Daren S. Garcia, partner and co-chair, Vorys eControl
Online sales accounted for more than half of all U.S. retail sales growth in 2018, bringing in more than $517 billion. Significantly, more than half of all online sales now occur on online marketplaces like on Amazon.com. This new ecommerce-driven world offers consumer product manufacturers numerous opportunities for growth, but it also creates significant challenges. One of the most pressing challenges facing manufacturers is how to effectively enforce Minimum Advertised Price (MAP) policies and uphold brand value across online marketplaces.
The majority of MAP enforcement difficulties arise in the context of intermediated and uncontrolled distribution. This creates opportunity for product diversion and, soon, the presence of grey-market sellers who advertise a brand’s products at rock-bottom prices. Because brands typically have no direct relationship with these low-quality resellers, it becomes virtually impossible to run an effective MAP program, and brand value begins to erode.
To maintain a successful MAP program, uphold brand value and be positioned for omnichannel success in today’s online marketplace world, companies must effectively execute a comprehensive strategy. The best approach involves three phases: (1) implementing a sound distribution strategy and policy framework that imposes appropriate channel restrictions and accounts for the realities of ecommerce; (2) executing the requisite legal foundation and an effective enforcement system to identify and permanently shut down unauthorized resellers; and (3) firm and consistent MAP enforcement across authorized resellers.
Phase 1: Implement a Distribution Strategy to Achieve Authorized Channel Control in Today’s Market
A sound distribution strategy starts with effective channel control, particularly with respect to online sales. More specifically, brands must inform authorized sellers about how and where the brand’s products may be sold in an authorized manner—this typically takes the form of an authorized reseller program.
With respect to online marketplace sales, the best practice is for brands to reserve this channel to only their most trusted partners. When the right channel controls and policies are appropriately implemented, brands will be able to quickly determine whether online sellers are authorized or unauthorized. That determination will inform the type of enforcement the brand will conduct in the event of a violation.
Phase 2: Identify A Legal Foundation And An Enforcement System Capable Of Stopping Low-Quality Unauthorized Resellers
While an authorized reseller program will allow brands to appropriately delineate their authorized sellers and authorized channels, brands must still have a basis upon which to effectively enforce against unauthorized sellers.
Unauthorized sellers typically try to rely on the so-called “first sale doctrine” in response to enforcement efforts. In lay terms, the first sale doctrine generally provides that once a product has been sold by a trademark owner, it can be bought and resold without liability for trademark infringement. The first sale doctrine does not apply, however, when the products being resold are “materially different” from authorized products or sold under lesser quality standards than are authorized products.
Importantly, these differences do not need to be physical, and one difference can be enough to support legal claims against unauthorized resellers. As a result, brands can rely on their warranties, guarantees, training requirements, customer service requirements, post-sale support, and quality controls (among many other possibilities) to establish that the products being sold by unauthorized resellers are, in fact, different than their authorized products. This, in turn, will support legal enforcement against these sellers.
The most efficient unauthorized seller enforcement workflow begins by using robust monitoring technology to determine the most disruptive unauthorized sellers (i.e., those with real inventory who are actually taking away sales). The next step is to employ advanced cyber investigative techniques to ascertain the true identities of these resellers so that direct enforcement can commence against them personally, as opposed to simply sending messages through online marketplace systems.
Brands can then send strong cease-and-desist letters to these individuals clearly explaining why their conduct is unlawful. For sellers who do not comply with the letters, the best practice is to send a draft complaint to the seller.
Finally, brands should be prepared to take further escalated legal action if necessary. This type of “graduated” approach to enforcement allows a company to manage costs and effectively remove unauthorized sellers while still maintaining the ability to use the escalated legal action, including litigation, against high-volume or other problematic resellers.
Phase 3: Implement and Enforce a MAP Policy Across All Channels
When a company is positioned to exert sufficient control over its distribution channels and has begun effectively ridding those channels of unauthorized sellers, it will be best able to effectively enforce MAP. By way of background, a MAP policy is a unilateral policy issued by a manufacturer that informs a retailer or reseller that the company will only do business with those companies it chooses and will not do business with companies that advertise below a particular minimum price. Importantly, a MAP policy is not an agreement and does not impose any restriction on the price at which a product can be sold.
A MAP policy should be carefully crafted with the assistance of antitrust counsel to ensure that it covers the advertising practices most important to a company’s business, clearly communicates to authorized sellers which conduct is permissible and which is not, and is lawful under applicable federal and state antitrust laws.
An unclear policy—combined with significant downward pressures from unauthorized sellers—can lead authorized sellers to exploit loopholes in the policy or to resort to advertising practices that violate the policy but will be difficult for the company to detect. For instance, sellers have been known to advertise that a certain brand is excluded from a storewide sale or promotional code (to comply with a provision in a MAP policy) but to program their websites to accept the code for all products.
Other sellers will advertise bundled products at prices above MAP for the primary product, hoping that the brand will not notice the presence of the additional product and corresponding impact on the effective advertised price for the primary product. These types of tactics and others can be covered by a lawful MAP policy through careful drafting by an experienced attorney.
By following this three-phase approach, companies will be positioned to ensure MAP compliance across marketplaces.
Vorys eControl provides services to consumer goods manufacturers to enforce compliance with minimum advertised price policies and prevent unauthorized resellers from selling a brand’s products on Amazon and other online marketplaces.
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