ANTITRUST PRICING CHALLENGES FOR CONSUMER PRODUCT COMPANIES: PRACTICAL SOLUTIONS

Transcription

1 ANTITRUST PRICING CHALLENGES FOR CONSUMER PRODUCT COMPANIES: PRACTICAL SOLUTIONS By: Wendelynne J. Newton Mackenzie A. Baird Consumer product companies face increasing challenges in an ever-changing marketplace, from the continued increase in Internet sales to pop-up stores to a variety of new approaches to engage consumers. Rising labor costs and the decrease in the number of consumer shopping trips are significant challenges. Expansion of the Internet has changed how business is done, including how products are sold. According to U.S. News & World Report, December 20, 2016, shipping company volumes were burgeoning, with estimates of at least 17.83% of 2016 holiday sales as non-store sales. Kiplinger s Retail Sales & Consumer Spending forecast released June 15, 2017 projects 15% e-commerce sales growth in Kohl s, J.C. Penney, Target and others have closed stores across the United States, while Amazon seeks to acquire Whole Foods. Walmart is piloting back-to-school supplies on its online grocery shopping service. Brick-and-mortar stores demand price enforcement by manufacturers against retailers that freeride or showroom -- where consumers visit a store to see and feel the product before they purchase it online at a lower price from a seller who has not made the brick-and-mortar investment. Price comparisons on cell phones at a store are common, facilitated by new technology. The use of various workarounds on Internet sites allow consumers to see the final, low price before making a purchase decision. As companies look for solutions to these real-time issues, they must be mindful of the United States antitrust laws in the sale and resale of their products, both online and at brick-and-mortar stores. This paper and the live presentation at the CHESS Conference will explore five such antitrust challenges: illegal price agreements, minimum advertised price ( MAP ) policies, nonprice restrictions, price/promotion discrimination and unauthorized resellers. The emphasis is on understandable antitrust guidance and practical solutions. I. ILLEGAL PRICE AGREEMENTS Overview of Section 1 Section 1 of the Sherman Act states that: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal. 15 U.S.C. 1. Despite the broad language of the Act, the courts have long limited its application to concerted activity that unreasonably restrains trade. To succeed on a claim under Section 1, a plaintiff must allege and prove (1) a contract, combination or conspiracy between two or more entities; (2) an unreasonable restraint of trade; that (3) affects interstate commerce. Courts examine the alleged illegal conduct under one of two distinct tests: per se and the Rule of Reason. While only unreasonable restraints are prohibited, per se violations are already determined to be unreasonable. Agreements among competitors to fix prices, divide markets or customers, or 2017 Wendelynne J. Newton, Buchanan Ingersoll & Rooney PC

2 boycott customers or suppliers are classic per se violations of Section 1. Once identified as a per se violation, context and intent are irrelevant. The per se analysis is reserved for restraints that are so manifestly anticompetitive and lacking in any redeeming virtue that they may be deemed unlawful without any inquiry into its competitive effects. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007). Restraints that are per se unlawful include horizontal agreements among competitors to fix prices or to divide markets. Id. (internal citation omitted). In contrast, the Rule of Reason analysis involves the balancing of the procompetitive and anticompetitive aspects of the activity, in the context of the actual markets in which the activity occurs. It is a flexible inquiry. The Rule of Reason analysis requires the court to examine a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint s history, nature, and effect. State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). In the Rule of Reason analysis, the reasonableness of a restraint is evaluated based on its impact on competition as a whole within the relevant market. Dickson v. Microsoft Corp., 309 F.3d 193, 206 (4th Cir. 2002). A restraint does not violate Section 1 under the Rule of Reason if the procompetitive benefits of the restraint outweigh its anticompetitive effects. See generally, Leegin, 551 U.S. at 886 ( In its design and function the rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer's best interest. ). Vertical Relationships Prompting Illegal Horizontal Restraints The Supreme Court s decision in Leegin Creative Leather Products v. PSKS, Inc., 551 U.S. 877 (2007), overturned 100 years of precedent holding resale price maintenance where a manufacturer and its retailer agree to set the minimum price for the manufacturer s products to be per se illegal. Now, like many other vertical