**MEMORANDUM** **To:** Norvale Audio **Re:** Lawful Resale Advertising Policy Under Aven Competition Rules You asked whether Norvale can adopt a policy to reduce online discounting without creating an unlawful resale-price agreement. Under the Aven framework, the answer is: **yes, but only if the policy is genuinely unilateral and limited to public advertising, and only if the sales proposal is materially changed.** The Sales proposal, as written, creates serious agreement evidence. The CEO’s proposed approach is the correct starting point, but it needs tighter drafting, central compliance controls, and no retailer involvement in enforcement. --- ## I. The proposed MAP design reaches advertising, not resale price—if properly administered The proposed “minimum advertised price 8 percent below list price” is facially a **minimum advertised price (“MAP”) policy**, not a resale price maintenance policy. A MAP policy restricts only the price a retailer may **advertise publicly**. It does not restrict the final, confidential transaction price. Under Aven Rule 5: > A minimum advertised-price policy regulates public advertising, not the final confidential sale price, unless its language or enforcement reaches the transaction price. So the key question is whether Norvale’s language or enforcement reaches the actual checkout price. The proposed policy states that retailers “remain free to set the confidential checkout price.” That is helpful. But Norvale must be disciplined in practice: - **Enforce only against public advertised prices.** That includes product pages, print ads, emails, catalogs, social media, marketplace listings, and in-store signs. - **Do not monitor, audit, penalize, or terminate based on final transaction prices.** No POS data, no mystery-shopper audits of checkout prices, no requiring retailers to report actual sale prices. - **Do not treat a “checkout” price as a violation unless it is used as advertising.** For example, a statement like “add to cart to see our low price” or “lower price at checkout” communicates a below-MAP price to the public and can be treated as advertising. A genuinely confidential, non-public, individualized final checkout price should not be policed. If Norvale enforces the policy because a retailer **sold** below MAP, or because its checkout price was visible to the public, the policy will become a resale-price restraint, regardless of the “MAP” label. --- ## II. Unilateral policy vs. agreement Aven Rule 1 allows a manufacturer to: - announce resale conditions in writing; - monitor compliance; - and independently decide whether to continue supplying a retailer that does not follow those conditions. No retailer assent is required. That is the core of a lawful unilateral policy. By contrast, Aven Rule 2 says an agreement may arise when the manufacturer: - seeks or receives retailer promises; - negotiates price adherence; - invites collective enforcement; - gives assurances that competitors will comply; or - uses coercion to obtain assent. The difference is simple but critical: - **Unilateral:** “Norvale has decided that it will not provide promotional support or supply to retailers that advertise below MAP. Each retailer is free to make its own advertising and pricing decisions. Norvale will make its own independent business decisions.” - **Agreement:** “We will enforce this policy if you agree to comply,” or “We will make everyone hold the line if you support us,” or “Please report retailers that are discounting.” Norvale must not ask for or rely on retailer promises. It must not negotiate “price adherence.” It must not discuss whether other retailers will comply. It must not act as an enforcer for one retailer’s benefit. --- ## III. Specific risks in the Sales proposal ### 1. The signed statement: “We agree to comply with Norvale’s pricing requirements” This is the single most dangerous element. An express retailer promise to comply is direct evidence of an agreement. Under Aven Rule 3, language promising compliance or accepting obligations creates agreement evidence. Norvale should use **receipt-only acknowledgment** at most. The form should say only: > “I acknowledge receipt of Norvale Audio’s Minimum Advertised Price Policy. This is not a promise or agreement to comply, and Norvale has not asked for such a promise.” Even safer: send the policy by certified mail or tracked email and do not request any signature. A signature is not necessary for a unilateral policy. ### 2. Negotiated exceptions If regional managers negotiate exceptions with retailers, especially in exchange for retailer support or agreement, that becomes concerted action. Objective exceptions are permissible if they are: - written in advance; - applied neutrally; - administered by a central compliance person, not sales personnel; - not conditioned on retailer agreement. For example, an exception for “discontinued products” is fine if the list of discontinued SKUs is published. An exception for “manufacturer-authorized promotions” is fine if the promotion is centrally authorized on the same terms for all similarly situated retailers. No salesperson should be allowed to say: “If you agree to hold the line, we’ll let you advertise below MAP on a few models.” ### 3. The large dealer’s “guarantee” demand One large dealer says it will support Norvale only if Norvale guarantees enforcement against every rival. Norvale must not do that. If Norvale agrees, the policy becomes a retailer-requested restraint, and Norvale becomes an enforcer for a dealer’s benefit. That is close to a horizontal retailer agreement and creates serious cartel risk. The