (After being cut off, Amazon often comes back and behaves.) Some of the categories involved are vacuum cleaners, small appliances, Housewares, outdoor grills, computer equipment, automotive products and sporting goods.

Q: Do you have a checklist of things to consider when designing a good program?

A: Yes. We have developed for client use an outline of considerations to diagnose the problems and evaluate various options and approaches.

Q: So resale price “agreement” is illegal per se in many states, but how about minimum advertised “agreement” illegal as Ill? I understand policy is not illegal.

A: Several states—California, New York, Michigan and Illinois—have taken the position that agreements which set minimum resale selling prices are illegal on their face under state antitrust laws, while Maryland has a statute that says so. No state seems to be concerned about agreements that set maximum prices. Since 2007 at the federal level, minimum or maximum resale price agreements are judged under the supplier-friendly rule of reason, where such agreements are presumed lawful unless they can be shown to be on balance unreasonably anticompetitive.

According to a 1919 Supreme Court case that is still good law, unilateral policies that set resale prices are outside the federal laws against vertical price fixing in a positive sense, as they simply do not apply. No state has taken a contrary position.

If resale price policies are not covered, then MAP policies are not covered either. In addition, MAP agreements have long been held to be subject to the rule of reason. Again, no state, to our knowledge, has taken a different position.

At the same time, I generally recommend that MAP programs be structured as policies. This not only provides greater flexibility, as policies, unlike agreements, can be changed unilaterally at any time, but this approach also provides two defenses in the unlikely event of a challenge: (1) as a policy, the laws against vertical price fixing do not apply and (2), if, because of implementation, the policy is really an agreement, it is subject to the rule of reason.

 Q: You say everything is legal. Are you saying it is legal to warn about a MAP violation before stopping distribution? What about state anti-trust laws such as Maryland?

A: If a resale price or MAP policy is designed and implemented properly the risk of a challenge or successful challenge is minimal under federal and state law, as Ill as the law if Canada. The Maryland statute outlaws’ agreements that set minimum selling prices, so it does not apply to resale price or MAP policies done unilaterally or to MAP agreements. No other states have explicit statutes in this area, except for a New York law that makes minimum resale price agreements unenforceable.

As far as a warning is concerned, the cases with respect to resale price policies make it clear those warnings and probation can be troublesome and that the loss of product access for a meaningful period is the only proven penalty. There are few cases in this area and no express support for a multiple-strike-and-you-are-out approach. I think that as long as the loss of access is the ultimate penalty, multiple strike programs will fly. Generally, in a three-strike resale price policy, the first is the loss of access to a SKU or product family for a stated period of time, the second strike is for a longer period and the last strike is the loss forever or at least until the supplier decides to reinstate the violator.

The MAP environment is more lenient. Here, the first strike is typically a takedown notice to stop the offensive advertising within the stated time period. If the violator complies, there is no further penalty, although it has accrued one violation. If the violator does not comply or commits another offense, a second violation occurs, with the loss of at least some product access for a stated period. The third violation results in the loss of all products. Alternatively, financial penalties can be used, such as the loss of discounts, allowances or display programs.

Q: If you have a Dealer Agreement that you require the dealer to sign should there be mention of advertised price, promo day limitations and blackout periods or should these all be covered by policy and not a signed agreement?

A: These subjects should be dealt with in one or more policies, rather than the Dealer Agreement for a number of reasons, including:

It is important to maintain the resale price or MAP policy as a unilateral policy, so it is critical to keep a requirement to comply out of any contract. To preserve unilateral status, it must be stated that the reseller at all times is free to decide whether to comply. Of course, if the reseller refuses to do so, it is subject to whatever penalties are called for in the policy. (Maintenance of unilateral status is helpful in the case of a MAP policy and vital for a resale price policy, as agreements on minimum resale prices are still unlawful in some states.)

  • Things like promo day limitations and blackout days are likely to change over time or from promotion to promotion, so staying flexible is desirable.
  • Policies can be changed whenever the supplier feels like it, while contracts require the other party to consent to such change, usually in writing. Using policies avoids having to spend time and other resources chasing down the other parties and getting them to sign.

Q: A Channel Management Company does a great job around online monitoring. Any recommendations around tracking offline, with newspaper circulars the biggest issue

A: There are print ad clipping services available, and some of them may screen for volatile ads only.

Another alternative is to insist that copies of all ads be provided to your company or a contractor, something that is common if the supplier provides co-op advertising allowances or otherwise subsidizes retailer advertising.

At the same time, I don’t see much of this, as most of our clients, in addition to or in lieu of Ib price monitoring, rely on one retailer to rat out another. Since retailers usually watch each other all the time anyway, this can be very helpful. This also can create some “false positives” that are dropped after an investigation. While it is lawful to take such complaints from outsiders, it is good practice to thank them, but not to share the results of any investigation with them.

