Inclusion of provision in cooperative advertising agreements limiting price advertising by retailers

No. 309. Inclusion of provision in cooperative advertising agreements limiting price advertising by retailers. The Commission rendered an advisory opinion regarding a proposal to include the following statement in cooperative advertising agreements to be drafted by the requesting party for use by manufacturer-clients for the purpose of placing a restriction on price advertising practices by their retailer-customers: Dealer advertising wil not qualify for cooperative reimbursement jf it is featured at a price below the retailer s wholesale price (loss leader type) since such advertising tends to lower the quality image of the product in the consumer s mind.

The requesting party explained that this provision is intended to assist manufacturer-clients to protect the qua1iy of their brand image through providing them with the means for limiting the

payment of promotional allowances to those retailer-customer advertisements which mention price at or above the retailer s wholesale price level. He took the position that such limitation would not affect any retailer s markup picture. The Commission advised that the question posed does not readily lend itself to a categorical answer which, necessariJy, would be affected by the facts surrounding any manufacturer-client's use of the restriction. Considering the various possibilities which may arise, the Commission is of the opinion, however, that it cannot give its approval to the use of such provision in any advertising allowance program which may be used on a continuing, yearround basis. In such program a manufacturer customarily offers to pay, on proportional terms, a fixed percentage of his customer advertising costs at any time during the year. To incorporate such a restriction in that kind of promotional program would , in the Commission s view, have a tendency to fix or establish a permanent floor under resale prices which would be of questionable legality under the antitrust laws.

The Commission further pointed out that it does not sec the same objection to the use of such provision in situations where the promotional offer is made on an infrequent or intermittent basis during the year. In such instances the offer is usually made for a special purpose, such as to stimulate off-season sales or at times during the year to fit in with an overall marketing program. In these situations, the Commission advised , it does not foresee the same restrictive effects on resale prices when a manufacturer who is otherwise complying with the law, provides that he will not pay any part of the cost of advertising featuring a price below the retailer s wholesale cost.

It is, of course, assumed that the promotional advertising allowance offer will be made to all retaiJers irrespective of the prices that they have been charging at other times.

DISSENTI!,G OPINIO
NOVEMBER 27, 1968
BY ELMAN Commissioner:

In this advisory opinion the Commission holds that it is illegal peT se for a manufacturer to include in a regular cooperative advertising program a provision that he wil not reimburse a retailer for any advertisement featuring a loss-leader price below the wholesale price paid by the retailer. I emphasize the per se character of the ruling because these are the only facts before us. There is no indication whatsoever that the provision is part of a