response should be: > “Norvale makes independent business decisions. We do not guarantee enforcement for or against any retailer, and we do not discuss one retailer’s pricing with another.” ### 4. Retailer reporting and complaints Aven Rule 6 allows Norvale to **receive** unsolicited retailer complaints, but Norvale must not: - solicit complaints as a policing system; - ask retailers to report competitors’ discounting; - disclose one retailer’s future pricing to another; - promise enforcement for a complainant’s benefit. So the regional managers’ plan to “ask retailers to report competitors’ discounting” must be rejected. If a retailer voluntarily complains, Norvale may listen, but the response should be neutral: > “We do not discuss other retailers. Norvale makes its own independent business decisions.” Enforcement decisions should be based on **independent public monitoring**, not on retailer complaints. --- ## IV. Rule-of-reason analysis: the supplied facts are favorable Under Aven Rule 4, resale-price restraints are judged under the rule of reason. If a court found that Norvale’s MAP policy was actually an agreement or reached transaction prices, the court would examine: - market power; - market coverage; - barriers to entry; - cartel risk; - price effects; - service promotion and free riding; - less restrictive alternatives. The supplied facts support Norvale. ### 1. Market power is low Norvale has only **18%** of premium home-speaker sales. The next four firms have 16%, 14%, 11%, and 9%. There is no dominant manufacturer. If the remaining market is fragmented, the HHI is roughly around 1,000, well below concentration levels that suggest market power. ### 2. Market coverage is limited Norvale sells through **120 retailers**, and no retailer has more than **7%** of national sales. The policy covers only Norvale products and only public advertising. Retailers and consumers have many alternative brands and sellers. ### 3. Entry is credible Entry has occurred **twice in three years**. That suggests barriers to entry are not high. If Norvale tried to raise prices artificially, entry or expansion by rivals would likely discipline it. ### 4. No retailer or manufacturer cartel is indicated There is no evidence of a retail cartel. The danger is that Norvale’s sales team could **create** cartel-like behavior through “make everyone hold the line” statements and retailer reporting. If those features are removed, the cartel risk largely disappears. ### 5. Price effects are not established The internal analysis predicts that the policy may preserve demonstrations, but it does **not** quantify a price increase. That is favorable. Norvale should not measure success by higher retail prices. It should measure success by preservation of dealer services and reduced free riding. ### 6. The service rationale is legitimate Norvale funds: - in-store demonstrations; - installer training; - a 60-day return program. Some online sellers free ride on those services and then advertise low prices. A MAP policy can reduce that free-riding incentive while still allowing retailers to sell below MAP in confidential transactions. This is a recognized procompetitive justification under Aven Rule 4. ### 7. MAP is less restrictive than full resale price maintenance A full RPM policy would control the actual resale price. A MAP policy does not. It leaves retailers free to discount confidentially. That makes it a less restrictive alternative for protecting Norvale’s service investment. **Overall:** Under the rule of reason, the modified unilateral MAP policy is likely defensible. But the result depends heavily on implementation. If Norvale enforces transaction prices, solicits retailer complaints, or negotiates retailer promises, the risk increases substantially. --- ## V. Recommended final policy language Norvale should adopt the following type of policy. This language is designed to preserve unilateral conduct and avoid agreement evidence. --- ### NORVALE AUDIO **UNILATERAL MINIMUM ADVERTISED PRICE POLICY** **Effective Date: [Date]** **1. Purpose.** Norvale invests in in-store demonstrations, installer training, and a 60-day return program. The purpose of this policy is to reduce free riding on those services and preserve the quality of the consumer experience. This policy is not a resale price maintenance program. It does not set, control, or restrict the price at which a retailer sells Norvale products to any consumer. **2. Minimum advertised price.** The minimum advertised price (“MAP”) for each Norvale product is 8% below Norvale’s then-current published list price. A retailer may advertise, display, or otherwise communicate to the public a price for a Norvale product only if that price is at or above MAP. This restriction applies to all public advertising, including print, internet, email, social media, marketplace listings, catalogues, and in-store signs. **3. No restriction on checkout price.** A retailer may sell a Norvale product at any price, including below MAP, in a confidential transaction. Norvale will not monitor, audit, or take action based on actual transaction prices. A price is treated as an advertised price if it is publicly stated or used to attract customers, including through statements such as “see price in cart” or “lower price at checkout.” A confidential final price shown only during checkout and not used to market the product is not an advertised price under this policy. **4. No agreement.