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Reg Issues > NAPAA Bulleting
May 19, 2000
TPMA
Bulletin: Five Music Distributors
Settle FTC Action Regarding Minimum
Advertising Pricing (MAP)
May 19, 2000
FTC
Finds That Their Practices Involving
Co-op Advertising Funds Were Illegal
The
FTC, last week, held that the pricing
practices of five music publishing
companies illegally fixed the retail
prices at which retailers had to sell
the music companies’ CD’s.
According to the FTC’s complaints,
the companies required retailers to
advertise CD’s at or above the
minimum advertised prices (MAP) set
by the companies, in exchange for
substantial cooperative advertising
payments. The Commission found
that the pricing practices were not
per se illegal, but were unlawful
under a “rule of reason”
analysis.
Some
of the practices the Commission found
to be illegal were:
-
Requiring
retailers to advertise the
CD’s at or above minimum
pricing levels in all advertising,
including advertising paid
for entirely by a retailer.
-
Forcing
retailers to adhere to the
music companies’ minimum
pricing policies; otherwise
they would suffer severe financial
penalties, including loosing
cooperative advertising funds
for a period of time.
- Conducting
practices that effectively required
retailers to sell the CD’s
at a certain price, thereby, eliminating
the retailer’s ability to
communicate discounts to consumers.
In
the opinion of Gerald Guttman, Esq.,
these cases brought by the FTC do
not change the existing law concerning
the use of MAP in co-op advertising.
Namely, a manufacturer can
legally require that MAP be used in
advertising done by retailers provided
(1) such requirement is limited to
co-operative advertising that is paid
for in whole or in part by the manufacturer,
(2) the retailer is not required to
adhere to the MAP when using its own
funds to advertise the manufacturer’s
product, and (3) the retailer is not
forced to sell the manufacturer’s
products at the prices fixed by the
manufacturer or prohibited from selling
at discount prices. Mr. Guttman
pointed out that once the retailer
purchases the manufacturer’s
product, it has the right to advertise
and sell the manufacturer’s product
at any price it wishes.
In
fact, the FTC itself appears to concur
in Mr. Guttman’s opinion when
it issued the following statement
which accompanied the settlement of
the five cases:
"
the Commission has employed the
rule of reason to examine cooperative
advertising programs that restrict
reimbursement for the advertising
of discounts, because such programs
may be pro-competitive or competitively
neutral. Statement of
Policy Regarding Price Restrictions
in Cooperative Advertising Programs
– Rescission, 6 Trade
Reg. Rep. (CCH) ΒΆ 39,057.
The cooperative advertising programs
that were the subject of previous
Commission actions involved only
advertising paid for in whole
or in part by the manufacturer,
but did not restrain the dealer
from selling at a discount or
from advertising discounts when
the dealer itself paid for the
advertisement. See,
e.g.… 109 F.T.C. 146,
147 (1987) (‘the restraints…
do not prohibit retailers from
selling at discount prices or
advertising discounts or sale
prices with their own funds’).
The
Minimum Advertised Pricing (‘MAP’)
policies of the five distributors
in this matter go well beyond
the cooperative advertising programs
with which the Commission has
previously dealt:”
It
is also important to note that
the Commission also stated:
"In
the future, the Commission will
view with great skepticism cooperative
advertising programs that effectively
eliminate the ability of dealers
to sell product at a discount.
The Commission will, of course,
consider per se unlawful
any arrangement between a manufacturer
and its dealers that includes
an explicit or implied agreement
on minimum price or price levels,
and it will henceforth consider
unlawful arrangements that have
the same practical effect of such
an agreement without a detailed
market analysis, even if adopted
by a manufacturer that lacks substantial
market power.”
Accordingly,
Mr. Guttman recommends that all cooperative
advertising pricing restrictions,
as well as any other pricing restrictions,
be checked with legal counsel before
they are adopted or utilized.
For
more information concerning the above
you may view the actual findings
of the Commission on their Web site.
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