Originally published Spring/Summer 2012
A notable recent decision by the US District Court for the Southern District of New York holds that enforcement of a Minimum Advertised Price (MAP) policy against Internet retailers does not amount to Minimum Resale Price Maintenance, notwithstanding the contention regularly made by such retailers that prices appearing on websites really amount to selling prices rather than advertised prices.1
In that case, Worldhomecenter.com, Inc. v. Franke Consumer Products, Inc., the district court also held, in accord with an earlier holding of a New York state court, that Minimum Resale Price Maintenance is not per seillegal under New York's antitrust law. The New York Attorney General had taken a public position to the contrary.
Franke, a manufacturer of sinks and faucets, instituted a MAP policy applicable to all of its dealers, including Internet retailers. The policy provided that:
- Retailers are not permitted to publish prices below a specified range anywhere on any website.
- Franke can cease doing business temporarily or permanently with violators.
- Internet retailers may, however, advertise that consumers can
or email to obtain the retailer's lowest price.
- Internet retailers also may advertise the availability of coupons for lower sales prices at checkout.
WorldHomecenter.com, an Internet retailer that had been in similar litigation before, violated Franke's MAP policy and was thereafter required to sign a bilateral reinstatement agreement in which it promised to adhere to the policy. The agreement provided that further violation would result in permanent termination.
After Worldhomecenter.com violated the policy again, Franke allegedly refused to continue shipping to Wordhomecenter.com, demanded that its wholesale distributors refuse to ship to Worldhomecenter.com, and posted a "warranty disclaimer" on Franke's own website, advising consumers that Franke would not honor warranties for Worldhomecenter.com customers.
Worldhomecenter sued, claiming that because it could not post lower prices anywhere on its website, the MAP policy amounted to Minimum Resale Price Maintenance in violation of the Donnelly Act, New York's antitrust law: an argument that had worked for Worldhomecenter.com before in defeating motions to dismiss.
In Worldhomecenter, Inc., v. L.D. Kichler Co., 2007 U.S. Dist. Lexis 22496 (E.D.N.Y. March 28, 2007), for example, the US District Court for the Eastern District of New York denied the motion of the defendant manufacturer (which made lighting products) to dismiss a similar claim that the manufacturer's Internet MAP policy had the effect of restricting actual retail selling prices. There, the court held that, taking Worldhomecenter's allegations as true (as required on a motion to dismiss), "essentially, the advertised price is the retail price for an internet shopper" and therefore restricting advertised prices "has the concomitant effect of restricting retail prices for internet retailers." The court's discussion was very brief, however, and cited no authority. Worldhomecenter.com also had prevailed in other decisions where a motion to dismiss was denied.2
Worldhomecenter's argument did not work this time, however. Franke moved to dismiss and Judge Barbara Jones granted the motion.
First, she held that although there is a separate provision of New York law titled "Price Fixing Prohibited," this provision merely renders Minimum Resale Price Maintenance agreements unenforceable in New York, not illegal. This was consistent with the holding in New York v. Tempur-Pedic Int'l Inc.3
Next, Judge Jones held that "[u]nlike the prior cases cited by Plaintiff where an advertising policy was held to restrain prices, the [MAP] policy here provides internet retailers with more than one way to communicate lower prices to clients, either by allowing customers to call or email for a price quote or by offering a coupon to be applied at checkout." These afford Internet retailers "viable strategies to provide online customers with reduced prices." On this basis, the court concluded that Franke's policy was "regulating advertised prices, not the resale prices themselves." Therefore it could not be subject to per seillegality even if the per sestandard continued to apply to Minimum Resale Price Maintenance in New York—which it does not, although it probably does continue to apply in Maryland (by statute), and may continue to apply in California.
Note that the court did not pause long over Franke's alleged warranty disclaimer policy or its alleged instructions to distributors not to deliver to Worldhomecenter.com, once the court determined that there was no antitrust violation. Enforcement of a lawful MAP policy through these means raised no apparent concern, even though Worldhomecenter.com specifically complained about them.
The chief question left open is whether the court would have ruled the same way if Franke had not allowed Internet retailers to invite consumers to call or email for a lower price quote, and had not allowed Internet retailers to advertise the availability of coupons providing lower prices at checkout. Arguably, even without these exceptions, the manufacturer still would have been "regulating advertised prices, not the resale prices themselves," but it would have been more difficult for the court to distinguish the earlier Worldhomecenter.comcases. At the same time, those earlier decisions were only denials of motions to dismiss, not determinations of liability, and there are other cases pointing the opposite way.4
The bottom line is that this latest decision makes it easier for manufacturers to defend MAP policies applied to Internet retailers against claims of price fixing, but still leaves open a gap between the facts on which this decision rests and the facts of earlier cases in which motions to dismiss were denied. Also, the court here granted the plaintiff leave to replead—and an appeal naturally is possible as well. Still, this case is a significant marker for any manufacturer applying MAP policies to dealers that market products on the Internet.
1. Worldhomecenter.com, Inc. v. Franke Consumer Products, Inc., No. 10 Civ. 3205 (S.D.N.Y. June 22, 2011).
2. See Worldhomecenter.com, Inc., v. Thermasol,
Ltd., No. 05 Civ. 3298, 2006 U.S. Dist. Lexis 4623 (E.D.N.Y.
July 10, 2006) (denying defendant's motion to dismiss where
Worldhomecenter adequately alleged that manufacturer's MAP
policy, prohibiting advertising for less than 20 percent off the
scheduled price, unreasonably restrained trade by impeding sales
over the Internet). Also see Worldhomecenter.com, Inc. v. Rohl,
Inc., No. 03 Civ. 6104 (E.D.N.Y. May 18, 2004) (denying motion
3. New York v. Tempur-Pedic Int'l Inc., 2011 WL 198019 (Sup. Ct. N.Y. Cty. Jan. 14, 2011), rejecting the New York Attorney General's argument to the contrary.
4. Campbell v. Austin Air Systems, Ltd., 423 F. Supp.2d 61, 69-70 n. 6 (W.D.N.Y. 2005); Blind Doctor, Inc. v. Hunter Douglas, Inc., 2004 U.S. Dist. Lexis 18480 (N.D. Cal. 2004), see also Worldhomecenter.com, Inc. v. KWC America, Inc., 10 Civ. 7781 (S.D.N.Y. Sept. 15, 2011) (applying Judge Jones' analysis from Franke).
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2012. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.