Why can't I buy $4 OPI anymore?
May 12, 2010 8:32 PM   Subscribe

Why is it illegal for retailers to sell below retail price? Or is it?

So, I really like nail polish. And I recently found out that OPI, probably the most famous maker of nail polish, has gone after pretty much all online boutiques selling OPI for sub-retail price. (Often 50% or less of retail).

None of these online boutiques are selling OPI nail polish anymore, or they are still in the process of liquidating their stock. I can't understand why. There are a few online threads on the topic, like this, but I don't get it.

There is something about 'diverted' stock. I assume this means either it fell off the truck - which I doubt, selling of this product is so widespread it had to be more systematic than a bit of stealing - or it's being bought pretty early in the wholesale supply chain so they can sell it for much less at a profit.

If I have something in my hand, I thought I was allowed to sell it. For what I wanted to. Don't want to buy my couch for 5 grand? Fine, but I'm still allowed to sell it despite the fact that I didn't make it or get the manufacturer's consent to make it. Right? No?

So why can't these e-tailers sell the nail polish for whatever point they want? Why is this not allowed but sales in general are?

I could see OPI controlling their supply chain more so the online retailers are unable to secure the polish for such a low price and must raise prices accordingly. But it seems here that OPI is threatening these e-tailers, either under threat of lawsuit or maybe cutting off their access to the product. What kind of lawsuit would that be? What are the e-tailers doing illegally here?

Also, it was mentioned that many of these retailers had filed off the serial number. Why? Are they not authorized to sell it?

Sorry for such a wordy post for such a simple question. I feel like there is something I'm missing here, or maybe I'm just clueless on the rights of the manufacturer. But this issue confuses me. Mefi! Help?
posted by R a c h e l to Law & Government (13 answers total) 2 users marked this as a favorite
Update! I found this. Transdesign is an online retailer involved in this issue. Anyone read legalese that can translate what this means?
posted by R a c h e l at 8:33 PM on May 12, 2010

What if when you bought the couch, you signed a contract where you promised not to resell the couch for less than $X? And assume that your couch's seller would not have sold you the couch without getting that promise from you. In that case, if you went ahead and sold a couch that you bought under those terms for less than $X, you would have breached your contract with the couch's original owner, who could sue you for it. Your question is complicated, but this may be one clue to the answer.
posted by chinston at 8:43 PM on May 12, 2010

No reason you can't in general, but sometimes retailers will sign an agreement not to sell below a specific price, or they'll act an "agent" where they don't own the stuff, they're just selling it on behalf of a company (Which then sends back the money made, or returns the stuff).

There can be a lot of reasons why a manufacturer won't want their retailers to sell below a specific price point.
posted by delmoi at 8:44 PM on May 12, 2010 [1 favorite]

Wow! You might want to *close* the bootle of nail polish before writing a post! (Just joking.)

Wholesalers can set limitations on the sale of their products by those they supply - so called "authorized dealers." Apple Computers is well-known for this. If you want to sell Apple Computers for less, you can - but you'd have to buy them for more-or-less retail price, which means you'd lose money on each one. This is why it rarely happens.

That said, some retailers - like Marshall's - sell clothes you could buy at Macy's for much less than Macy's would / could sell them. That's because they're essentially buying overstock or discontinued items, so they get a special discount. But in many cases, they can't advertize that they have (say) Izod shirts - just "name brand." And sometimes, retailer must "de-tag" clothes they get under special deals.

I assume the same is true with OPI - they've caught people selling their stuff at a price below what they've agreed to sell it. Or it could be counterfeit stuff. In any case, they probably have the right to go after these people, based on their right to control certain aspects of the sale of their own product. By way of comparison, you could become an "authorized Apple seller," and sell Apple stuff for less than what you've agreed to . . . but you'd be in violation of your contract with Apple and subject to whatever penalties were spelled out in the contract.

Selling you couch - well, that's a used item and you can sell it for whatever you like.
posted by Dee Xtrovert at 8:50 PM on May 12, 2010

The court case you linked to in your update is newly filed. The docket entries suggest that nothing of consequence has happened in the case yet.

Anyway, you may have heard the phrase "manufacturer's suggested retail price" or MSRP, perhaps with regard to the price of cars. The reason that the price was 'suggested' was that for a long, long time it was illegal for a manufacturer to require or mandate a minimum retail price for its goods. It was believed that mandatory price minimums prevented competition at the retail level. In 2007 the Supreme Court overturned that rule, and now such agreements are judged under a more flexible standard, albeit one that is more uncertain and expensive to litigate.

