Companies Claim Right to Interfere with eBay Auctions for Charging Too Little

by Greg Beck

I predicted here that companies would soon rely on the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS to justify interfering with competition from less expensive products sold online. It did not take long for that prediction to come true. Although interference with eBay sales is nothing new (see here and here), companies in two recently filed federal cases explicitly invoke Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online. These cases not only show Leegin’s likely effect on Internet sales, but are also, unfortunately, fairly typical examples of the sort of anticompetitive actions companies take to fight lower-priced competition online.

In the first case, Merle Norman Cosmetics v. LaBarbera, No. 07-60811 (S.D. Fla.), Merle Norman Cosmetics filed suit against eBay seller Joyce LaBarbera for selling its makeup on eBay at a discount. The company had previously terminated a variety of eBay auctions by claiming that the sale of its makeup violated an unspecified FDA regulation. In this case, however, the company concedes that the eBay seller could rightfully resell the makeup on eBay if, as she claims, she purchased the makeup at a flea market. Merle Norman, however, suspects that the eBay seller is in fact buying the makeup from a salon that, pursuant to its contract with Merle Norman, has agreed not to sell anything on the Internet. Merle Norman says it demands these contracts so that purchasers can only buy the makeup at Merle Norman stores, with the guidance of "beauty consultants" who are "specially trained in proper hygienic practices." Of course, the contracts also help ensure that the products won't be available outside the stores at reduced prices.

Although Merle Norman does not claim that the eBay seller ever contracted with the company, it contends that the seller’s act of purchasing the makeup from a salon that had entered such an agreement  and then selling "at discount prices" on the Internet constituted unfair competition, interference with its contracts, and civil conspiracy (see complaint). In other words, the eBay seller, according to the company, is guilty of breaching somebody else’s contracts and unfairly competing by selling to consumers on the Internet at prices that are too low. In its brief in the district court, Merle Norman relies on Leegin, which had been decided just a few days earlier, in support of its right to “require dealers to charge certain resale prices to promote interbrand competition.” The company claims that “the law is well settled that manufacturers like [Merle Norman] have the right to control the manner of distribution of their products.” Although the district court denied the pro se defendant's motion for a preliminary injunction, the case is now on track for trial.

The second case is Colon v. Innovate! Technology, Inc., No. 07-21349 (S.D. Fla.).  Innovate! Technology (“ITI”) is a company that makes high-performance car parts. According to its brief in the district court (warning, large file), the company “sells its products only via authorized distributors and retailers” that “comply with ITI’s policy of Minimum Advertised Pricing.” The company views sales by unauthorized sellers (i.e., those who sell too cheaply) to be not only a violation of its minimum-price policy, but, surprisingly, as an infringement of its intellectual property rights. ITI’s eBay “About Me” page explains that the sale of its products by anyone but an authorized dealer constitutes patent and trademark infringement. Moreover, the company claims the right to prohibit all use of its copyrighted “technical data, photos, graphics, software, product literature, catalogues, product specifications, installation guides, user guides, promotional material and other types of information” without its permission. In other words, the company claims it is copyright infringement to read its user guides and manuals, browse its catalogs, or look at its pictures without its “express written permission.” Presumably, the company feels that selling its products at a reduced price, with the manuals included, also constitutes a prohibited “use.”

Osvaldo Izquierdo Colon is an eBay seller who purchases ITI’s car parts from an authorized wholesaler and resells them on eBay at a discount. When ITI found out about Colon’s sales, it invoked eBay’s VeRO program (an implementation of the Digital Millennium Copyright Act) to terminate Colon’s auctions. According to its notice of claimed infringement, ITI claimed a good faith belief that by selling its products on eBay without its permission, Colon was violating the company’s intellectual property rights. Pursuant to eBay’s policies, ITI’s claim of infringement led to automatic termination of Colon’s auctions and also put him at risk of losing his eBay account (and thus his livelihood) altogether. Colon attempted to contest the company’s claims with eBay, but after ITI once again terminated his auctions, he filed suit in federal district court for a declaratory judgment of non-infringement.

ITI responded with a motion to dismiss that, although mostly procedural, also cites Leegin for the principle that “manufacturers have the right to sell [their] products at the retail level at a minimum price.” The company invokes the same fears that led the Supreme Court in Leegin to buy into the argument that higher prices are good for consumers, arguing that, without its price-protection scheme, "ITI's authorized retailers could not compete with those unauthorized dealers selling well below [the Manufacturer's Suggested Retail Price] and ITI would go out of business." Of course, even assuming that ITI does have a right to impose minimum prices, it wouldn't explain why Colon’s sales of its products are unlawful, much less intellectual property infringement. But with Leegin in place, ITI seems to feel comfortable that its minimum-price policies will survive legal scrutiny.

Even with Leegin, the companies’ claims in these cases are pretty questionable. Leegin’s existence, however, has given companies pursuing these sorts of claims a new potential justification for interfering with online auctions and suing competitors that undercut their prices. These cases may be the first, but they will not be the last.

Comments

[Rick Sparks]

It amuses me when capitalists try to eradicate capitalism. Oh, the irony...

[Tiffany]

Your blog brings a lot of excellent information to public attention, but I think this post is slightly misleading. Although the companies may be motivated in part by pricing issues, neither of the cases described here is based on price restraints. In particular, the Merle Norman case, while its mention of the Leegin case in support of distribution restraints is ominous, is based on a blanket prohibition against internet sales by its vendors. Companies may, in fact, be TARGETING these sellers because they're charging too little, but neither is claiming the right to control the price at which an eBay seller sells.

