Supreme court ruling may kill internet retailers discount sales

[Stumbo]

June 2008
---------
Washington — The Supreme Court ruled Thursday in a 5-4 decision to make it easier for manufacturers to require retailers stick to minimum advertised prices (MAP), a move that could raise prices at retail, the dissenting justices said.

The high court’s decision over rules a previous anti-trust statute that said MAP agreements were illegal. In the future courts will decide on a case by case basis whether the MAP agreement violates anti-trust laws.

“It is a flawed anti-trust doctrine that serves the interests of lawyers,” Justice Anthony Kennedy wrote, adding the old legal standard required “manufacturers to choose second-best options to achieve sound business objectives.”

Dissenting justices said the ruling would likely drive up retail prices.

The original case stemmed from a 2002 decision involving a Texas clothing fashion retailer who had broken a MAP agreement with a manufacturer. The vendor broke off its relationship and retailer sued winning $3.6 million. A lower court upheld the decision, but it has since been overturned.

The CEA issued the following statement on the ruling. “CEA applauds the Supreme Court decision today reversing the per se rule against resale price maintenance. The Supreme Court holding that the “rule of reason” should apply to the legality of manufacturer pricing decisions, means simply that all the facts will be examined before a finding of illegality — replacing a black-and-white rule of illegality in every case. Reasonableness has come back to the antitrust laws, and in the consumer electronics industry, where sales training, industry marketing, and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer’s requirement that threshold prices be maintained.”

Richard Glikes, executive director of the Home Theater Specialists of America (HTSA) buying group, commented, “I’ve been around long enough to remember [the] Fair Trade [law]... which was actually a wonderful situation for retailers since it guaranteed [retailers] full margin on the product. It created a very orderly market and the benefit was that everyone played on equal playing field.”

He noted, “Under Fair Trade consumers bought from the most knowledgeable retailers and not necessarily the one with the best price.” Glikes backed the Supreme Court decision as “a good thing for retailers.”

Dave Workman, executive director of the PRO Buying Group, doesn’t think the Supreme Court decision is a return of Fair Trade but that it will help enforce “the MAP laws that are already on the books. [Suppliers] will be able to further enforce MAP and can discontinue relationships with those retailers who break the rules. “

Workman noted that independent dealers “want compliance to MAP. Internet retailers should be the ones that get affected [by the decision] more than anyone.” And he added, “Today, when a national chain goes off MAP many suppliers now give them a slap on the wrist. With the ruling, you may be able to warn them more.”

Jim Ristow, general manager of Home Entertainment Source, the specialty A/V division of buying group BrandSource commented, that in the past two years “several suppliers who traditionally did not have a policy have gone to a firm MAP policy. The real issue will be execution and accountability at all levels, and will everyone have the discipline to live by the letter of the law.”

Rob Standley, merchandising and marketing director of Vann’s, said that for the Montana-based electronics/appliance retailer, “Since we are a specialty retailer and require a cost structure where we can hire the right people, train them and show some differentiation, we hope that this ruling will stick. We hope it could help improve margins, which would be a good thing. Of course if manufacturers don’t enforce this it doesn’t matter. But overall our outlook is one of measured optimism.”

Micro Center did not think the ruling would have a major impact. Kevin Jones, the retailer’s merchandising VP, said larger vendors already enforce some sort of MAP policy today. In most cases MAP is controlled more from ties to significant back end funding rather than the threat of pulling the business. He added, this could impact retailers whose primary differentiator is only price.

[m0nst3r]

Wow, what a time for retail prices to potentially rise.

[Stumbo]

Richard Glikes, executive director of the Home Theater Specialists of America (HTSA) buying group, commented, “I’ve been around long enough to remember [the] Fair Trade [law]... which was actually a wonderful situation for retailers since it guaranteed [retailers] full margin on the product. It created a very orderly market and the benefit was that everyone played on equal playing field.”

It wasn't a benefit to consumers paying artificially set prices.

He noted, “Under Fair Trade consumers bought from the most knowledgeable retailers and not necessarily the one with the best price.” Glikes backed the Supreme Court decision as “a good thing for retailers.”

Show me where these knowledgeable retailers are. No retailer I've ever bought from new much about the equipment they were selling. IMO, this is even more true today because anyone can find out pretty much anything they want to on the internet. I mean, isn't that what TB is all about?

[Munjibunga]

Yeah, like Fender would pull its product out of GC if they undercut MAP. Riiight.

[Bluesy Soul]

Sorry, but the sky is not falling. The OP was correct to state in his thread caption that the ruling
MAY kill internet discount sales. Frankly, I doubt it. As the VP from Micro Center said, there are other forces at work in the marketplace that effectively enforce MAPs or create functional equivalents.

Adopting a shallow analysis and the seemingly populist position, and assuming the righteous indignation of a willing victim, may not be warranted in this instance--as often is the case. Read the article carefully. Internet discount sales are not prohibited. MAPs are not automatically enforceable. The ruling simply overturns the formerly-automatic prohibition on MAPs and says they should instead be considered individually and enforced or overturned as the case-by-case analysis justifies.

That strikes me as a rule that is altogether more reasonable than a per se prohibition.

Just my $.02.

Bluesy Soul

[brianrost]

Who cares about MAP. When I go to my local dealers (not GC) they all have computers and they already know what the online prices are. They are usually willing to sell for less, including eating sales tax (5% here in Mass.).

Just this past weekend I went to check out an item marked $700. I told the owner AMS had it online for $600. He didn't even bother to check it, he just asked how much better he had to do. I told him $580 tax included would be fine and he didn't even blink.

