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Supreme Court Ruling Could Raise CE Prices

6/28/2007 10:18:00 AM Eastern

Washington — The Supreme Court ruled Thursday in a 5-4 decision to make it easier for manufacturers to require retailers stick to minimum advertised prices (MAP), a move that could raise prices at retail, the dissenting justices said.

The high court’s decision over rules a previous anti-trust statute that said MAP agreements were illegal. In the future courts will decide on a case by case basis whether the MAP agreement violates anti-trust laws.

“It is a flawed anti-trust doctrine that serves the interests of lawyers,” Justice Anthony Kennedy wrote, adding the old legal standard required “manufacturers to choose second-best options to achieve sound business objectives.”

Dissenting justices said the ruling would likely drive up retail prices.

The original case stemmed from a 2002 decision involving a Texas clothing fashion retailer who had broken a MAP agreement with a manufacturer. The vendor broke off its relationship and retailer sued winning $3.6 million. A lower court upheld the decision, but it has since been overturned.

The CEA issued the following statement on the ruling. “CEA applauds the Supreme Court decision today reversing the per se rule against resale price maintenance. The Supreme Court holding that the “rule of reason” should apply to the legality of manufacturer pricing decisions, means simply that all the facts will be examined before a finding of illegality — replacing a black-and-white rule of illegality in every case. Reasonableness has come back to the antitrust laws, and in the consumer electronics industry, where sales training, industry marketing, and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer’s requirement that threshold prices be maintained.”

Richard Glikes, executive director of the Home Theater Specialists of America (HTSA) buying group, commented, “I’ve been around long enough to remember [the] Fair Trade [law]... which was actually a wonderful situation for retailers since it guaranteed [retailers] full margin on the product. It created a very orderly market and the benefit was that everyone played on equal playing field.”

He noted, “Under Fair Trade consumers bought from the most knowledgeable retailers and not necessarily the one with the best price.” Glikes backed the Supreme Court decision as “a good thing for retailers.”

Dave Workman, executive director of the PRO Buying Group, doesn’t think the Supreme Court decision is a return of Fair Trade but that it will help enforce “the MAP laws that are already on the books. [Suppliers] will be able to further enforce MAP and can discontinue relationships with those retailers who break the rules. “

Workman noted that independent dealers “want compliance to MAP. Internet retailers should be the ones that get affected [by the decision] more than anyone.” And he added, “Today, when a national chain goes off MAP many suppliers now give them a slap on the wrist. With the ruling, you may be able to warn them more.”

Jim Ristow, general manager of Home Entertainment Source, the specialty A/V division of buying group BrandSource commented, that in the past two years “several suppliers who traditionally did not have a policy have gone to a firm MAP policy. The real issue will be execution and accountability at all levels, and will everyone have the discipline to live by the letter of the law.”

Rob Standley, merchandising and marketing director of Vann’s, said that for the Montana-based electronics/appliance retailer, “Since we are a specialty retailer and require a cost structure where we can hire the right people, train them and show some differentiation, we hope that this ruling will stick. We hope it could help improve margins, which would be a good thing. Of course if manufacturers don’t enforce this it doesn’t matter. But overall our outlook is one of measured optimism.”

Micro Center did not think the ruling would have a major impact. Kevin Jones, the retailer’s merchandising VP, said larger vendors already enforce some sort of MAP policy today. In most cases MAP is controlled more from ties to significant back end funding rather than the threat of pulling the business. He added, this could impact retailers whose primary differentiator is only price.

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