[John C]

You have to wonder why ITI and Merle Norman's lawyers didn't read this ruling carefully before trying to use it in their cases.....

Reading the Leegin brief, it seems that it might apply to both of the cases mentioned above.... but not in the way either Merle Norman or ITI would hope....

Both LeBarbara and Colon could use Leegin as a defense of their own case, as they neither had a contract with the manufacturer nor bought the goods from the manufacturer.... Leegin Section IV B, "The text of the Consumer Goods Pricing Act did not codify the per se illegality for vertical price restraints. It rescinded statutory provisions that made them per se legal"

Specifically, the Majority Opinion mentions Congress repealing the McGuire Act -- which required adherence to pricing structures by everyone regardless of contract with the manufacturer.....

In this case, the companies might be doing exactly what the Court said Congress didn't allow anymore.

[Greg]

Tiffany, thanks for your comment. You are correct that Merle Norman claims the power to prohibit all sales on the Internet, regardless of price. However, it justifies this position by saying that store owners will have a difficult time competing with lower prices on the Internet. The company would have no need to clamp down on Internet sales that are priced the same as in-store products, because as its brief explains, "[Internet] buyers have little incentive to purchase products at or above prices they can obtain in Merle Norman studios."

As I mentioned in the post, the company also claims that it wants customers to purchase in the store to ensure that they have access to its trained "beauty consultants." This is exactly the situation that the Court in Leegin hypothesized to be procompetitive: eliminating cheaper prices on the Internet so that customers will have to subsidize greater levels of service in the store. I seriously question, however, whether customers will appreciate the requirement that they pay extra for this service.

As for ITI, it explicitly takes the position that selling below its minimum-price is a violation of its rights.

[Some Guy]

I know some of the main guys at Innovate -- Patrick (business) and Klaus (technical / development) and they are 2 of the nicest guys you could know.

Anyway, on the one hand I understand how hard it is for a small company to sell products and make any money. I've done it and it's damn hard.

But on the other hand, it's well-known and understood that with the internet, for better or worse, information spreads very very quickly. If the product is available for cheaper somewhere, that is to say somewhere reputable, eventually people will share this info and sales will gravitate there.

On the other hand, if a company tries to strong-arm a discount supplier (even if it's not an authorized dealer), the community will hear about it, and often will rebel or reject the product's company out of spite (in this case that would be Innovate.)

Hard to say what will happen here. I see both sides of the issue. The unpalatable but sometimes necessary step is for a company to ONLY sell directly to the consumer. Pros & cons there too.

Guess we'll have to see how this shakes out.

[Some Guy]

I know some of the main guys at Innovate -- Patrick (business) and Klaus (technical / development) and they are 2 of the nicest guys you could know.

Anyway, on the one hand I understand how hard it is for a small company to sell products and make any money. I've done it and it's damn hard.

But on the other hand, it's well-known and understood that with the internet, for better or worse, information spreads very very quickly. If the product is available for cheaper somewhere, that is to say somewhere reputable, eventually people will share this info and sales will gravitate there.

On the other hand, if a company tries to strong-arm a discount supplier (even if it's not an authorized dealer), the community will hear about it, and often will rebel or reject the product's company out of spite (in this case that would be Innovate.)

Hard to say what will happen here. I see both sides of the issue. The unpalatable but sometimes necessary step is for a company to ONLY sell directly to the consumer. Pros & cons there too.

Guess we'll have to see how this shakes out.

[tunequest]

Does the First Sale doctrine apply in either of these cases? Doesn't that allow people to do whatever they wish with a purchase once that purchase has been made? Assuming there's no binding contract between the two parties, of course?

[Bob]

IANAL, but I doubt that this strategy is going to last for too long - it seems patently frivolous. Random people on eBay aren't in privity with the initial manufacturers or distributors. Of course, this probably isn't going to stop companies from issuing take down notices on the "suspicion" that there "might" be a problem, but this seems like the kind of case that a first year law student would laugh out of court. Consumers are under no contractual obligation to respect prices, and so any such takedowns are ridiculous. I'd wonder if anyone whose auctions are taken down could file a suit against the person who filed the takedown claim for tortious interference.

[r3dn3ck]

I used to be a customer of Innovate Motorsports. No longer. This sort of MAP (minimum advertised price) BS is nothing short of legally sanctioned collusion between manufacturers and sellers. If I get your product at a low enough price that I can sell it for less than you, then it would seem to be your problem not mine right? Or more directly, would you be ok with every dairy farmer in the country being able to one day decide that they want 20 bucks a gallon and if you don't sell it for that they can have an injunction slapped on you? This is the core of everything that's wrong with capitalism.. which is strange cuz I like capitalism otherwise.

Innovate will certainly lose at least 1 customer from their mindless attempt to misuse intellectual property law. They just did.

[r3dn3ck]

I used to be a customer of Innovate Motorsports. No longer. This sort of MAP (minimum advertised price) BS is nothing short of legally sanctioned collusion between manufacturers and sellers. If I get your product at a low enough price that I can sell it for less than you, then it would seem to be your problem not mine right? Or more directly, would you be ok with every dairy farmer in the country being able to one day decide that they want 20 bucks a gallon and if you don't sell it for that they can have an injunction slapped on you? This is the core of everything that's wrong with capitalism.. which is strange cuz I like capitalism otherwise.

Innovate will certainly lose at least 1 customer from their mindless attempt to misuse intellectual property law. They just did.