 Q: What is your POV around Membership/VIP clubs and MAP pricing? Often see opportunity to collect points and receive loIr price?

A: The real issue is how does your company feel about this? Needless to say, if it has sufficient bargaining power, it could prohibit this practice or even have a different MAP for Membership/VIP Clubs.

However, often these programs are integral to the way a retailer goes to market, so many of our clients accept them but add restrictions. For example, as you probably know, Cabala’s has a point system associated with the use of its Visa card that allows the accrual of points and the use of them to obtain free or reduced-price merchandise. In this situation, our clients have often restricted such programs by banning, except as the supplier may permit during limited-time events, (1) accrual on our clients’ products at a rate higher than that for other products in the category or (2) promotion of the earning and use of such points in connection with such products, except as the supplier may permit during limited-time events.

Another option, that is not mutually exclusive with the others, is to insist that offers made by Membership/VIP Clubs be non-public and to real members that have such status in a meaningful way.

Obviously, there are many other ways to slice and dice this.

Q: One of our biggest issues is our sales department ALWAYS sides with the partner, and puts the onus back on marketing to chase the original offender down. How do you recommend handling that?

A: It sounds like a senior management decision needs to be made—either your company has a resale price or MAP policy or it doesn’t. Halfway and inconsistent measures can create legal issues, but, even more importantly, put the company’s credibility on the line. The internal impediments may include things like the sales personnel being compensated on volume, so they have little incentive to support a policy that could take money out of their pockets. One way around this and to have a policy is to adjust their targets.

 Q: I cannot get Amazon to even respond to us, let alone correct the MAP violations. They usually ignore smaller sellers of commodity type products.

A: This is typical. First, Amazon generally will not do anything about third-party resellers on its site, unless the consumer experience they deliver is negative and Amazon finds out about it. Second, with respect to its own MAP violations, it seems that the only thing Amazon understands is being cut off.

 Q: I cannot “take a bullet” and drop Amazon. Seems like small companies are left out in the cold, and perhaps I should not even worry about MAP.

A: If Amazon is eroding resale prices, but, as an important customer, your company can’t or won’t take a bullet and cut Amazon off, then it has no choice but to live with the erosion. Moreover, it should simply drop the policy and put its resources devoted to it elsewhere.

Small companies are at a disadvantage because this is all about bargaining power and Amazon knows it. By the same token, I’ve seen both large and small companies win. For example, one of our clients, a small company with a niche product, cut off Amazon for repeated MAP policy violations. It was a painful experience, but its other resellers saw that the company was serious about the policy. Even better, in 30 days, Amazon was back, asking for the product and hasn’t violated MAP since. Sometimes it pays to stand up to the big guy.

Q: Could you please clarify retailers’ (specifically Amazon.ca) “right to sell” in Canada?

A: Please understand that I’m not admitted to practice law in Canada, but am familiar with its requirements. You may wish to consult Canadian counsel and, if you would like, I can put you in contact with a Canadian lawyer, who, ironically, has the same name as you.

That having been said, Canadian distribution law in many respects is similar to that in the U.S. So, unless a contract requires it, a supplier has no legal obligation to sell to anyone or, if it does so, to sell all of its products to everyone. In addition, both places recognize the use of vertical non-price restrictions, which allow the supplier to dictate (1) where a retailer or other reseller may or may not sell (i.e., you will sell only in Canada or you will not sell in Canada) and (2) to whom it may or may not sell (i.e., you will only sell to end users and not for resale).

These restrictions are judged under a supplier-friendly test that balances the precompetitive benefit against the anticompetitive harm. Moreover, in the U.S., where this is called the “Rule of Reason,” the Supreme Court has put a thumb on the scale in favor of suppliers—if a practice helps a supplier to compete better against other brands (interbrand competition), it may restrict competition among its resellers (intrabrand competition).

In other words, absent a contract, there is no right to sell. By the same token, if the goods involved are genuine, even an unauthorized reseller may sell them, as long as it does state or imply (through the use of logos and the like) that it is an authorized reseller. This is called the “nominative use defense” in the U.S. Also, pulling products from an existing relationship, rather than not establishing the relationship to begin with or not providing new products, may trigger reseller protection laws in some places.

Q: How do you reconcile antitrust laws with MAP policies and State Statutes regarding manufacturer-dealer relationships (franchise-franchisor relationships) which regulate dealer relationships? For example, if a dealer violates a MAP policy the response typically made is that it did not agree to the policy and any violation is not subject to termination under the state law on franchises?

