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Manufacturer competing with distributors and dealers    
March 2, 2019
Manufacturer competing with distributors and dealers 
            This may be an interesting topic for your forum without naming names.
            A certain very large corporation has dual channels of distribution, factory direct field offices which also provide additional products and services and a Value Add Partner or Distribution channel for one of their main product lines. The partner channel distribution agreement allows for an assigned geographic territory but in some cases may also restrict certain large accounts in that territory from the local Distributor.
            These may be accounts that the factory channel is currently servicing or previously installed but does not own the equipment.
            These are not leased systems but are owned by the end user. Since the end user owns the equipment shouldn't they have choice of who they do business with and allow open competition?
            Can a product manufacturer tell an authorized distributor not to approach XYZ corporation or ABC university without giving notice to that account that they are restricting others from approaching them to provide competitive pricing for add-ons and service needs?
            Manufacturers are free to deal with or through distributors, dealers or direct to the customer.  Manufacturers can establish suggested pricing, but distributors are free to ignore that pricing and sell below suggested minimum pricing.  However, the manufacturer reserves the right to terminate the distributorship.
            I don’t see why a manufacturer can’t set specific territory for a distributor and also reserve the right to compete and actually prohibit the distributor from dealing with particular customers or dealers.  For example, a dealer or even a customer could be a very big customer of the manufacturer.  Though the manufacturer wants to expand its sales through a distribution network it doesn’t want to give up its direct relationship with existing or even future customers or dealers [who are really the customers of the manufacturer].  
            What is illegal is competitors agreeing to price fix.  I’m not expert in this, do don’t ask why gas stations sharing the corners of an intersection seems to adjust to the same price daily.  There’s nothing wrong with competitors deciding to sell at the same price as a competitor, but the pricing can’t be the product of an agreement to fix the price.
            I recently was asked to draft an anti-competition statement for an alarm association who believed they needed to start every meeting with an announcement not to fix prices.  This is some old wives tale [can I still say that?].  It’s not the statement that counts; it’s what gets discussed at the meeting.  I don’t even see a problem with a discussion of how to price and what to charge for, as long as there isn’t an agreement to fix the pricing.
            We see plenty of manufacturers competing with dealers and probably their distributors too.  Manufacturers of the DIY equipment and wireless systems have inserted themselves in the communication pathway so they can charge a RMR fee.  Some sell only through dealers, some distributors, some direct to customers.
            Lawyers who specialize in Federal Trade Commission and price fixing issues may have a better or different take.  They are welcome to contribute.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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