[Steve Taylor]

How do Innovate actually "lose" anything if someone sells at less than the RRP ? Presumably it was sold on to whoever is selling it at a profit to Innovate ? The difference in price is the middleman's margin, and if he's crazy enough to cut it to the bone, well good luck to him.

Steve

[Mort]

So, if it is "not a good practice" to sell the products BELOW a certain $$ amount, how are these people buying these products at a lower $$ amount and how are they able to still mark up the price and make a living, AND STILL BE UNDER THE MSRP?
If it is possible to buy the products at a discounted price, then SOMEONE ELSE IS VIOLATING THE AGREEMENT...
What a bunch of MORONS...

[Brian]

I ran a software company until 2006 and had to use eBay's VeRO program a number of times.

I have no problem with eBay auctions of our product and I don't seek to control the street price.

What the article above fails to acknowledge is that many eBay sellers will rip-off the manufacturers marketing materials entirely in their eBay postings in order to make them look like a legitimate reseller. That's a clear violation of my IP and it has nothing to do with the price they are charging.

If you want to sell my product on eBay, either sign up with me as a reseller, or invest your own money in writing marketing copy, creating product graphics, logo design and images. If a seller thinks they can just steal these copyrighted materials from my website and post them in their auction with no repercussions, then they are both crooks and fools and they deserve to lose their eBay accounts.

It seems to me the Innovate! case mentioned above is a clear example of this, and they are well within their rights to take action against the eBay seller on those grounds.

[Steve Taylor]

Any way you look at it Brian, YOU, as the manufacturer have still made your money. Why whinge ? What you are seeing is capitalism working at its best.

Steve

[Richard]

I hope you stay on top of and continue to blog about this issue. How the courts interpret Leegin and the use there of is something I would like to continue to hear about.

[Richard]

I hope you stay on top of and continue to blog about this issue. How the courts interpret Leegin and the use there of is something I would like to continue to hear about.

[Kenny]

This is so riduculous on so many levels I dont even know where to start.

If a company sells its product to distributers... the company has agreed to sell at that price. Whatever happens after that...the original company probably wont see any of the money. The price changes from that original sale should be at the buyers discretion...I can understand this can help protect smaller businesses but really...this is crazy. Markup, greed, supply and demand should be the only factors, not the childish tantrum of the original company.

This is parallel to price-fixing and should be fought at all levels. How is Joe Public meant to sell anything if this becomes widespread?

Electrical goods for example are mutually exclusive. If I sell it, its not possible for me to still have it (as opposed to music or film) so theres no copyright issue. If we own something like that, that is (in my eyes) a licence to own it. If we are allowed to own it, should we not be allowed to sell it? Any money we make or lose again comes back to supply and demand.

This would force a reserve one very single auction.

I hate stuff like this :(

[Greg]

The fundamental idea that a manufacturer of any item with limited distribution has is to gain and keep dealers that work with them on an ongoing basis. They also seek to have the dealers well trained in the nature and features of the product and the way to use it properly. They also want after service for the goods if there is a problem to be done by the selling dealers as a way to satisfy the buyers. This applies to any type of product that is sold by limited distribution. Merle Norman are certainly like this, it seems. Many audio companies that make high end audio goods are like this and some makers of motorcycle accessories are like this. The prevailing argument against this in many sites is seen in some of the comments above: Let the price decide... or capitalism at its' best as one person writes.

Maybe, would be my reply.

Many specialty goods with limited distribution would be gone from the market if they allowed anyone to sell to the bidders in ebay against the normal dealer network they have in place. Manufacturers need dealers to help display the goods, showing them to as many folks as possible in a way that enhances the value of the product. The cost of doing business this way is higher than copying (ripping them off) photos and specifications directly off the makers web site as so many seem to do in ebay. If the normal dealers stop working with the makers then the maker is out of business. Ebay itself is not enough business to sustain a specialty maker of goods and many folks never shop in there at all. If the pricing in ebay forces the lowest common price down so far that no dealer will accept the products due to losing money with them then the maker loses dealers and loses business, possibly to the point of the destruction of the business.

Do you want diversity of products with cool features and innovative design? Do you hope to have someone there to support you if you have a problem? The lowest possible price on ebay does not make that possible for many specialty makers. If the item is so generic it doesn't matter then ebay is the answer. For limited distribution of innovative or specialty goods it will not work for most of them.

I am not arguing this as a philosophical point: I am saying it as the way markets have worked since the changes being made by ebay or similar internet avenues of sales have been impinging on the normal dealer networks established by specialty makers of goods. If the normal dealers stop working with the maker, the makers company dies. You will have to decide in your own life if this is good or bad. I for one like many specialty items that are not available on ebay and like the service and help I get with the products that I buy that way. I also shop in ebay at times and buy commodity type goods in there since they are so generic it doesn't matter to me about after service.

This is an evolving market with the tensions between internet sellers and established dealers getting higher as time passes. The many folks who 'know the price of everything and the value of nothing' seem to feel that the price should be low always. This is not true in every instance, I believe.

If you feel that price is the only denominator then what do you say to someone who asks you to discount your salary or services by 20-40% as a normal way to do business with you in any daily transaction of any sort. Is your time and work so generic it is not worth the price you ask of it and the lowest possible bid price from strangers should set your remuneration every day? Many of you seem to argue that is what should happen to the specialty makers of goods and their dealers.

I thought I would add this in here. I doubt anyone will support these ideas. Look around you in your life though and imagine everything being treated like an ebay auction. Would you really like that in all ways? I wouldn't.