[thumpbass1]

I just love it when the Supreme Court manages to squeeze out another flawed decision by a narrow margin. This descision basically could allow the big guns in any industry to form cartels where agreed upon price fixing to a certain degree could be acheived by internal agreements. It's much like the funeral and mortuary service industry, where years of fixed prices and a non competitive gentleman's agreement attitude made sure that everyone was enjoying fat profit margin potential.

I do find the decision odd because for years the lower courts have ruled in favor of sellers being able to sell below their cost if they choose to do so! I guess the independent retailers have just now been told they no longer have that right to sell at whatever price they choose if a manufacturer
wants to control minimum allowed pricing. I agree with the OP that it's a chilling thought indeed if the independents are crushed and the manufacturers and the big retailers are left to control any market with fixed pricing and anything else they desire.

[Bluesy Soul]

Originally Posted by thumpbass1

I just love it when the Supreme Court manages to squeeze out another flawed decision by a narrow margin. This descision basically could allow the big guns in any industry to form cartels where agreed upon price fixing to a certain degree could be acheived by internal agreements. It's much like the funeral and mortuary service industry, where years of fixed prices and a non competitive gentleman's agreement attitude made sure that everyone was enjoying fat profit margin potential.

I do find the decision odd because for years the lower courts have ruled in favor of sellers being able to sell below their cost if they choose to do so! I guess the independent retailers have just now been told they no longer have that right to sell at whatever price they choose if a manufacturer
wants to control minimum allowed pricing. I agree with the OP that it's a chilling thought indeed if the independents are crushed and the manufacturers and the big retailers are left to control any market with fixed pricing and anything else they desire.

Give me a break !

For starters, this opinion was issued in June of last year, not June 2008 as the OP--or his crack source who penned the article--would have us believe. Where are all those price-fixing cartels formed by the "big guns in any industry" during the past 17 months ?

Though I doubt it will do any good, here is a link to the actual case, Leegin Creative Leather Products, Inc. vs. PSKS, Inc.: http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf. Note that in the process of overturning the previous rule--i.e., that vertical price restraints (such as MAPs) are illegal per se, as set forth in the Dr. Miles case--the majority goes to great lengths in considering and addressing the price-fixing cartels you fear. Thankfully they adopted a rule of reason--which neither condones nor condemns any contractual agreement that might affect price--instead of perpetuating an historical reaction to fear.

The Dr. Miles case (previous rule) was decided in 1911. Dr. Miles interpreted an application of the Sherman Antitrust Act which was enacted in 1890. Do you think there just might have been some changes in retailing during the subsequent 96 years? If you're not sure, read brianrost's post above yours. Even the job-perpetuating bureaucrats at the Federal Trade Commission and the Justice Department, who are charged with enforcing the Sherman Act, favored overturning of the per se rule set forth Dr. Miles.

The Leegin case is an all-too-rare example of the Supreme Court doing it's real job: determiining whether the application of statutes, cases and regulations is constitutional or even lawful. If you don't like the outcome of Leegin, I would suggest that your effective remedy is not to bay at the moon regarding the ills you perceive the Supreme Court to have wrought. Your remedy is to go to your senators and congressmen and tell them that Congress did some work 100 years or so ago that is due for an update. Oh, I'm sorry. I forgot. Your senators and congressmen are all in the pockets of "they" and "them" and the "big corporations" and the industry "big guns", aren't they?

Life must be hell in Victimland. Keep your night light on.

Bluesy Soul

[thumpbass1]

Originally Posted by Bluesy Soul

Give me a break !

For starters, this opinion was issued in June of last year, not June 2008 as the OP--or his crack source who penned the article--would have us believe. Where are all those price-fixing cartels formed by the "big guns in any industry" during the past 17 months ?

Though I doubt it will do any good, here is a link to the actual case, Leegin Creative Leather Products, Inc. vs. PSKS, Inc.: http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf. Note that in the process of overturning the previous rule--i.e., that vertical price restraints (such as MAPs) are illegal per se, as set forth in the Dr. Miles case--the majority goes to great lengths in considering and addressing the price-fixing cartels you fear. Thankfully they adopted a rule of reason--which neither condones nor condemns any contractual agreement that might affect price--instead of perpetuating an historical reaction to fear.

The Dr. Miles case (previous rule) was decided in 1911. Dr. Miles interpreted an application of the Sherman Antitrust Act which was enacted in 1890. Do you think there just might have been some changes in retailing during the subsequent 96 years? If you're not sure, read brianrost's post above yours. Even the job-perpetuating bureaucrats at the Federal Trade Commission and the Justice Department, who are charged with enforcing the Sherman Act, favored overturning of the per se rule set forth Dr. Miles.

The Leegin case is an all-too-rare example of the Supreme Court doing it's real job: determiining whether the application of statutes, cases and regulations is constitutional or even lawful. If you don't like the outcome of Leegin, I would suggest that your effective remedy is not to bay at the moon regarding the ills you perceive the Supreme Court to have wrought. Your remedy is to go to your senators and congressmen and tell them that Congress did some work 100 years or so ago that is due for an update. Oh, I'm sorry. I forgot. Your senators and congressmen are all in the pockets of "they" and "them" and the "big corporations" and the industry "big guns", aren't they?

Life must be hell in Victimland. Keep your night light on.

Bluesy Soul

Actually I don't live in Victimland because I chose not to long ago. As a citizen I do have a right to ask a few questions regarding a Supreme Court decision, and I'm very much involved in addressing any concerns I may have with my elected representives of any party through the normal and sane channels of civil discourse and political process, something I do practice. I do thank you for the additional info and links you provided in spite of your rather insulting and condescending manner. Sorry, but I actually like my Congressman and have talked with him personally in the past. If I addressed a question concerning a theoretical potential for abuse within any industry due to the court's decision, that's all I did. I think you read a whole lot more into my post than is actually there.