The “Agreement” Question

Should a MAP policy be drafted as a one-way statement from a manufacturer to its retail partner, or as a two-way written agreement that both parties sign?

This has been a topic of seemingly endless debate over the years, and in the past, legitimate arguments have been made for both approaches. But due to the rise of the Internet and the changing nature of advertising in the recent past, MAP agreements have become increasingly obsolete, and the norm across industries is now a unilateral MAP policy.

In this short module, we’ll discuss:

• The reason “MAP agreements” have (in most cases) been deemed legal 
• The historical business case for a MAP agreement 
• Why a MAP policy makes more business sense than an agreement
• Missteps that can turn a unilateral MAP policy into an agreement

 

Why MAP Agreements Have (in Most Cases) Been Deemed Legal

Why have courts and regulators historically not viewed a Minimum Advertised Price (MAP) agreement as a violation of antitrust law? After all, doesn’t a MAP agreement constitute a fixing of prices between a manufacturer or brand owner and that company’s retail partners? Isn’t “price fixing” a component of the Sherman Antitrust Act?

The primary legal justification for MAP agreements rests on the “A” in MAP. That is, these agreements cover only advertised prices, not sale prices. A MAP agreement, in other words, leaves retailers free to actually sell the brand’s products for any prices they choose. 

(There is also another legal justification for MAP agreements, dealing with cooperative advertising funds, which we’ll discuss below.)

This distinction between advertised and resale pricing is why programs that set limits on actual sale prices—such as a Minimum Resale Price (MRP) policy or Unilateral Price (UP) policy—can survive legally only as unilateral policies.

As we pointed out in the previous module on the legality of reseller policies, the law demands that both parties—manufacturer and retailer—are able to behave as “independent actors” under these policies. A manufacturer can attempt to set floors on resale pricing, and even establish consequences for violating those price floors, but its retail partners must also be free to choose whether or not to abide by those pricing guidelines. 

If these MRP or UP programs were turned into two-way agreements (whether written or even only verbal), the law would deem them illegal on their face.

 

The Historical Business Case for a MAP Agreement 

MAP agreements have historically also had another legal justification involving the manufacturer’s use of cooperative advertising funds to help retailers promote its products.

The thinking went like this: If a manufacturer were going to partially fund its retailers’ advertising efforts, then the company should have influence over how those ad dollars were spent. This included the content of the ads themselves, including how the manufacturer’s products were priced in them. For this reason, a manufacturer offering shared funds to its resale channel might opt for a MAP agreement to help enforce its desired minimum advertised prices.

Still, under this legal justification, antitrust law has tended to allow manufacturers only one set of consequences for violations of their MAP agreements: to withhold some of the advertising funds from the offending reseller.

This created a business problem for MAP agreements. If a reseller determined that it could earn more revenue by ignoring the policy (and incurring the penalty: the loss of some of its anticipated ad support from the manufacturer), such an agreement would not be an effective deterrent against retailers advertising products at below-MAP prices.  

Moreover, a MAP agreement can still create potential legal pitfalls for a manufacturer under the Robinson-Patman Act (which prohibits certain forms of economic discrimination), if the company does not apply its agreement’s penalties or incentives consistently across all similar resale partners. This adds another element of risk to such agreements if they are not drafted or enforced with a proper eye on the legal nuances.

Finally, because cooperative ad dollars are no longer as common as they once were, and because manufacturers today want their MAP prices adhered to for all public offers of their products—not just those ads involving cooperative ad funds—most manufacturers today are opting for unilateral MAP policies, not agreements. 

 

Why a MAP Policy Makes More Business Sense Than a MAP Agreement

Aside from the fact that MAP agreements were historically designed for manufacturers offering cooperative advertising funds, and that even for those businesses the agreements allowed for a very narrow set of enforcement options, there is another case structuring your company’s MAP program as a unilateral policy rather than a two-way agreement.

From a business standpoint, maintaining a company policy is much more cost-effective and less time-consuming than maintaining a set of bilateral agreements with all of your resale partners.

With a MAP agreement in place, every time your company added a new product or SKU to your catalog, you would need to secure new signatures from all of your retail partners. Every time you updated the MAP pricing of an existing product in your line, you’d also need to update your MAP agreement and send out new contracts to your entire network of resale partners. This is clearly unpractical.

With a MAP policy in place, however, you can make changes to that policy—updating MAP pricing, adding new products—as often as you wish, and all you’ll have to do each time is issue a blanket notice to your resale channel alerting them to the update. 

In other words, aside from the fact that a MAP policy keeps your company on far more secure legal grounds than an agreement, there is also a clear business benefit to establishing your reseller pricing program via a one-way statement rather than by contract.

 

Missteps That Can Turn a MAP Policy into a MAP Agreement

It’s important to keep in mind, however, that drafting and publishing your MAP program as a unilateral policy is only part of the legal battle. Your firm then needs to operate at all times in accordance with the notion that your MAP pricing guidelines are in fact simply a guide for your resale partners to follow—and not a de facto agreement.

There are several ways a careless or uninformed company can unwittingly turn its MAP policy into something a court or antitrust regulators might view as an agreement. Here are a few examples of such missteps to watch out for in your company:

 

1. Failing to enforce the policy uniformly.

If a manufacturer enforces the consequences as stated in its MAP policy against one violating retailer, but then lets another off the hook for the identical offense—particularly if this involves some sort of discussion or negotiation—that manufacturer might have effectively created a MAP agreement with one of its resale partners.

 

2. Discussing MAP pricing or other elements of the policy in advance with a retail partner.

 Another important rule when it comes to MAP policies is that the manufacturer should not discuss policy details with its retail partners—and should never let those partners influence the policy itself. A court might view this as creating a de facto agreement.

 

3. Using language with resale partners that could be construed as coercive.

Finally, a manufacturer attempting to create a unilateral MAP policy can inadvertently step over the “agreement” line if takes a stance with resale partners that appears coercive. For example, if a manufacturer contacts a retail partner violating its MAP policy and demands specific concessions from that partner, under threat of cutting off its future inventory, this might be in effect creating an agreement.