[Paul Jones]

On its face, this seems kind of wonky, but in the real world, this is how it often plays out. Say that I am seller of a unique Widget, and I feel that my best method of selling is through resellers. I work up a resale agreement that provides discounts for resellers that sell larger quantities of my product. For those purchasing 100 - 199 of my products I give a 2% discount. For those buying 200 - 299 I give a 3% discount and so on. By offering a discount, I am banking that the economies of scale will allow me to sell a greater quantity of Widgets at a lower price and still make a profit.

If I have resellers in overlapping markets, I might find fewer resellers because the larger resellers have a potential to sell significantly more and thus be able to sell at a lower price because of their discount. Because my Widget is an impulse item the sells more, when more people see it, I want as many resellers selling my product as possible, so I set an agreement that prices should have a fixed suggested retail price. This reduces price competition and allows smaller resellers to buy at lower risk, since there isn't price competition with bigger buyers who get a discount. However, this allows the larger buyers to profit more on the sale of the Widget.

Lets say large buyer A wants even more profit, so he works a side deal with someone to buy from him at his cost so he can increase his discount level. This might seem like no big deal, but the the secondary buyer isn't under agreement for the set price, so he lists his products on eBay as a price below contracted retail. Suddenly small buyer B sees a drop in sales of Widgets because a good portion of his market is Internet buyers. Small buyer B reduces his purchase level while big buyer A increases his. This keeps happening until most of the small buyers are weeded out. While I may be selling just as many Widgets as I was before, the largest discounted sellers are raking in the profits, while my most profitable sales have dried up. Even worse, if the smaller companies start buying from the big ones on the side and my profits dry up as more and more of my sales shift to the largest discounted buyers when my profit model was based on a more even distribution of large and small buyers.

In many cases the prices don't have a minimum set in order to insure the largest profit, it is done to ensure that the consumer has the product available at the greatest number of resellers, thus giving the consumer a choice of where he or she buys a Widget. I'm not saying this is true in every case, but in the cases where it is true, it is unfair, and the producer of the product should have the right to protect his business and enforce his contracts. In cases where you might have 10,000 resellers, tracking down the culprits can be difficult, under these conditions, shutting down those that are selling without agreement is the only way to go.

Just my $0.02

[Ash]

How is Joe Public meant to sell anything if this becomes widespread?

There's a strong view among corporatists that Joe isn't meant to sell anything. Selling things is a corporation's function. It's Joe's function to be employed by a corporation, and buy the products of corporations.

[Sean]

This is a classic example of companies that do not know how to handle the internet so they use tyranical actions to combat it. Get with the program! Figure out how to interact and profit from the net or just die quietly.

You can't tell people what to do no matter how much money you have.

Ebay has to protect people's rights or they are out the door too. Looks to me like ebay wants the net to be like it was ten years ago but it is not. The problem is no one is thinking outside the box. I personally don't see why people pay billions for websites when they could poof out in a nano second. In my opinion eBay AND Yahoo as well as others are on the way out unless they can bring more value.

Your never going to get rich in a free society by bullying people.

[terumo]

the problem is because cosmetic companies and such put a minimun sale price for the retailers on all their products and also, they restrict the retailers to sell it online.

[Robert Krawitz]

Kenny,

When I want support, I buy from someone who can give support. Usually when I buy electronic equipment (for example), I neither want nor need this kind of technical support and I'm more than happy to buy used equipment, gray market, or whatever to save myself the money (both of my laptops were bought used, and I've bought and installed plenty of parts, both fixes and upgrades).

I'd rather make that choice myself rather than have the manufacturer make it for me, thank you. Enforcing higher prices doesn't increase competition. If competition eventually eats into my salary, that's my problem and it's not for everyone else to bail me out by paying more than the market-clearing price.

Also, maybe people prefer to buy on the net simply because it's more convenient.

Greg,

It doesn't matter if you have 10,000 resellers, and tracking down the one who's violating his agreement is difficult. Shutting down third (and possibly fourth, fifth, or sixth) parties who aren't party to your agreements -- unless those folks are intentionally trying to interfere with your contract, which you have to prove -- is just wrong. Maybe it means that you're trying to price your product too high for the demand.

[Howard]

Paul Jones -

Your arguments make sense - from the point of view of a manufacturer. Obviously they want to protect their margins, but that will inevitably cost the consumer. Why do I care how much profit they can squeeze out of a particular product? And why would I care about how many different stores I can find that product in? Unless it is only being sold by a single retailer that abuses their position by selling it for a ridiculous premium, I don't care. All I care about is where I can purchase that product for the lowest price, with a reasonable level of service. The argument that keeping prices artificially high is beneficial to the consumer is, in a word, bullshit.

[DJ]

eBay sellers, tabberone, have had some success representing themselves (pro se) against such illegal VeRO takedowns, and chronicle much of it on their site, http://www.tabberone.com , including advice to sellers who receive such notifications from manufacturers. I suspect that "First Sale" and "Fair Use" applies to much of these issues.
I've been on both sides of the issue. I can't say I'm against a retailer or manufacturer/distributor using every legal means to maximize their business. Price control can be achieved; i.e. the latest video game consoles, Palm PDAs, iPods... you don't see very much price variance among those items. But if an electronics store goes out of business and you buy the stock at liquidation, I can't see any legal means for you to be prevented from selling it at any price you wanted... even at a loss.

[Geoff]

These companies are criminals, pure and simple. There is no legal "gray area" and no room for misunderstanding or misinterpretation, these actions are and always have been 100% fraud and ought to be prosecuted as such.

