Distributors pressured by their suppliers to toe the line on marketing policies had better not turn to Ronald Reagan's antitrusters for help. Although the courts have been shifting the balance of legal power to manufacturers in fights with their outlets, Justice Department antitrust chief William F. Baxter and Federal Trade Commission Chairman James C. Miller III think the judges haven't been moving fast enough.
The antitrust laws used to be effective weapons for franchisees, wholesalers and merchants who were threatened with a cutoff of a vital line unless they promised to confine their sales efforts to a particular territory or kind of customer, or to couple sales with specific services. But, as detailed in Washington Business on May 24, the courts have begun to okay such "vertical restraints" imposed on companies one step down the distribution ladder. ut these rulings have all been in cases not involving prices. The courts still look with suspicion on any moves to discipline dealers who promote unauthorized discounts. Now, Baxter and Miller argue there can be good reasons for companies to insist that their customers resell products at dictated prices.
"There are no vertical arrangements for which I cannot think of contexts in which they should be permitted, and that includes resale price maintenance," Baxter told a meeting of antitrust lawyers at the Shoreham Hotel two months ago. The distributor or retailer shouldn't be able to make marketing decisions on his own, Baxter argued; instead, "it should be a two-way consensual arrangement about how this product is handled at point of sale."
Miller says pretty much the same thing: "There are situations in which resale price maintenance can be a procompetitive tool." When there are products that need a lot of in-the-store selling--like providing technical know-how to camera buyers, or by having a good repair staff for home appliances--Miller says it can make sense for a manufacturer to spurn discounters, so all outlets will make enough profit on each sale to pay for those services.
That attitude means that the current antitrusters won't be bringing the kind of cases their predecessors did, in which, for example, criminal charges were leveled at Cuisinart for trying to force all outlets to sell its food processors at list price. But Baxter and Miller are going further; Baxter wants to help private litigants wipe existing precedents off the book. He intends to bring the weight of the Justice Department into some distributor-manufacturer cases on the side of the defendants, arguing to judges that restraints that in the past have been called unlawful no longer should be banned. ntil he finds the ideal cases for such intervention, Baxter is influencing the law in this area by undoing prosecutorial decisions made before Reagan's election. Shortly after taking over his job, for instance, Baxter threw out a case brought by Justice just months before. It charged that Mack Trucks Inc. violated the antitrust laws when it got together with a council of its distributors to agree on a schedule of pricing discounts on distributors' purchases of truck parts. Baxter now is trying to drop a case against Mercedes-Benz of North America for refusing to let its automobile dealers buy replacement parts from other suppliers. Neither prosecution, even if the government won, would have helped the public, Baxter claims. But he is being challenged in the Mercedes case by a coalition that believes the case should go to trial. Baxter "wants to change the long established law unilaterally and is using the dismissal of this case as a signal to the public and the bar that he is doing so," argues University of California law professor Lawrence A. Sullivan.
In fact, part of the public has already gotten the signal, and believes that it is coming from the FTC as well as Justice. Among petitions now pending at the commission are two from companies that in the past were ordered to give their dealers greater freedom, and now are looking for modifications of those orders.
Lenox Inc. wants the right to refuse to sell its quality china to any buyer who won't promise not to turn around and resell it to another retail outlet. Such "transshipment" is now the main way discounters get the Lenox products, since the company usually won't deal with them directly. Changing the existing order would "subject customers to sharply rising prices by forcing them to patronize high markup, noncompetitive outlets," argues J. Robert Brame III, lawyer for Best Products Co., the Richmond-based catalog showroom operation, one of the retailers trying to counter the Lenox bid.
Hammermill Paper Co. wants to market a new line of paper for photocopiers, and to use "subdistributors" to sell them to low-volume copiers, such as doctors' offices. Hammermill wants to force its regular distributors to sell the paper only to subdistributors, not to the ultimate customers, but can't under an existing FTC order. That prohibition should continue, a distributor named Diamond Paper Co. has told the commission, because giving Hammermill more leeway would lead to "higher prices, lower quality and poorer service."