restraints, resale price maintenance is evaluated under the Rule of Reason. However, Leegin did not change the antitrust prohibition on per se agreements among competitors or the standard by which they are judged. Such horizontal agreements remain per se illegal. Consequently, a MAP policy can be subject to heightened scrutiny and found unlawful if the result is a horizontal agreement, such as when a manufacturer facilitates an agreement between or among competing retailers. If a manufacturer takes affirmative steps to coerce compliance with a MAP policy among competing retailers by offering the assurances of the other competitors, the situation is as if the retailers (the horizontal competitors) had directly agreed to a particular policy or action. This occurred in the Baby Products Antitrust class action litigation that was filed in the United States District Court for the Eastern District of Pennsylvania. See McDonough v. Toys R Us, et al., No. 2:06-cv-0242-AB and Elliott v. Toys R Us, et al., No. 2:09-cv AB. There, the plaintiffs alleged that Babies R Us coerced manufacturers into adopting policies designed to prevent retail discounting and insulate Babies R Us from price competition by Internet retailers. The class was certified in 2009 and, after nearly nine years of litigation, the case finally settled for $35.5 million. See McDonough v. Toys R Us, Inc., 638 F. Supp. 2d 461 (E.D. Pa. 2009) (certifying class) and 80 F. Supp. 3d 626 (E.D. Pa. 2015) (approving settlement). 2

3 Travis Kalanick, the former CEO and co-founder of Uber Technologies, Inc., was recently sued in a private antitrust action based on allegations that he facilitated an illegal price-fixing conspiracy among Uber drivers in violation of Section 1. The plaintiff alleged that drivers agree with Uber to charge certain fares with the clear understanding that all other Uber drivers are agreeing to charge the same fares, and that the agreements are organized and facilitated by Mr. Kalanick. The court denied Mr. Kalanick s motion to dismiss, concluding that plaintiff s allegations had sufficiently pled a horizontal agreement. See Meyer v. Kalanick, 174 F. Supp. 3d 817 (S.D.N.Y. 2016). These types of agreements are sometimes referred to as hub-and-spoke conspiracies where a powerful firm organizes an agreement among its upstream or downstream partners through vertical restraints. Although the conspiracies involve a vertical element, they are treated as a horizontal agreement and, thus, are per se illegal. See, e.g. Toys R US, Inc. v. FTC, 221 F.3d 928, (7th Cir. 2000), and United States v. Apple, Inc. (the ebooks Litigation ), 791 F.3d 290, (2d Cir. 2015), cert. denied, 136 S. Ct (2016), two cases that alleged hub-andspoke conspiracy cases. In Toys R US, the FTC alleged that the retailer coerced toy manufacturers into implementing vertical restraints to hinder competition from warehouse clubs like Costco, BJ s and Sam s Club. Although the agreements took the form of a vertical agreement between Toys R Us and the individual manufacturers, the evidence demonstrated that the manufacturers promised to restrict distribution on the condition that other manufacturers would do the same. The Seventh Circuit affirmed the FTC s decision, holding that evidence that showed the manufacturers wanted to diversify from Toys R Us, not to become more dependent upon it, and that each manufacturer was afraid to curb its sales to the warehouse clubs alone, demonstrated that the manufacturers only agreed to Toys R Us demands because it was sure its competitors were doing the same thing thus establishing a horizontal agreement. Id. at 936. In the ebooks Litigation, the Department of Justice alleged a per se illegal conspiracy among Apple and defendant book publishers to fix/stabilize price of e-books in reaction to Amazon s $9.99 e-book pricing strategy in conjunction with its Kindle sales. Defendants were allegedly concerned that the $9.99 price point would harm sales of hard cover books, lull consumers into thinking $9.99 was reasonable, cause lower wholesale prices for e-books and threaten survival of brick and mortar bookstores. The central allegation was that publishers and Apple colluded in signing Agency Agreements. Each of the defendant book publishers eventually entered into settlements with the Department and state enforcers, for a total settlement in excess of $184 million. The Consent Orders between the publishers and the DOJ terminated the Agency Agreements with Apple, terminated price restrictions or price Most Favored Nations clauses ( MFNs ) in e-book retailer contracts and imposed restrictions on future conduct, including no new agreements for 2 years restricting e- book pricing by retailers, no price MFN provision in e-book retailer contracts for 5 years, and no retaliation against e-book retailers based on pricing. Apple was left as the lone defendant to stand trial against the Department of Justice and State Attorneys General in Following a three-week trial, the court ruled that Apple conspired with the publishers to raise e-book prices, costing customers hundreds of millions of dollars. The Second Circuit affirmed, holding that Apple s agreements were per se illegal. See U.S. v. 3