If I pick a random physical shop to attack, assault the staff, chain their doors close, and take stuff off the shelves because I claim its all mine when it isnt, I'm subject to arrest. There should no distinction to companies or individuals committing the same crime online, they need to be prosecuted.

If this "Leegin" ruling has outlawed ownership of property, or has ruled that contracts between two random entities are binding on all people everywhere who have never agreed to it, then the judge involved ought to be disbarred for incompetence. Can you and I sign some agreement that stipulates that Microsoft or General Motors or Walmart owes the both of us $50 billion USD each, then demand this money from them with the courts enforcing this agreement? Of course not, its entirely an act of fraud.

[Joe JOb]

So much for the right to own property. You don't own a physical object anymore.

They are destroying the right to own a piece of property. The same logic could then be extended to everything else. This is a slippery slope toward nothing being owned by the individual. This also destroys the doctrine of first sale.

Needs to be fought tooth and nail.

[just Me]

Hey, the Repub President was voted in.

He was voted in twice to make sure we'd get these conservative Supreme Court Judges.

The conservative Supreme Court Judges were put into place so we'd have legalised Family Values.

We [our Nation] are just reaping what has been sowed for believing the rhetoric when it's always about money and power.

Because rhetoric in politics is merely a smokescreen to cover the money trail. And the money trail comes from corporations buying our elected officials with lobbying, bribes, gifts and other influences.

If a seller here voted republican, and finds him/herself on the defensive end of an action like this, that seller only has themself to blame. The rest of us can blame
a.) themselves for not voting, or if they voted
b.) the people who voted in the President that voted in these Judges.

[Eric]

There are strong points on both sides of this argument. I almost purchased a boat dealership and one of the main accessories was wakeboards and bindings. Now, I for one love to shop the internet and get a discount but, there are downsides to this "capitalism at it's best" approach.

From a manufacturer and dealers perspective, this is a bad situation and here's why.

You sell (in this case) a wakeboard and you get your typical dealer cost. Now, this same scenario happens where you have a much larger dealer out of state buy a LOT of inventory and sells/dumps a bunch of it to a non-authorized dealer. He does this to get a bigger discount and pad his dealer profits.

This person sets up a web site and pushes this stuff 30% below what you can afford to sell it for. Now, you go through the pains of purchasing inventory from a manufacturer, putting up display space and pay sales people to sell this stuff. Now this overhead needs a way to pay for itself right?

Someone walks into your shop and needs help setting the bindings right or learning to use the product. What do you do? Turn an customer out the door? He bought this thing off eBay or from some guy. Now your stuck with a situation where you have to either turn this guy away or help him out. This does get better...

You have another guy come in with a board that's defective and he knows that a dealer down the street (you) carries the product and supports the manufacturers warranty per your contract. Now your stuck with putting money into supporting the eBay seller or joker down the street who paid below your cost and his customers are coming in for help and wanting you to handle their warranty claims because he's not authorized to do so.

As this situation plays out, your left with no choice but to call the manf. complain, tell the customer that they need to call the factory direct to get warranty or support and you push him out the door. Not optimal.

Now the factory is stuck with the exchange/support bill. His costs go up due to this so, the next year, he passes the costs along to the dealers who push them on to the customer whereby markets pricing gets inflated even more due to having to pass previous year costs along. What a circle-jerk.

This same thing applies to all sorts of goods where you have dealer networks who pour a lot of money into inventory and overhead to make a profit on this stuff. All the eBayer is doing when he picks up inventory from a dealer dumping this stuff is potentially driving costs up by doing all this..

You can look at this multiple ways. Yes capitalism drives competitiveness but unfair competition creates bad market conditions and (small manufacturers who can't afford to survive either sell off or go out of business. If the sell off happens, you have the same situation you have in the Telecom sector, higher prices with less competition.

So, next time you think your doing yourself a favor by buying that widget off ebay for a killer price, just think to yourself, what-if we all did it? What then?

I'll tell you what. Your stuck with what I call the Home Depot effect. You now have a large retailer selling this product at a good price but, they don't service the stuff! Think about how many times you get suckered in to buying that lawn mower or other product that your now stuck with trying to find an authorized dealer who will help you get it repaired. I know this last (lawn mower) scenario seems like a topic jump but, this is exactly what is happening.

We want to trade about 20%-30% price differential to buy cheaper from big retailers or eBayers instead of dealers who will stand behind the product they sell you. When your stuck with a broken product and HD (forget ebay) tells you sorry, your stuck.

Just MHO,
Eric

[Bud Fields]

Joe Public isn't supposed to BE a seller. JP is supposed to be a consumer. From the looks of things, a final consumer at that. I don't need a reseller's contract to sell goods I own--or do I?

It seems to me that the one thing sadly missing here are the rights of consumers. If I buy a widget legally from the widget manufacturer (or his distributor), and sell it, isn't that my right? I am, after all the legal owner. Transfer has been established. What I, as the consumer (reseller or NOT!) set as the price is none of Widgets-R-Us' business--or is it? What direct relationship exists between myself and Widget? Am I, as a customer, constrained from selling what I legally possess just because it is Widget's product? Forever? I think not. I don't care if I've owned it for less than a moment. I own it. Period.

If I, as that same consumer, go to eBay, set up my reseller's account, and offer this same product for MY price, that's my determination to make, as the legal owner. If, however, I go to the Widget website, rip their graphics, manuals, and logo--well then, that's a criminal act.