A: If done correctly, resale price or MAP policies are perfectly compatible with the antitrust laws at the federal and state level in the U.S. However, based on your question, you know that some states, apart from their antitrust laws, have dealer or distributor protection statutes of general applicability, while most states have industry-specific protection laws (such as those pertaining to motor vehicle dealers and beer wholesalers). Where there is a franchise present, a number of states have franchisee protection statutes.

One of the key steps in designing a resale price or MAP policy is to determine whether any of these laws apply and, if so, what they require. In the most restrictive places, it may be difficult or impossible to do a policy. Otherwise, it may be possible to design around these protection laws, often by modifying the penalties for failing to comply with the policy.

For example, Wisconsin and Rhode Island have identical or virtually identical protection laws of general applicability that permit termination only for cause and require a cure period to allow the reseller to avoid termination by remedying the problem. The supplier pulling all of its products for a policy violation could be seen as terminating the relationship, but it is likely that cause is present due to the violation. However, allowing cure could convert a policy into an agreement, something that is fatal to a resale price policy (but not a MAP policy) in certain states. To avoid this, I recommend that, in troublesome states, the supplier deny the offending reseller access to key products only, rather than to all of the supplier’s products. Alternatively, financial penalties may be permissible.

Another thing to check is whether there is any contractual barrier to adopting a policy or enforcing it. For example, a dealer agreement which states that the dealer is entitled to purchase all of the supplier’s products will conflict with policy penalties that involve restricting or denying such access. As a rule, the contract will win.

Q: Amazon appears to be reselling our products, however, they are not an approved distributor and I do not sell to Amazon. This is causing problems with our approved sellers as Amazon does not abide by our MAP policy. (Amazon is the only seller that does not comply with our MAP.) I cannot determine how they are getting our products and Amazon refuses to respond to repeated inquiries. How do I enforce MAP with non-approved distributors?

A: I have faced this problem many times, including Amazon’s failure to cooperate. To address this situation, it is necessary to cut off Amazon’s access to your products. If your company serializes them, it may be possible to track such products through their distribution channels and determine who is selling to Amazon. If not, which is the more typical case, some of our manufacturer clients have used a mystery shopper to place an order with Amazon for an esoteric product that likely will not be in stock at Amazon or anyone else. Then, they see which reseller orders the product.

Of course, this assumes that, either by agreement or policy, your company is given the right to dictate to whom resellers may or may not sell. Allocating customers or walling them off is generally lawful, but there must be a document that grants this right.

Another alternative is, of course, to make Amazon an authorized reseller that is subject to the policy. HoIver, Amazon may still choose to violate it, and, unless your company can control Amazon’s supply of your company’s products, nothing has been accomplished.

 Q: There is little transparency on Amazon about some sellers’ identities. I have been unable to get any information from Amazon regarding resellers on their site because my company does not “have a seller account” and they cannot share seller information. How do I get information from Amazon so that I can contact and monitor distributors selling through the Amazon marketplace?

A: This is another place where Amazon usually will not cooperate. It views authorization and proper use of the manufacturer’s intellectual property as the manufacturer’s problem. I have created a few ways to help facilitate this.

 Q: You mentioned that MAP policies are not signed. What if I have a signature on it to prove the reseller has seen it?

A: Some companies like to have their resellers sign their resale price or MAP policies to acknowledge receipt and take away the argument later by an offending reseller that it never saw the policy. If a signature is limited to this purpose, the policy can still be unilateral, but there should be explicit language above the signature explaining that this is only to acknowledge having received it and not an agreement to follow the policy.

The problem is that such language is often absent or not very Ill done. Because agreements are signed, but policies aren’t, care should be taken to avoid doing anything that supports the notion that the policy is really an agreement. Converting a minimum resale price policy into an agreement is fatal in a number of states, but having a minimum advertised price (MAP) agreement is not. Nevertheless, it is better to preserve unilateral status in both cases. With MAP policies this provides another defense in the unlikely event of a challenge.

 Q: The name of the New York case in regards to MAP Policy:

A: Worldhomecenter.com., Inc. v. KWC Am., Inc., No. 10 Civ. 7781, 2011 U.S. Dist. LEXIS, at *10 (S.D.N.Y. September 15, 2011) supports the concept that a minimum advertised price (MAP) policy covering the in-the-cart price can still be a MAP policy, rather than a resale price policy.

If anyone would like to dive further into any specific area mentioned above, I would be glad to help with an introduction to the true expert in this area.

Please share this

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Articles

Stop Brand Dilution NOW!

Trademark Protection, a Key Part of Any Success. Developing a product, starting a business, getting the word to potential customers, all of this is work, hard work. Your life becomes part of your business. But, success brings attention, and attention brings imitators, knockoffs, people who would dilute the value of…
Close Menu

Latest White Paper: First Sale Doctrine - is the Argument Now a Myth?