4 Apple, Inc., 791 F.3d 290 (2d Cir. 2015). The court rejected Apple s argument that the agreements were independent and vertical between Apple and each of the book publishers, and found that Apple consciously orchestrated a conspiracy among the publishers into collectively acting against Amazon. Id. at 316. Consequently, the court held that the vertical agreements were per se illegal because they were used to facilitate horizontal cartel activity. Apple and the publishers also faced a private antitrust lawsuit in connection with the ebooks agreement. The district court denied the defendants motions to dismiss, finding sufficient facts to plead Section 1 conspiracy among publishers to raise e-book prices. In Re Electronic Books Antitrust Litigation, No. 11 MD 2293, 2012 WL (S.D.N.Y. May 15, 2012). In 2015, Apple agreed to pay $450 million to settle the class action lawsuit. Practical Approach Educate employees/sales representatives who communicate with the company s reseller customers. Understanding the per se illegality of an agreement among/between competitors is the first step to avoiding such agreements. That includes illegality for facilitating an agreement among others. II. MINIMUM ADVERTISED PRICE ( MAP ) POLICIES The manner in which products are advertised, promoted and sold is critical to maintaining and enhancing a brand, particularly as against other premium products with which they compete. Appropriate advertising is important to the success of a brand. Consumer companies with high end or premium brands invest money in retailer advertising, promotions and merchandising that enhance their brands. Manufacturers ideally want to do business only with retailers who protect and, preferably, enhance their brands. While retailers have the right to decide what products to buy and how to position, price, support and sell those products, manufacturers have the right to work only with business partners who understand and embrace their brand and the positioning, marketing and selling of their premium products. It is not uncommon for manufacturers to adopt Minimum Advertised Price ( MAP ) or advertising policies in order to address these concerns. Such policies are intended to restrict only the prices at which a product or service may be advertised and not to dictate the actual resale price of the manufacturer s products. A consumer product company can legally suggest retail prices and then refuse to deal with customers who do not adhere to them. It generally cannot, however, agree on the retail price that the customer/retailer will charge its customers. It cannot coerce compliance. In the law's view, coercion creates an agreement as to the prices to be charged consumers, which will generally be held illegal. The Supreme Court in Leegin did not address Internet realities in its review of economic considerations. The Court did not address the ease of price comparison, which increases the free-rider problem and makes price agreements more desirable to certain manufacturers. It also did not address how the Internet increases price transparency among manufacturers and makes price-cutting more visible (thereby facilitating manufacturer collision). Some manufacturers turned to MAP approaches to help address the free riding or showrooming issue. 4

5 All information regarding a consumer product on an Internet website is considered to be advertising for purposes of most MAP or advertising policies, other than pricing associated with an intent to purchase (as part of the shopping cart or order) which becomes the selling price. Accordingly, all the online screens before the shopping cart constitute advertising for purposes of most MAP policies. Showing a pre-cart price below the product s MAP is therefore inconsistent. Not supporting retailers who fail to "comply" is classic coercion (which infers an illegal Section 1 agreement). There is an exception in co-op advertising. A manufacturer can generally refuse to reimburse for the specific advertisement reflecting a less than MAP price. It cannot, however, refuse to reimburse for advertising in general to extract an agreement from the retailer that it will not advertise at below MAP or based on a retailer's general failure to sell at MAP. As the FTC notes in its Guide to Dealings in the Supply Chain: Manufacturer-imposed Requirements: The law allows a manufacturer considerable leeway in setting the terms for advertising that it helps to pay for. The manufacturer offers these promotional programs to better compete against the products of the other manufacturers. 