But if I don't, and do not associate myself with widget, his distributor, or the Pope, they have no justifiable cause against me!

Capitalism? I think not. Corporatism? You bet. And, Leegon is only the tip of the iceburg. We'd better stop this now, or life is gonna get really dicey.

[James]

So, if I were to buy some makeup from Merle Norman and never use it and then sell it at a garage sale a couple years later, are they going to sue me because I only charge 50 cents??? Goodbye summer garage sales. "Sorry ma'am. You can't sell that 1974 lawn mower because it doesn't meet our minimum advertised price of $300. It'll have to go to a landfill and pollute the water table instead of going to someone who can fix it up and use it. Oh, it's not our fault. It's the courts! They said it's illegal, not us!" Give me a break. Sometimes our legal system make me absolutely sick.

[James]

One other thought: who owns my house??? Do I? Well, do I? Or does Dupont for the insulation, or Lowe's for the wood used to make it, or Dutch Boy for the paint on the walls? If I sell my house, do they have to approve the pirce I set? That's exactly where this is going. I bought a product. It's mine to do with as I please as long as I don't break a law or harm someone with it. If I want to sell it, then it's mine to sell . . . at whatever price I wish. Next thing we'll hear is the British suing us because we broke our contract with them and set up a new country. They owned it first and so therefore still own it. They own all our land. Everyone get your redcoats out. Blimey it's feelin' rainy today.

[John]

I am a 21 year old ebay seller of name brand tanning products. I am currently on my fourth user ID, and now sell under an alias. Bear in mind that this is my full time living. Manufacturers of these products will do virtually anything to eliminate competition of any kind, including manipulating the ebay market through VERO. As a result, I have been suspended from three prior accounts, one with over 9,000 feedback at a 99.4% positive rating, in addition to receiving threatening letters.

Their claim is that I tortiously infringe on the manufacturer-distributor contract by purchasing from the distributor (who knowingly and willingly sells me). What's more unsettling is to know that the law is most likely not on my side. If regular suppliers (salons in my case) go out of business because I am undercutting them, they obviously were doing something wrong. They should have considered reducing their product prices to market value instead of attempting to gouge their customers. I'm sad to see our country moving further and further away from a laissez faire philosophy.

[Douglas W. Goodall]

This seems like price fixing to me. No more or less. I agree that if the manufacturer's web site says that there is a copyright on the web contents, then the ebay seller cannot directly use their graphics or verbage. I see no problem though with the ebay sellers providing a link to the manufcturer's site where a potential buyer can review the product. ebay provides people with a way to sell their old stuff to a larger audience. Sometimes it takes an infrastructure like this for the average person to get fair value back for a used item. When you license soft goods like software to people, you get a lot to say about what they can do with it and they get to agree or not to the license. When you buy hard goods, and you are not copying them, there are not copyright issues and you should have the rigt to sell at any price that you consider worthwhile. I do not approve of price fixing, in any form. I think it is clear to most people when they buy items from ebay that service is not what is being sold, just the item. In my experience, when I was reselling gift items, the manufacturer claimed they were treating the dealers fairly, but people down the street from the manufacturer's seemed to be able to get back-door deals that allowed them to unfairly compete against me. I hate that.

[Matt]

Geoff and James and Bud and others are essentially expressing the same sentiment: Private property rights are quickly disappearing in America. There is a fundamental disconnect between the Fascis..er, Republican leadership and the "vulgus" who "voted" them in. The impressionable masses bought into the lipservice paid to protecting privacy, private property rights, gun ownership, free market economics, etc while the leadership have gone about preventing anyone who doesn't have money from making any. This trend, sad to say, will continue, but Leegin didn't start it. We owe that debt of gratitude to the 7th Circuit Court of Appeals and the rash of "law and economics/Chicago school" judges who've held sway therein. It all started with ProCD v. Zeidenberg, the foundational case dealing with shrinkwrap agreements. At one time, under the common law, contract formation required "a meeting of the minds" and valuable consideration. A party to a contract had to be aware of its terms in order to be bound. Today, however, I can sell you a box of nails with a draconian "contract" printed on the inside of the box, which refers to additional terms hyperbolicly sealed in a capsule located on the bottom of the Mariana trench. By opening the box and using a nail, you have agreed to all the terms, which I can change without your consent at my sole discretion (read: whim). The contract is a licensing agreement: you are granted a license to use the nails, so long as you comply with my terms, but I retain legal title to the goods. Should you sell one of the nails to another, he is now bound by the contract as well, even though he had no way of knowing about the agreement between you and I. Leegin only furthers this charade.

But what about consumer protection statutes, you might say? Isn't this contract unconscionable? Doesn't it violate some fair trade practices statute? Maybe, but statutes are no obstacle for the shrewd contract wordsmith. I just put a little clause in there about waiver--by opening this box, you agree that you waive your rights to any cause of action (etc etc) provided under . As long as the statutory protections purported to be waived are not found in the Securities and Exchange Act of 1934, you can waive them. You can contractually waive your Constitutional rights as well (including some of those which are supposed to be "inalienable").

Now the 9th Circuit Court of Appeals might take issue with this scheme, but they'd be the lone holdout, as pretty much every other circuit has adopted in some form or another the reasoning train wreck started by the 7th Circuit in ProCD. Fair use, First Sale Doctrine, etc etc etc only apply to GOODS WHICH YOU BUY. If all you're buying is a LICENSE TO USE, you never OWN the goods. And that is where we're going. We have this common law doctrine called the "Rule Against Perpetuities" which is, at least in part, intended to curb dead hand control over property [in an inheritance context] and to promote (relatively) free alienation of property. But we don't have a similar proposition for commercial sales contexts - I guess because corporations will never have "dead hands." These companies want to control what you can do with their products ad infinitum, and if people keep spending money on those products, they'll eventually get their wish.

