Home > Legal and Reg Issues > NAPAA Bulletin May 15, 1997

TPMA Bulletin: Minimum Advertising Pricing (MAP) Policies Being Investigated by the FTC and Justice Department
May 15, 1997

Program Description:

Several newspapers reported last week that the Federal Trade Commission (FTC) has opened an investigation of the Minimum Advertised Price (MAP) policies of several leading distributors of compact discs in the recording industry.

According to an article carried in The Los Angeles Times:

The Federal Trade Commission, which has a long history of monitoring the music business, has launched another probe of the pricing policies of the six major record labels, industry sources said. "All six labels got an FTC notice last month saying it was opening a preliminary inquiry into minimum advertising price policies," said one executive with a major label. The FTC declined to comment, but record industry sources said the agency is investigating the policies under which labels allocate cooperative advertising dollars and free goods to retailers, and whether record companies were creating an artificial floor on prices.

Similar articles appeared in the San Jose Mercury-News and in USA Today.

It is important to remember that this is only an investigation, and that nothing may result from it. The investigation may drag on for several years before there is any resolution.

Background:

Prior to and through the mid-1970's many manufacturers' co-op programs refused payment for ads at or below the manufacturer's suggested prices. Thereafter, a large investigation by the FTC resulted in consent decrees with a number of manufacturers, prohibiting such practices.

In June of 1980 the FTC issued a formal policy statement wherein it specifically announced that it intended to challenge co-operative advertising programs as per se unlawful violations of Section 5 of the Federal Trade Commission Act, if they restricted reimbursement for the advertising of discounts.

In May of 1987 the FTC rescinded that policy statement and stated that price restrictions in co-op advertising programs are not per se unlawful.

Today many manufacturers in many industries have policies allowing retailers to sell at any price, but refusing co-op reimbursement for any ads below specified prices.

MAP & The Law

According to Gerald Guttman, Esq., "Minimum Advertising Pricing (MAP), or suggested retail pricing in co-op advertising agreements are generally held to be legal and not a per se unlawful attempt to fix retail prices, providing no other attempt is made to influence the retail selling price of the product. The 'rule of reason' approach is used to determine whether such a program is legal or not."

He goes on to say, "An illustration of a provision in a co-operative advertising agreement that would likely be held to be proper, providing no other scheme or effort is made to enforce the retail selling price, would be: when you use our co-op funds you must advertise at our suggested list price or at no price at all'."

"However," continues Mr. Guttman, "if a co-op advertising, pricing, or general advertising program contains an additional incentive or a more generous rebate or allowance if the customer maintains the minimum advertised or suggested price, that may very well fall into the area of an unlawful attempt to fix retail prices. All factors would be looked into by the court or the FTC in judging under the 'rule of reason' approach as to whether there was a per se unlawful attempt to influence the retail prices."

Mr. Guttman provides these examples "If a co-op allowance of 10% were given if a company maintained the minimum advertised price, and only 2% if they sold below the MAP, that may very well be deemed to be an illegal price-fixing agreement. Similarly, if an additional incentive were given of an extra cash rebate of 4% if the customer maintained the MAP, that might also be deemed an illegal price-fixing arrangement."