1 The key from an antitrust standpoint is generally how a manufacturer enforces its MAP Policy, how it actually behaves when a reseller violates its Policy. A strike you re out enforcement scheme or similar approach with predictable consequences for non-compliance constitutes classic coercion. Sales representatives must be clear on the lines and stay on the legal side of them. Antitrust challenges to such Internet pricing policies have produced mixed results. For example, WorldHomecenter.com ( WHC ), an online retailer of home improvement products, filed several lawsuits against manufacturers with MAP policies. See, e.g. WorldHomeCenter.com, Inc. v. KWC America, Inc., No. 10 cv 7781, 2011 WL (S.D.N.Y. Sept. 15, 2011) (dismissing challenge under the Sherman Act and Donnelly Act to policy); Worldhomecenter.com, Inc. v. PLC Lighting, Inc., 851 F. Supp. 2d 494, 502 (S.D.N.Y. 2011) (holding allegations in the complaint insufficient to plead a Donnelly Act violation under Rule of Reason); Worldhomecenter.com v. Franke Consumer Products, No. 10-civ-3205, 2011 WL (S.D.N.Y. June 22, 2011) (granting motion to dismiss and holding Rule of Reason applied to plaintiffs claims since policy addressed advertised prices, not resale prices); c.f. Worldhomecenter.com, Inc. v. L.D. Kichler Co., Inc., No. 05-cv-3297, 2007 WL (E.D.N.Y. March 28, 2007) (denying motion to dismiss pre-leegin, holding that essentially, the advertised price is the retail price for internet shopper ). The FTC has stated that there are limited situations when MAP policies or co-op programs can have an unreasonable effect on price levels. Id. For instance, the FTC challenged the MAP policies of five major CD distributors. See In re Sony Music Entertainment, Inc., No. C- 3971, 2000 WL (F.T.C. Aug. 30, 2000). The policies at issue prohibited advertisements with discounted prices, even if the retailer paid for the ads with its own money, and applied to in-store advertising. The FTC viewed the MAP policies as unreasonable in their 1 Available at (last accessed July 25, 2017). 5

6 reach. The challenge was ultimately resolved by consent agreements with each of the distributors. Separate State Law Issues While Leegin represents federal antitrust law, many states take a contrary position. Many Attorneys General were opposed to Leegin and wanted resale price maintenance to remain per se illegal. As of this writing, at least 3 states (California, New Jersey, and Ohio) continue to prohibit resale price maintenance using their respective state antitrust or competition laws. Utah enacted a statute prohibiting resale price maintenance policies or agreements in the contact lens industry by prohibiting those manufacturers or distributors from taking any action, by agreement, unilaterally, or otherwise, that has the effect of fixing or otherwise controlling the price that a contact lens retailer charges or advertises for contact lenses or from discriminat[ing] against a contact lens retailer based on whether the contact lens retailer sells or advertises contact lenses for a particular price. Utah Code Ann a Additionally, in 2009, Maryland amended its state antitrust laws to reverse Leegin and adopted an express per se condemnation of minimum resale price maintenance agreements. In New York, enforcement authorities have continued to treat resale price maintenance as per se illegal. However, state and federal courts have generally interpreted New York law to follow Leegin. The Kansas Supreme Court held resale price maintenance to remain per se illegal under Kansas antitrust law in O Brien v. Leegin Creative Leather Products, 277 P.3d 1062 (Kan. 2012), but that decision was overturned by the state legislature. See Kan. Stat. Ann (b)-(c). With sales in various States across the country, a manufacturer cannot find much comfort in Leegin. Agreeing with retailers on the price at which they will sell a product exposes the manufacturer to antitrust challenge -- particularly a manufacturer with market power (one of the Leegin factors). Practical Guidelines For MAP Policies With the Supreme Court decision in Leegin in the summer of 2007, the increase in online advertising and shopping and the use of technology to find and match pricing anywhere, the first step to protecting a brand is to determine the real issue. Efforts to control pricing may not be the solution. Reviewing and changing retailers may address the issue. Affecting price advertisement versus the actual sales price may be the solution, through a MAP policy. A manufacturer can issue a unilateral policy and terminate those who do not comply. The termination can be as to certain products or new products/styles versus all products. The use of co-op/promotional funds for advertising that complies with a MAP policy remains acceptable. A manufacturer cannot, however, prohibit advertisements with discounted prices even if the retailer paid for them, apply it to in-store advertising, or trigger forfeiture of all co-op funds for a single violation for 90 days from all stores. And withholding co-op beyond the offending ad is not permissible. While a manufacturer can approach a retailer to discuss discounting and other retailer conduct that diminishes the brand, consider limiting the sales folks having those conversations and 6