As bad and horribly ill-conceived as ITI's construction of Leegin and intellectual property law is, the real crime here is that they can actually MAKE THE ARGUMENT AT ALL. It's a testament to how desensitized we as a society have become to unbridled greed. Our President and VP wouldn't hesitate to slit their mothers' throats for a few extra nickels; they openly and admittedly steal from the people at every turn; and they scoff at conflicts of interest. And we just sit here, posting on messageboards and blogs and whining -- and keep buying sh*t from companies that bankroll more fascist agendas, more unfettered greedmongers. Is anyone ever going to get angry enough to DO SOMETHING ABOUT IT?

[Fluke]

So called "high-end" retailers should be careful about Leegin as it may open the door to employee or customer class action suits against the high end retailers themselves.

If the reasoning to Leegin is that the higher price provides additional services/quality when performing the sale or supporting the product then the customer should be able to treat the higher price as a defacto contract that such higher quality WILL be provided.

Does Merle Norman Cosmetics pay any of it's employee's minimum wage? Can the company show that the quality of additional sales services is actually be provided at the price they pay their employees? Does every employee have to go through a week+ long training period or shown a 2 hour video?

Do any of the materials to make up Innovate! Technology parts come from China? Can they show the implied additional quality is still continually being provided when buy parts or labor from overseas?

My personal experience has been that retail store employees are for the most part mindless robots anyways. I find it much easier to get additional pre-sales information from Newegg than BestBuy. Detailed information about the specifications of the product is available immediately from Newegg. I have been told by BestBuy employees that if the information isn't given on the back of the box then they don't have the answer. Also, if the display model of a product, such as a digital camera, is broken then Best Buy employees state that there is nothing more they can do. It has also been much easier to get Newegg to honor it's extended warranty than Best Buy.

So, if Best Buy decides to leverage Leegin to force Newegg to match it's minimal prices, then they better have the same (or better) quality of support (detailed product descriptions, specifications, customer reviews, etc) as Newegg. If instead they continue to provide mindless minimal wage bots that perform worse than Newegg while forcing Newegg's price to go up then I will feel obligated to file a class action lawsuit for failure to provide the additional services that Leegin claims is implied as being provided with the additional price.

[John]

There is nothing more ignorant than a layman who fails to read the law fully. There is nothing more dangerous than a lawyer who fails to ethically research a subject and violates Rule 11 by advancing arguments that do not exist.

The law is not really that hard -- people just refuse to really read it.

[Robert Krawitz]

Eric,

If in my assessment I can do better ("increase my utility function") by buying something on eBay, why shouldn't I? I don't expect an authorized dealer to help me out in this case. I'm perfectly capable of taking my laptop apart; I just need the parts for it. I can also service my own lawnmower. I don't mind paying full retail price if I really do plan on needing service, and I've done so at times.

If you as an authorized retailer don't want to service someone who bought something on eBay, why do you do so? Evidently you've decided that the goodwill from doing so outweighs the loss on the sale, but that's your call. It's not my obligation to help you out. If you take a hard line and refuse to service gray market equipment, you'll find that some people won't be happy, but others who do want the service are happy to pay the premium.

If everyone decides to buy on the net, then that says something about the level of service people really do expect. Maybe people really do want to buy just the goods without any personal service. Or maybe you, as the dealer, can buy goods off eBay, resell them to your customers at 10% markup, and provide them -- and only them -- with service. But again, that isn't my problem, from a consumer standpoint.

The problem in the telecom industry is that the major players are keeping everyone else out through regulation. Note that Europe and the Far East have much more aggressive competition in the telecom industry. Note that in the US Apple was all but forced to pick one provider to partner with. That's a cartel. It's not the result of "unfair" competition, other than the big telecom providers stacking the regulatory deck to keep competitors out.

[Ari]

Easy to avoid if this becomes a problem for discount sellers on the net.
Sell with a "tear" in the box; a paint "mark" on the
box; as new but "open"
box. etc.

[Richard]

People have the right to sell things for whatever price they wish to sell them. If companies do not like that, they can refuse to continue selling them their products.

The real problem that we have is that we have "unfair competition" laws on the books and not only do we have them, it is the federal government that has them on their books and is enforcing them, which is unconstitutional outside of Indian reservations, U.S. territories and Washington D.C.

In my opinion, Leegin Creative Leather Products v. PSKS was a step in the right direction. Now if only we could get laws against anticompetitive behavior taken off the books; if that is done, all of these lawsuits that claim that lower prices is anticompetitive will disappear.

[Ghost of Mao]

Kill all the lawyers.

[jonathon]

If the manufacturer has an issue with sales at less than there Minimum Retail Price, then the manufacturer needs to train their distributors in what constitutes good customer service. Then train their distributors in how to do retail product sales. People will pay for quality products. People will pay for good customer service. But when you get bad quality products, or shoddy customer service, or both, then the consumer dollar is going to go to the retailer that has the lowest price. There is no divine right for a brick and mortar to stay in business. Likewise, there is no divine right for a manufacturer to stay in business. If they can't, or more likely won't provide adequate customer service to stay in business, well they do not deserve to stay in business.

