Navigating the Alphabet Soup of UPPs, MAPs, and other Veritical Price Restraints:  A Primer for the Lighting Industr

By Herbert F. Allen, Esq., Polsinelli PC, hallen@polsinelli.com 

Introduction

• Unilateral pricing policies have become common in the many sectors of the economy, including the lighting industry.
• Antitrust law at the state and federal level dictates how these policies can be implemented in the United States.

Why do companies adopt “unilateral” pricing policies instead of simply agreeing with distributors and retailers on minimum price?

• Under state and federal antitrust laws, restraints that are result of agreements between two separate companies are subject to greater scrutiny than restraints that result from the unilateral actions of one company.
• Several states have antitrust laws that strictly prohibit agreements between manufacturers and retailers on price.  Both California and New York treat vertical agreements on price as per se illegal under state antitrust statutes.  That means a violation can be established without evidence of harm to competition, and any pro-competitive benefits of the agreement will not be a defense to the violation.
• Unilateral policies on price, unlike agreements on price, greatly minimize risk under state and federal antitrust law by making price restrictions the result of unilateral conduct.
  • In a famous case from 1919 called United States v. Colgate & Co., the Supreme Court recognized that manufacturers have the right to choose with whom they conduct business and their right to institute unilateral policies establishing the conditions under which they may refuse to sell.  
  • In that case, Colgate circulated retail price lists to its retailers, and refused to do business with retailers who did not comply. The Supreme Court found no violation of antitrust law in Colgate’s pricing conduct. There was no price-fixing agreement between Colgate and its retailers. Colgate unilaterally announced prices; retailers independently chose whether or not to adopt Colgate’s prices as their own; and Colgate chose not do business with non-compliant retailers.
  • Unilateral pricing policies are now often called “Colgate Policies” because they take advantage of the Supreme Court’s recognition that companies can generally refuse to do business with whomever they choose, including retailers who refuse to follow a minimum price policy.

If I’m unsatisfied with a particular company’s unilateral pricing policy, can’t I negotiate with that company to change the policy or create an exception for how the policy is applied to my company?

• Probably not.  Negotiation itself carries antitrust compliance risk.  The fact that there has been negotiation with a retailer about implementation of a unilateral pricing policy could be used to show that the policy is not truly unilateral and instead is the product of an agreement.  This could lead to per se liability under state antitrust law, and additional risk under federal antitrust law.  
  • This risk isn’t just theoretical.  In 2016 the Maryland attorney general filed a complaint against a large vision company alleging that the company entered into negotiations with a retailer to modify its unilateral pricing policy to suit the retailer’s needs.  The state of Maryland explained:  “To be legal in Maryland, a resale price maintenance policy must result from the purely unilateral decision of a manufacturer, without negotiation as to its terms, and must be enforced unilaterally.”  A pricing policy that is the result of negotiation with a retailer could be per se illegal in Maryland.  
  • Similarly, in 2013, a California court refused to dismiss a complaint that alleged a unilateral pricing policy morphed into a bilateral agreement on price based on e-mail communications between the manufacturer and retailer.  The court found that these communications provided “sufficient factual support to make plausible an agreement . . . to fix prices and eliminate retailers selling at a discount.”
• Given this risk, sophisticated manufacturers will not be receptive to negotiation and may refuse to communicate about pricing policies.
  • Many companies’ unilateral pricing policies expressly state that sales personnel have no authority to modify or grant exceptions to the pricing policies.
  • Other policies require that questions about the policy be directed to single person within the company.

If negotiation is risky, can’t I communicate my concerns about a unilateral pricing policy?

• In most cases, communicating concerns to a company at another level of the supply chain about a pricing policy is probably okay, but not entirely without risk.  If a manufacturer agreed to modify its UPP in response to your concerns, that could be a per se antitrust violation in some states.  It is possible that you could be named as a co-defendant.   
• If a company decides to communicate concerns about a unilateral pricing policy, those concerns can be voiced to the person with responsibility for overseeing the policy.  In many cases, that person may be identified in the policy itself.  To minimize risk, companies should consider seeking legal advice before making such communications.
• Manufacturers should be careful about responding to communications from retailers about pricing issues to avoid the possibility that the communications themselves could constitute evidence of an agreement.  In some cases, it may be better not to respond to the substance of a communication about a unilateral pricing issue.  If a manufacturer decides to respond, any communications should make clear that any changes to a UPP will be an independent business decision (not the result of an agreement) and any changes will be implemented consistently across retailers.  
• To ensure that any changes to pricing policies are unilateral, companies should consider engaging an attorney to review any proposed changes to existing unilateral pricing policies, as well as managing correspondence with retailers about their concerns.

Can I talk with one of my competitors about concerns I may have about a particular company’s pricing policies?

• Discussing prices or pricing policies with a horizontal competitor (i.e., a company at the same level of the supply chain) carries significant antitrust risk.  Simply discussing pricing has, in some circumstances, been found to constitute evidence of an illegal agreement to fix prices. 
• In general, companies should avoid any discussion of pricing policies or pricing plans with competitors.  Companies should also avoid discussing whether they will stop doing business with particular company over its pricing policy.  
• Companies should consult with an attorney before engaging in any discussion of prices or pricing issues with anyone outside the company.

What is the difference between an minimum advertised price (MAP) policy and a unilateral pricing policy (UPP)?

• Unlike a UPP, a MAP only restricts the advertised price for a particular product.  That means there is no limit on what retailers actually charge--just a limit on the price they advertise to the public.
• Unlike a UPP, MAPs can be the product of a bilateral agreement between a manufacturer and supplier, because technically they are not an agreement on price.  However, many MAPs are structured as a unilateral policies to take advantage of additional protection provided by the Colgate defense.  These are sometimes called unilateral minimum advertised pricing policies, or UMAPs.
• In general, voicing concerns about a MAP policy is less risky than voicing concerns about a UPP, because MAP policies are technically not agreements on price.

What role can the ALA play in pricing-policy issues my company may be facing?

• ALA can provide educational information about the law applicable to unilateral pricing policies and other vertical price restraints.  
• If companies need specific advice on their particular legal situation, they should consult an attorney.  This blog post is not a substitute for obtaining legal advice from your own attorney.
• To protect ALA and its members, ALA’s antitrust policy prohibits ALA from getting involved in disputes between companies over pricing policies or pricing issues.  
• ALA’s antitrust policy also prohibits companies from using ALA events or activities to discuss pricing issues, pricing policies, or their responses to pricing policies.  These decisions must be made by each company individually.
   

About Allen: 
Herb is a shareholder in Polsinelli’s Washington, DC office who litigates complex antitrust disputes, defends companies accused of anticompetitive conduct before the U.S. Department of Justice, Federal Trade Commission, and state antitrust enforcement agencies, and counsels businesses on antitrust and distribution law issues.  Herb also provides antitrust compliance counseling to ALA.