** This policy is a unilateral statement of Norvale’s business conditions. It is not a contract and does not require retailer assent. Retailers remain free to make their own advertising and pricing decisions. Norvale remains free to decide, in its sole discretion, whether to provide promotional support or supply to retailers whose public advertising is inconsistent with this policy. Norvale does not ask retailers to agree to this policy, to promise compliance, or to report other retailers’ pricing. **5. Acknowledgment.** Norvale may ask retailers to acknowledge receipt of this policy only. Any acknowledgment will state that it confirms receipt only and does not create a promise or obligation to comply. **6. Objective exceptions.** The following exceptions are available. They will be administered centrally and independently. No salesperson or regional manager may grant or negotiate an exception. - **Discontinued products:** Products identified by Norvale in writing as discontinued, while the retailer’s inventory purchased before [date] lasts. - **Authorized promotions:** Promotions approved in writing by Norvale’s central compliance office on terms available to all similarly situated retailers. Authorizations will not be negotiated or conditioned on retailer agreement. **7. Monitoring and enforcement.** Norvale will monitor public advertising through an independent third-party data service. Norvale will not solicit retailer complaints. If independent monitoring verifies that a retailer has publicly advertised a Norvale product below MAP, and no exception applies, Norvale may take the following actions: - First verified below-MAP advertisement in any 12-month period: 30-day suspension of promotional funding. - Second verified below-MAP advertisement in any 12-month period: 60-day suspension of shipments. - Third verified below-MAP advertisement in any 12-month period: Norvale will decline future orders. Norvale may change or rescind this policy at any time. --- ## VI. Implementation steps ### 1. Train all sales and regional managers Every Norvale employee must be trained on what they may and may not say. **Prohibited statements:** - “We will make everyone hold the line.” - “We guarantee enforcement against your competitors.” - “If you support us, we will cut off other retailers.” - “Please report any retailer that discounts.” - “We need your agreement to comply.” **Permitted statement:** - “Norvale has announced a unilateral MAP policy. We make independent business decisions and do not discuss other retailers.” ### 2. Centralize complaint handling If a retailer voluntarily complains about another retailer’s pricing: - receive it politely; - do not promise action; - do not disclose what Norvale will do; - do not ask for more information; - do not say, “We’ll take care of it.” Refer all complaints to the compliance officer. Enforcement decisions should be based only on independent monitoring reports. ### 3. Use independent monitoring only Norvale should contract with an independent data service to monitor public advertised prices. The monitoring service should: - capture screenshots; - record dates; - identify the product, retailer, advertised price, and MAP; - not access transaction or checkout data. ### 4. Document enforcement decisions Create a written enforcement file for each action: - independent monitoring report; - screenshot or archive; - product and MAP; - advertised price; - applicable exception or none; - decision taken; - confirmation that the decision was unilateral and not based on a retailer complaint, promise, or assurance. For terminations, send a letter stating: > “Norvale has independently decided that it will no longer accept orders from [retailer], effective [date]. This decision is based on Norvale’s unilateral Minimum Advertised Price Policy and public advertising observed by Norvale’s independent monitoring service.” ### 5. Do not create “agreement” documents Do not ask retailers to sign the policy. Do not ask them to “approve” it. Do not send follow-up emails asking, “Do you agree?” At most, send a receipt-only acknowledgment. A receipt-only form could say: > **ACKNOWLEDGMENT OF RECEIPT ONLY** > I acknowledge receipt of Norvale Audio’s Unilateral Minimum Advertised Price Policy. This is not a promise or agreement to comply, and Norvale has not asked for such a promise. ### 6. Avoid retrospective enforcement The policy should be prospective. Give retailers at least 30 days’ notice before the effective date. Do not use past advertising as a basis for enforcement. --- ## VII. Recommendation **Adopt the modified CEO plan—but not the Sales proposal.** The CEO’s approach—written announcement, prospective effect, receipt-only acknowledgment, independent monitoring, no retailer promises, no discussion of rivals’ pricing, unilateral enforcement—is the right path. The Sales proposal’s “We agree to comply” statement, negotiated exceptions, “make everyone hold the line” assurances, guarantee to the large dealer, and retailer-reporting system must be rejected. If Norvale is not willing to maintain these safeguards, it should abandon the policy rather than implement a program that creates agreement and cartel risk. --- ## VIII. Residual risk Norvale should not claim that risk is zero. Even a carefully drafted unilateral MAP can be challenged. A court could infer an agreement from the course of conduct if the policy is administered inconsistently, if sales personnel talk to retailers about enforcement, or if Norvale begins policing actual resale prices. But with the modified policy above, Norvale’s chances under the Aven rule-of-reason framework are strong: low market power, recent entry, fragmented retail, no retailer promises, no retailer enforcement, and a credible free-rider justification.