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TexLaw
TexLaw, Attorney
Category: Business Law
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Experience:  Internationational Commercial Attorney
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is it legal as a manufacturer selling your products to your

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is it legal as a manufacturer selling your products to your authorized distributor at the published distributor prices, to require your distributors to reveal their resale prices of your products? And, if they do share the info with you and you feel their profit is too high, is it legal for you to require them to share their profit with you (60% to manufacturer and 40% to distributor)?
Hi,

Thank you for your question.

The situation to which you are referring will be controlled by the agreement between the parties. It is legal for a manufacturer to set a ceiling on price. It is further legal to require that a distributor share the profit of any amount charged for the product over a certain price. These situations do not generally violate Federal Anti-Trust laws.

If a manufacturer, on its own, adopts a policy regarding a desired level of prices, the law allows the manufacturer to deal only with retailers who agree to that policy. A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a "take it or leave it" basis.

Limitations on how or where a dealer may sell a product (that is, customer or territory restrictions) are generally legal — if they are imposed by a manufacturer acting on its own. These agreements may result in better sales efforts and service in the dealer's assigned area, and, as a result, more competition with other brands.

Antitrust issues may arise if a manufacturer agrees with competing manufacturers to impose price or non-price restraints up or down the supply chain (that is, in dealings with suppliers or dealers), or if suppliers or dealers act together to induce a manufacturer to implement such restraints. Again, the critical distinction is between a unilateral decision to impose a restraint (lawful) and a collective agreement among competitors to do the same (unlawful). For example, a group of car dealers threatened not to sell one make of cars unless the manufacturer allocated new cars on the basis of sales made to customers in each dealer's territory. The FTC found the dealers' actions unreasonable and designed primarily to stop one dealer from selling at low "no haggle" prices and via the Internet to customers all over the country.

Determining whether a restraint is "vertical" or "horizontal" can be confusing in some markets, particularly where some manufacturers operate at many different levels and may even supply important inputs to their competitors. The label is not as important as the effect: Does the restraint unreasonably reduce competition among competitors at any level? Is the vertical restraint the product of an agreement among competitors? And labeling an agreement a vertical arrangement will not save it from antitrust scrutiny when there is evidence of anticompetitive horizontal effects. For instance, the FTC has stopped exclusive distribution agreements that operated as market allocation schemes between worldwide competitors. In this situation, the competitors agree not to compete by designating one another as an exclusive distributor for different geographic areas.

Accordingly, the answer to your question is that the proposal is legal.

Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am compensated by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Best Regards,
ZDN
Customer: replied 3 years ago.

Since there is nothing in the Agreement between the parties regulating or restricting the distributor's resale prices, would your answer still be the same, and is the manufacturer violating Federal Anti-Trust laws?

Because the issue is truly entirely one of private agreement, if there is nothing in the distribution agreement concerning prices then the Manufacturer has no basis on which to assert a maximum price or to assert that it is due a percentage. The Manufacturer may cancel the agreement pursuant to the agreement's terms if the Distributor will not agree to the requested terms. However, the Distributor does not have to comply with the request in the end and the Manufacturer's only way to force this would be to terminate the existing agreement pursuant to its terms.
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