7 educate them on the antitrust parameters. Sales representatives should not discuss with one retailer the resale pricing or practices of other retailers. Any enforcement should be unilateral, by the manufacturer alone. Some more acceptable approaches to combating free-riding or showrooming from an antitrust standpoint include: Offering a larger discount to retailers who support the product with services, effort and the desired brand image; Offering promotional allowances for specific brick-and-mortar services, e.g., product demonstrations, product content display, can also help. The consent orders in United States v. Apple expressly permit the settling defendants to compensate brick-and-mortar bookstores directly for promotional services they provide to publishers or consumers. See, e.g., Final Judgment as to Defendants Hachette, HarperCollins, and Simon & Schuster (September 6, 2012); 2 Exclusive products or special pricing, to support a strategy of a retailer offering products customers cannot buy anywhere else, or offering products sooner, if exclusivity is not available; Suggesting retailers set up in-store scanning for home delivery (free shipping), in-store pick-up for online purchases, mobile payment solutions or other more unique in-store experiences; Using retailer requested unique barcodes for big ticket items (versus using the universal barcodes on the products). Besides such efforts, some retailers are focused on personalization, specialization and offering more local and artisanal products. Data is a significant component of retail success, as retail and technology become even more inseparable. Manufacturers can encourage such efforts. III. NON-PRICE RESTRICTIONS There are an array of non-price restrictions that can be successfully employed to control distribution, including those addressing sales territories, customer service support requirements, exclusivity and other non-price terms. In the seminal U.S. Supreme Court antitrust case addressing non-price restrictions was Continental T.V., Inc., v. GTE Sylvania Inc., 433 U.S. 36 (1977), the court held that non-price restrictions are to be judged under a Rule of Reason. Territory restrictions or primary sales areas can promote intrabrand versus interbrand competition. Exclusivity in and of itself is not problematic from an antitrust standpoint, if the effect of the exclusion is simply to substitute one supplier for another, one distributor for another, etc. The 2 Available at (last accessed July 25, 2017). 7

8 focus of the antitrust laws is not on whether a particular supplier has been harmed but, rather, whether the exclusive conduct reduces competition in the market, thereby harming consumers For this reason, exclusive dealing arrangements do not constitute a per se violation of the antitrust laws. Instead, they are evaluated under the Rule of Reason. As a general matter, exclusivity raises competitive concerns only if suppliers are unable to compete effectively without access to the service or product in question. Thus, a competitor must show substantial foreclosure of the market for the relevant product to maintain an antitrust claim based on exclusive dealing. See, e.g., Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394, (3d Cir. 2016) (concluding that customers had the ability to switch to competing products but simply chose not to do so, entering summary judgment in favor of defendant). In resolving the issue, all of the characteristics of the marketplace, including identification of competing suppliers, the duration of the exclusivity, the percentage of the market foreclosed by the exclusivity, the nature of the product or service involved, and the like, are considered. Most favored nations clauses are used to foster equality but can limit the offering of targeted discounts or the encouragement of new, competing products. If imposed by a manufacturer with market power, they can be problematic from an antitrust standpoint. Practical Approach Because non-price restrictions are evaluated in the context of their use, the most practical approach to avoiding antitrust issues is to work with counsel to review proposed non-price restrictions prior to implementation. Exclusives, for example, are often permissible, unless their application will substantially foreclose a competitor. That determination can only be made by reviewing them in the context of the facts at hand. IV. PRICE/PROMOTION DISCRIMINATION Robinson-Patman Act Section 2(a) of the Robinson-Patman Act prohibits a seller from charging competing reseller buyers in the United States different prices for the same "commodity". Proof that a seller has engaged in price discrimination in violation of Section 2(a) requires (1) a different price, (2) in reasonably contemporaneous transactions in interstate commerce, (3) to two or more buyers purchasing from a single seller, (4) involving commodities of like grade and quality, (5) that may injure competition. Sections 2(d) and 2(e) prohibit discrimination in the provision of promotional allowances and services. Both sections require interstate commerce and the alleged favored and disfavored purchasers competing in the same geographic area. A seller must make service and allowances functionally available to all customers on proportionally equal terms for example, at the same rate per unit or same percentage of sales. "Services" and "facilities" generally refer to services or facilities used primarily to promote the resale of the seller's product by the customer, such as cooperative advertising, literature, demonstrations, catalogues, displays, etc. The FTC issued its "Guides For Advertising Allowances and Other Merchandising Payments and Services" in response to the Supreme Court s decision in FTC v. Fred Meyer, Inc., 390 U.S

9 (1968). These guides, which are commonly referred to as the Fred Meyer Guides, are codified in the Code of Federal Regulations, 16 C.F.R. 240 et seq. While admittedly advisory in nature, they were updated in November of 2014, without significant change, and provide guidance on promotional allowances under the Act. According to the Guides, competing customers are those businesses that compete in the resale of the seller's products of like grade and quality at the same functional level of distribution (e.g., distributor, retailer) regardless of whether they purchased directly from the seller or through some intermediary. While brick and mortar stores may be viewed differently than online retailers, or big box stores versus more specialty retailers or clubs, all of these resellers generally compete, such that it is difficult to justify price distinctions based on different "channels". However, retailers are not generally viewed as competing with distributors, unless the distributor is also performing the same services as the retailers or vice versa. The FTC in its November 2014 commentary to the Fred Meyer Guides with respect to promotional support indicated that retailers in different "channels" may nevertheless be considered competing resellers. Example 3 to Section states: B manufactures and sells a brand of laundry detergent for home use. In one metropolitan area, B's detergent is sold by a grocery store and a discount department store. If these stores compete with each other, any allowance, service or facility that B makes available to the grocery store should also be made available on proportionally equal terms to the discount department store. In general, as the FTC also noted in commentary to the Guides: Defenses [R]etailers, whether operating through brick-and mortar stores, online, or through other formats, may be competing customers of a seller under the Act, and might therefore be entitled to proportionally equal promotional allowances and services. Such retailers are more likely to be deemed competing customers to the extent that they: purchase goods of like grade and quality from the same seller for resale; and contemporaneously market those goods to the same or similar prospective purchasers (among others). In determining whether retailers using different retail formats should be deemed ''competing customers in the distribution of such products or commodities,'' it will be relevant to consider the particular characteristics of the retailers' formats, the location and characteristics of the retailers' target and actual customers, and other factors. There are numerous defenses to alleged violations of the Robinson-Patman Act. Volume discounts are not a defense under the Robinson-Patman Act. However, discounts that drive off volumes that are attainable by all competing resellers are defensible -- attainable meaning that the resellers can realistically achieve the required volume or achieve the discount through a different avenue. The availability defense rests on the theory that a discount or promotional support that is practically available to all customers does not harm any customers who decline to take advantage of it. However, it requires that the discounts be practically available to all similarly situated purchasers, which generally means that (1) purchasers must know that the 9