[Aexia]

If a reseller is buying increased quantities to qualify for a discount and then passing it on at cost to someone else, then isn't the issue solely centered around the reseller who's breaking its contract with the manufacturer by selling below the agreed price?

[Neil]

My impression is that the problem is starts when the manufacturer starts giving discounts to the bigger sellers, who then sell at a lower price to the eBay sellers, thus undercutting the smaller B&M sellers. If the manufacturer sold to everyone at the same price, the large sellers wouldn't be able sell to the eBay folk so cheaply. The way I see it is that the bigger sellers are the villians, and forcing higher prices helps them, not the consumer. You don't have to try to shut down all the eBay sellers; stop selling to the larger distributors who are doing the undercutting. The manufacturers leave them alone because that's where they sell their volume.

[Mackenzie]

Well maybe these companies (and everyone involved in the named cases) need to take an Economics class and learn a bit about supply and demand.

[Geoff]

It seems to me that the beef should be taken up with the distributors who are sidetracking the authorized retailers. The major camera manufacturers have had to deal with this for years. The way they do it is to refuse to service grey market products. You can either deal with the authorized reseller and get a full warranty or buy yours at a discount thru some other channel and get none. Merle Norman could do something similar by creating validation system into their products (like maybe an attached coupon which is stamped by the reseller at point of sale) which could be linked to added value services (very much like those loyalty club cards everyone has nowadays.) If you choose to get the product cheaper thru an unauthorized channel, then great, you've saved some bux, but you're not entitled to any additional services.

In the case of motorcycle parts, why not have them send in their receipt to receive something that is worthwhile (maybe even the crucial piece that makes the system work.) That way you get to control who they're buying from directly.

Let's get creative people and come up with solutions, not more lawsuits!

[Beth]

Could be an interesting evolution. Online discounters drive authorized retailers off to greener pastures. Manufacturers discover they don't need retailers promoting and supporting their products. Channelling all their distribution costs into setting up direct online sales through their own websites, Ebay and the like, manufacturers can compete with the online discounters directly, offering equal or better deals...straight from the maker. Manufacturers can charge whatever the consumer will bear, as there's no longer any place for would-be sellers to get product cheaper.

The only competition would be another brand/manufacturer. Which, I believe is the intent of free competition laws in the first place.

[Seth]

Eric, if someone comes in to your store for help with stuff he bought from you, help him. If he didn't buy the stuff from you, help costs $100/hour. What's the problem? Likewise, if you support the manufacturer's warrantee, that means you bill the manufacturer for fixing it (or you ship it off to the manufacturer to let them fix it). Car dealers have to support the warrantees for all cars of the brand; they make a profit on each transaction.

[Preston]

A lot of the theory on here actually happened this year to Robomower Sales. Last year we sold 75+ Robomowers with ease. We were hoping this year we could sell 150+. However, all the dealers have stopped carrying Robomower because there is no profit margin. The internet dealers basically priced themselves out of business. We were able to survive because we were selling Lawnbotts and actually know how to sell our services and knowledge of what these machines are capable of. Now Robomowers can be found on the internet from as low as 1,499 to as high as 1,849+. This has caused many consumers to be very cautious of buying mowers because so many dealers have so many different prices. Everyone who calls in and wants to buy one is terrified we are giving away broken models, or older models, or last year's models. They don't understand discount buying.

The Lawnbott in the same market which has an MAP has exploded off the line this year. We sold about 60+ Lawnbott's last year. This year we were expecting to sell 150+ mowers (in only our second year). The reason we can see is that everywhere you go everyone has the same price, people gain confidence from that. MAP on Specialty items is needed and keep the market alive. If MAP is not in place competitors will whore themselves out to make 2 bucks, while those companies that are re-investing (which is the main goal of capatialism) profits go out of business because there is no money to be made. Because large companies go out of business there is no re-investment (advertisment) and so the parent company sells less, the price competitors die out because no one is buying, and the whole product disappears.

Capitalism is not about lowest price. Capitalism is about profits and re-investing profits to grow your company and market. If we started discount pricing medication, there would be no more medicine discovered because profits would decrease, re-investment would decrease, technology output would decrease, and we would all be back to square one with taking advil for cancer.

You all are referring to manufacture's selling their products which is an impossible thing. It is much more profitable as a manufacture to deal with 10-15 (or even hundreds) of re-sellers than it is to deal with every person that contacts those re-sellers. If Lawnbott had to deal with every telephone call we receive that would keep their staff busy, not to mention the other 5 or so dealers that are all getting constant phone calls. They can keep their staff low (which increases profit), they can sell in bulk rather than individually (which increases profits), and their re-sellers are advertising (which is not costing anything to them, increasing their re-sellers sells who in turn buy more stock, which creates more profits). It makes far more sense to use re-sellers than it does to direct sell.

[Kennysze]

promote free trade

we just can't let these big bad firms have it

end of story

[weird ebay auctions]

How is it ebay would do what these big companies say? eBay is a behemoth and can do more or less what it wants in this regard. And isn't selling something for less then your competitor all part of what makes capitalism work? And isn't ebay killing their own business by pulling these auctions and losing revenue?

[Bill]

As an eBay seller I often question product source. Customer returns, overstockes, etc... all would seem to lend themself to this environment.

I think the real difference might be in the sellers themselves... If you want to sell discounted product X and you have a supplier for the product are you at risk of a lawsuit -versus- the seller that bought product X, and is not trying to sell it to just get it out of the house.

Interesting topic for sure!

[eBay Business Account]

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