Antitrust in Cyberspace
By R. Scott Tobin, Esq.
Can turn of the 19th and early 20th century antitrust laws have continued meaning in the information age of the new millennium? While the jury is still out in judging the full impact of antitrust law on e-commerce, the answer appears to be yes. Rather than calling for the adoption of new legal principles and laws, courts, for the most part, will call upon settled legal principles in making e-commerce antitrust decisions, viewing e-commerce in antitrust terms as just another, albeit remarkably innovative, channel of distribution.
Because in the furniture and woodworking industry, as elsewhere, this new "channel of distribution" has attracted enormous attention (profits are another matter), inevitably, antitrust issues will arise as manufacturers and retailers alike decide on their Internet strategies. Presented here are my answers to some of the questions that are arising in connection with those strategies.
As a manufacturer, I am tired of hearing my dealers complain. May I refuse to do business with e-tailers?
Generally speaking, a private company acting unilaterally has the unfettered right to select the customers with which it does business. You may refuse to do business with an e-tailer, even in response to the complaints of brick and mortar retailers, provided you make your own decision. However, and on a cautionary note, this does not mean that dealer complaints cannot be used against you. Because agreements with your dealers, as opposed to your unilateral actions, can be construed as illegal conspiracies when dealer complaints are coupled with other evidence of an agreement, courts may determine antitrust laws to have been violated.
My formerly favorite supplier has established a direct-to-consumer web site. May I tell him we are through?
Under established antitrust law, a dealer acting unilaterally has the right to inform a supplier that it will not do business with the supplier if it establishes a retail web site in competition with the dealer. Obviously, before making such a decision, a dealer will want to review any existing contractual obligations to the supplier, and keep in mind as noted in question 1, agreements, as opposed to unilateral actions, are subject to a different level of antitrust scrutiny.
May I, as a manufacturer, establish a program under which consumers are directed only to web sites of dealers that have agreed to resell at prices recommended or above those I have recommended?
No, retail price maintenance remains per se unlawful. Although companies like Ford have been testing dealer agreements to sell at e-commerce prices in Phoenix, as a general rule, manufacturers should avoid developing programs where the manufacturer controls the retail price. While the U.S. Supreme Court has upheld price ceilings, price floors clearly are problematic.
May I, as a manufacturer, offer promotional opportunities geared exclusively to e-tailers?
Possibly, but this could face challenges from brick and mortar retailers as a discriminatory service under Robinson-Patman. The offended retailer would have to establish competitive harm, and you could potentially still defend the action as "meeting competition." The safest legal course is to offer proportionally equal promotional opportunities to the brick and mortar crowd. This does not mean necessarily that you cannot tailor different promotional offers to the needs and practices of different trade channels, or that the offers cannot be made in different amounts for different types of promotions. But you should strive for proportional equality, meaning, for example, that the total amount of funding available to each channel in any one year is based on uniform percentages of each dealer’s purchase.
May I, as a manufacturer, direct consumers visiting my web site, only to a particular e-tailer for the purchase of my products?
This is problematic. Legal claims under Robinson-Patman, as well as exclusive dealing issues under the Sherman and Clayton antitrust acts, could be raised under such circumstances both by e-tailers purchasing products from you but denied the benefit, as well as by traditional dealers. Liability to other e-tailers might be avoided if all competing e-tailers were listed or provided the service on a rotating basis, but this would not resolve the brick and mortar issue.
Obviously these are short answers to complex issues. As always with this legal column, because this discussion is not fact specific, and because the answer may vary from jurisdiction to jurisdiction, this column is not offered as legal advice to you nor is it intended to govern your specific situation. It is designed to help you spot legal issues confronting us all in this new millennium. For specific advice, you should consult your own legal counsel and should never exclude your own attorneys from the setting of your e-commerce strategies.
Scott Tobin practiced corporate law in Atlanta for 17 years before joining the management team of Industrial Computer Corporation, a longtime client and leader in manufacturing execution systems software. Following his negotiation of ICC’s sale in 1998, Scott is now a principal of the Atlanta- and High Point-based venture catalyst firm Synergy Ventures, LLC. He can be reached through Modern Woodworking at 770-399-5114 or 336-882-0120.
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