Anyway, the law now allows manufacturers, under certain circumstances at least, to contractually mandate that retailers not sell their products below a certain price. There are lots of reasons to do this. For example, the contract may specify that a percentage of the sales price goes to the manufacturer. In that case the manufacturer definitely wants the retailer to sell the goods for as high a price as possible. Or the manufacturer may want to use the price as a signal that its goods are 'high-end' or otherwise exclusive.
posted by jedicus at 8:55 PM on May 12, 2010

What kind of lawsuit would that be? What are the e-tailers doing illegally here?

The specific suit could take a lot of forms, depending on the details. If the retailers are authorized to sell the goods but only for a minimum price, then it would be a straightforward breach of contract, for example.
posted by jedicus at 8:58 PM on May 12, 2010

Not to be a jerk or anything but it would seem that you're not looking very hard.

Amazon. Multiple colors. Even some at sub $3.

And the reason is contractual. Much like Apple forbids their partners/retailer from selling their products at deep discounts.
posted by FlamingBore at 8:59 PM on May 12, 2010

The link in the update is a copyright suit. I'm guessing that Trans is making an imitation product and using OPI's packaging. I'm guessing the Trans is not authorized to sell OPI's stuff since it is not a breach of contract suit.
posted by metahawk at 9:00 PM on May 12, 2010

The phenomenon you're asking about appears to be resale price maintenance. Until fairly recently, in the U.S. anyway, it was illegal for a supplier ever to come to such an agreement with a retailer. More recently, in Leegin v. PSKS, the Supreme Court overruled prior law and held that such contracts can be legal under some circumstances.

There are lots of reasons manufacturers and retailers are interested in signing such contracts. For example, they can help maintain brand image or encourage retailers to invest in certain forms of marketing.
posted by willbaude at 9:00 PM on May 12, 2010 [1 favorite]

Hi! I work for an online retailer! Many companies set up "minimum advertised price" rules with the dealers who sell their products. Under such an agreement, the dealer agrees not to sell (well, technically not to advertise) said products below a certain specified price. Dealers who violate this agreement risk having their relationship with the manufacturer severed.

So, it's probably not legal threats keeping your favorite retailers from carrying your OPI; likely OPI finally noticed what the retailers were doing and severed their relationship.
posted by girlstyle at 9:54 PM on May 12, 2010

Resale price maintenance is generally illegal in Australia.
posted by A Thousand Baited Hooks at 3:25 AM on May 13, 2010

The EU (and maybe Canada?) also has rules forbidding this, I believe, because it gives the largest firms an impossible-to-overcome advantage. I.E. it's anticompetive.

The idea being that a very large firm could sell below cost for a few months, absorb a $500M (for example) loss. All their smaller competitors have a choice:

(a) try to match prices, but within months that $500M loss will put them out of business; or
(b) don't match, because they can't afford to. Now customers all abandon them for the large business, and within a few months they're also out of business.

Either way, the largest firm wins and raises prices back where they belong. Success.

If I remember right, Wal-Mart was punished rather severely for this kind 'predatory pricing' in Europe recently.
posted by rokusan at 6:53 AM on May 13, 2010

Flamingbore - yes, it is easy to find OPI right now. Trust me, I know. But I read a lot of nail boards and there's a lot of talk about how all the people selling this cheap online (billions of sites, I swear) will be cut off. It's imminent, not immediate, and I was just trying to understand it.

Metahawk, I'd be surprised if this were counterfeit (even though I know that counterfeit OPI exists) because Transdesign is fairly well known (if not the #1 online retailer) among the nail obsessive forums that I follow and they're careful enough about precise colors and formulations that fakes would have been long spotted.

But thanks, all, for the information about resale price maintenance - I had no idea that was legal or existed (though I have seen those 'Apple Authorized Reseller' badges on things) or that laws had been modified about it relatively recently.

Rokusan, isn't that what's known as dumping? I didn't realize that was illegal in the EU, though I am in no way in favor of it as a practice. I suppose loss leaders and the like are still legal, though? Thanks for telling me, though, I had no idea that was regulated!
posted by R a c h e l at 10:30 PM on May 13, 2010

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