FEDA News & Views

MRP & MAP continued to a single product, a particular line or all products within a brand. Others cover resellers in a targeted geographic area or a specific channel of distribution, such as the Internet. It all depends on what the supplier is trying to achieve and, of course, the potential responsive- ness of the market, according to attorney Gene Zelek, who also serves as a partner and chair of the Antitrust and Trade Reg- ulation Group at the law firm Freeborn & Peters in Chicago. Having drafted at least 50 MRP policies and just about as many MAP policies for clients in industrial and consumer markets, he's no slouch when it comes to weaving through the com- plexities awaiting anyone that attempts to design and implement an effective resale-price policy, sometimes referred to as a "Colgate" policy. Named after the Supreme Court ruling in U.S. v. Colgate & Co. (1919), "Colgate says a manufacturer has the right to decide the terms and conditions under which it will do business with its cus- tomers, which includes setting resale price," explains Zelek. "But the trick is it's got to be done by a policy—not an agree- ment. The courts said if you have unilat- eral activity, which they characterize as a policy, you don't have the agreement necessary for coverage by the Sherman Act, so it doesn't apply. "I think there are still lots of miscon- ceptions about the way MAP and MRP works," continues Zelek. "Some people continue to believe that MRP is illegal [particularly in certain states like A Checklist for Manufacturers Considering MAP or MRP By Gene Zelek, Partner and Chair of the Antitrust and Trade Regulation Group at the law firm Freeborn & Peters in Chicago • Identify the problems that the policy will address to determine its objectives. • Evaluate alternative approaches to achieve the objectives (e.g., MAP, MRP, selective distribution and rewarding differential value). • If a policy is selected, test it by determining (1) whether the manufacturer has the brand power to make it stick, (2) whether and how competitors and customers will react, (3) whether the penalty or penalties are realistic to get the desired behavior and (4) whether the manufacturer is prepared to enforce it with its biggest customers. • Draft a clean, straightforward policy that addresses the objectives, meets tricky legal requirements and is flexible to allow changes. • Develop a mechanism for administering the policy, including assigning responsibility for investigating claimed violations and, if valid, taking action. • Implement a communications plan internally (employees with customer contact) and externally (those affected by the policy and the industry). • Remain careful to avoid reaching any agreement on resale price. A policy should make clear that resellers are free to advertise or sell the product at any price they deem appropriate, but that the supplier will unilaterally enforce its policy. Questions for Gene Zelek? To reach him, call Freeborn & Peters LLP in Chicago at 312.360.6777 or email him at ezelek@freebornpeters.com. 1 4 FEDA News & Views Maryland], so they gravitate toward MAP, thinking that it's less of a hassle. Maryland law only bans minimum resale price agreements. If a manufacturer has a policy, and it's a true policy, then it's outside the coverage of the law. The statute clearly says it has to be an agree- ment on a resale price; by definition, a policy is not an agreement. Admittedly, it's complex. You've got the interplay of Colgate and Leegin and you've got agi- tation at the state level attacking agree- ments, so you've got to thread the nee- dle." The Case for MRP It was a New York Times article on the ruling in Leegin (a recommended read from a board member) that prompted Whiteley and other top management to ponder if a resale-price policy was Hatco's answer to the aforemen- tioned "paradox." "We were having a lot of inter- nal conversations about margin pressures and the capacity issues within the distribution channel," elaborates Hatco's Vice President of Sales on what eventually led the supplier to embrace MRP. "Every year we would have those meetings with our buying groups and every year it was the same conversation: Margins are getting squeezed. In order to be finan- cially-viable, we need more points on the back end. So strategically, we were having the conversation. "For a very long time, our indus- try has been exclusively focused on improving buy side efficien- cies (bigger rebates, bigger dis- counts, more favorable earned freight incentives, etc.). We want- ed to find a way to focus on the front part of the equation, selling the product at the right price. Now, because of our minimum resale price policy, we've seen a shift to focusing on the sell side— and maximizing the price poten- tial—helping to give our distribu- tors the resources to truly partner continued on page 16

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