10 discounts are available (notification) and (2) the volumes required (or alternative avenues) to receive the discounts must be attainable (i.e., the discount cannot be volume or absolute dollar based if not all customers could reach the volume or dollar amount with essentially the same burden). Thus, the defense does not apply if to achieve the highest percentage rebate, a purchaser must buy X amount of the product, and only the largest purchasers could actually purchase that amount. Meeting competition is the most commonly used defense. It generally refers to meeting, not beating, a competitive price that has been offered to the purchaser. It applies when the seller acts "in good faith to meet an equally low price of a competitor" or the services or facilities furnished by a competitor. Documentation is key. There are other defenses to the Robinson-Patman Act, but they are generally harder to prove and do not apply to promotional allowances (Sections 2(d) and (e)), e.g. the highly technical cost justification defense, the functional discount defense or obsolescence. Practical Approach The best remedy to avoiding Robinson-Patman issues is to review the company s the pricing structure and promotional support across all categories of resellers, with an eye to avoiding (or justifying) discrimination under the Act. It is important to document the justifications for variations in prices across resellers in order to have adequate evidence for a defense, should an issue arise. Some companies take a "rough justice" approach to justifying pricing differences to different customers, looking at the overall pricing and support to their resellers to ensure some measure of equivalence or proportionality, even though achieved through different means. In general, Robinson-Patman issues can be avoided with some diligence and a general understanding of the defenses. Contemporaneous documentation is critical. V. UNAUTHORIZED RESELLERS Consumer product companies often complain about companies that sell their products but are not authorized to do so. Generally, the products at issue are genuine (not knock-offs) such that the seller is obtaining those products from an entity that is likely an authorized reseller. If a reseller is actually selling non-genuine products and pretending they are genuine, that is fraud and infringes intellectual property. Assuming authentic products, the first step is to determine the source of the products, often an authorized reseller with which the manufacturer does have a direct relationship. If it is a one-off situation, it may not be worth the time/effort. If it is a steady supply, it likely is worth trying to highlight to the leak in the supply chain that they are not authorized to sell to other resellers without written approval; or, depending on the customer, to stop selling them if they continue to supply to the problem resellers. 10

11 Practical Approach From a practical standpoint, companies can stop unauthorized resellers by tightening their distribution, having contractual terms that prohibit the resale of its products to other than end user customers, using internet reseller agreements and other steps to reduce unauthorized resellers. Tightening a company s distribution network and reducing the number of unauthorized resellers is one of the most powerful steps a company can take, along with a MAP policy if applicable, to maintain appropriate pricing. Unauthorized companies are not permitted to use copyrighted images. While cease and desist letters can work, often with a screen shot showing the copyrighted photo and demanding that unauthorized use of the photos stop, violators often replicate the whack-a-mole game, popping up under different names. While they cannot use a manufacturer s photos or pretend that they are an authorized seller, they can sell the product. Some companies have successfully used cyber investigators to track down the actual individuals propagating the various discount sites, often on the Amazon marketplace, and have sued them. But identifying them can be difficult, and filing suit can be expensive. Amazon has a process for infringement claims, which includes the unauthorized use of copyrighted photos/images. Unfortunately, Amazon takes the position that, by posting a photo on Amazon, the posting company/person is giving Amazon and its affiliates all rights of publicity in the photo forever; effectively they seem to be claiming that by using a photo to sell a product, permission is given to use the photo to sell anyone s product. The infringement process is only likely to be effective if someone took the photos from the manufacturer s own website and put them on Amazon, where they never appeared before. A manufacturer can remind authorized sellers who sell on the Internet to try to avoid such issues, to describe the products accurately and to use approved images (if permitted), etc. Misrepresentation made by others or inaccurate descriptions can be very frustrating. Some manufacturers are reviewing their resellers and trying to limit them and/or otherwise restrict or narrow their Internet sales. Wendelynne J. Newton (wendelynne.newton@bipc.com) Mackenzie A. Baird (mackenzie.baird@bipc.com) Buchanan Ingersoll & Rooney PC One Oxford Centre 301 Grant Street, 20 th Floor Pittsburgh, PA (412) /1825 8/1/17 11