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Linking Coop Advertising Funds to Minimum Advertised Prices May Be Illegal

The FTC has prohibited major recording companies from enforcing similar policies which conditioned coop advertising funds on the customer's promise to observe the recording company's minimum resale prices in all media advertising, even advertising funded by the retailer.


The five largest producers of recorded music, with 85 percent market share, settled FTC charges that the producers' cooperative advertising policies on pre-recorded music illegally fixed minimum resale prices in violation of the antitrust laws. In 1996 the recording companies adopted similar Minimum Advertising Price ("MAP") restrictions in their cooperative ad programs. Under these MAP restrictions, any retailer seeking cooperative advertising funds was required to observe the recording company's minimum advertising prices in all media advertisements- - even in advertisements solely funded by the retailer. A retailer seeking coop funds was also required to adhere to the recording company's minimum advertised prices on all in-store signs and displays, regardless of whether the recording company contributed to their cost.

Failure to adhere to the MAP restrictions for any particular music title subjected the retailer to a suspension of all coop funding from the recording company for up to one year. According to the FTC, the severity of the penalties, aggressive enforcement against discounters and the breadth of the MAP restrictions (applying to all retailer advertising) effectively precluded retailers from advertising any price below the MAP specified by the recording company.

The Commission noted that MAP restrictions in this case go well beyond typical cooperative advertising programs, where a manufacturer places restrictions on the prices its wholesaler-distributors may advertise in advertisements funded in whole or in part by that manufacturer. These traditional programs are judged under the antitrust rule of reason standard.

Under the FTC settlement the recording companies have agreed (without admitting any wrongdoing) to discontinue all MAP restrictions for seven years and to refrain from using other means to limit or influence their customers' minimum advertised prices or control their customers' resale prices. No damages were assessed. However, this case is not closed. The recording companies are being sued for damages by the attorneys generals of 42 states and in several class action cases filed by the plaintiff's bar. Consumer damages over the last three years have been estimated at $500 million.

 


Keeley, Kuenn & Reid, a Chicago based law firm with government relations affiliates in Washington, D.C., is engaged in the practice of business law, commercial litigation, employment law, taxation, antitrust, product liability, estate planning and legislative matters. Through its affiliates, the firm also meets its clients' needs in protecting intellectual property rights and international commercial law matters.

Keeley, Kuenn & Reid
200 S. Wacker Drive, Suite 3100
Chicago, IL 60606
Tel. No. (312) 782-1829
Fax. No. (312) 782-4868
Web: http://www.kkrlaw.com