Minimum Advertised Price Program

By: Quentin T. Johnson, Marketing Law Group

January 2004

There seems to be lots of interest these days among business people in “MAP” (minimum advertised price) programs. The resurgence in interest has much to do with the rise of internet discounters. However, the volume of legal authority addressing MAP programs is not yet commensurate with their significance in the economy. This thin body of authority translates into uncertainty on some key issues.

MAP is a supplier's policy that its channel members are not permitted to advertise prices below some specified amount (the minimum advertised price). The supplier may or may not have a policy about the channel member's retail price as well. Such resale price policies present separate but closely related legal issues and are frequently dangerous from an antitrust perspective.

MAP programs are often incorporated into the supplier's cooperative advertising policy. The policy typically provides for the channel member's expenses to be reimbursed, its ads cannot contain an advertised price (if any) lower than that specified by the supplier.

Some of the early court decisions on MAP or other price advertising restrictions viewed them as just another form of minimum resale price control, automatically unlawful under antitrust law. Other decisions upheld programs that would not reimburse for ads including resale prices below the MAP level, but did allow channel members to advertise any price as long as they paid for that advertising themselves.

Through most of the ‘80s, the Federal Trade Commission took a hostile view toward MAP, even when incorporated into co-op programs. But in 1987, it reversed its course, stating that they are not automatically unlawful where they do not attempt to control the channel member's right to actually sell products below MAP.

Beyond that, things get more complex. The FTC has challenged widespread practices in the CD distribution business that went well beyond traditional co-op programs. These conditioned retailer reimbursement not only on adhering to MAP prices in media subject to the co-op program, but also in connection with advertisements paid for by the retailers themselves, including in-store signage. The FTC thought that went too far. It entered into consent orders with the five leading CD distributors that, among other things, prohibited the distributors from implementing any co-op program contingent on ultimate sale prices or basing co-op payments on the prices in advertising paid for entirely by the channel member.

The FTC used these consent orders to send a message to other suppliers. It indicated that it would “view with great skepticism cooperative advertising programs that effectively eliminate the ability of dealers to sell product at a discount.” The legality of MAP outside of co-op programs remains uncertain and dependent on the actual effects of the program.

As a follow-on to the consent orders, 43 state attorneys general sued the distributors for consumer damages for illegal resale price control. The distributors settled those suits in December 2003 by paying $143 million.

The internet is the new frontier for MAP programs. One unique issue that has arisen is how the relatively safe harbor of co-op programs applies to internet retailing. To what extent does a co-op program actually pay for a website? Can a co-op program apply to some pages of a website but not others? Does it matter what or where those pages are? For example, can it prohibit below-MAP prices on the first several web pages a shopper would see when it accesses the website as long as it permits any price to be advertised elsewhere in the website? If the retailer is nothing but an internet seller, can the supplier prohibit advertising below MAP prices altogether?

There are no court decisions or FTC pronouncements to date that directly address any of these internet issues. We all, lawyers and clients alike, eagerly await such solid authority. Such uncertainty generates a dilemma all business people would prefer to avoid: being too conservative results in less-than-optimal business practices; being too aggressive results in considerable legal risk.