Home > Legal and Reg Issues > TPMA Bulletin November 13, 1997

TPMA Bulletin: Maximum Advertising Pricing Rulilng by the Supreme Court
November 13, 1997

The Supreme Court of the United States unanimously ruled last week that it is no longer an automatic (per se) violation of the antitrust laws for manufacturers to prohibit retailers from selling its product above a certain price. Prior to this decision, it was considered price fixing and automatically unlawful to engage in such conduct. Now, such maximum pricing restrictions will be judged under a "rule of reason" approach, according to the decision.

It should be noted, however, that it is still deemed price fixing and a per se violation of the antitrust laws for a manufacturer to require its retail customers to sell its products at a set price or to restrict the retailer from selling below a certain price. Generally, once the retailer purchases the products of the manufacturer, it has sole discretion to determine at what price it wishes to sell the manufacturer's products.

For co-operative advertising or other promotional and advertising allowances, on the other hand, a manufacturer can impose reasonable restrictions upon a retailer. Such restrictions will be judged under a "rule of reason" approach and are not automatically illegal. For example, it would normally be considered legal if a manufacturer's co-op advertising program required its retailers to advertise at the "manufacturer's suggested list price or no price at all." The reason is that such restrictions apply only when the retailer is using the co-op funds of the manufacturer and they don't restrict the retailer from utilizing its own funds to advertise and sell the manufacturer's products at any price the retailer wishes. And, the retailer can still qualify for the co-operative benefits by simply not advertising any price at all.

In view of the complications and severe legal consequences of adopting an unlawful pricing or co-op advertising pricing program, it is strongly recommended that legal counsel be consulted before engaging in such activity.

Prepared by Gerald Guttman, Esq., November 13, 1997.