From Rodales (Manufacturer response - Diver's Union - TUSA and Aqualung!)

[Genesis]

First, I've yet to see an "agreement" not to discount in this marketplace. What I've seen are a bunch of documents that all look like they were written by the same lawyer, and all are statements of policy, NOT agreements.

In fact, all of them say EXPLICITLY that the manufacturer will make NO agreement with any retailer over prices, even though in the paragraph or two above they make the statement that if you don't do what they want, they will cut you off.

Its kinda like saying "I'm not going to make an agreement not to shoot with you, but if you don't hand over your money I'm going to pull the trigger of this gun" while you have it pointed at their head, then say "oh, that wasn't an agreement to hand over your money."

Technically accurate I suppose.

If you're comfortable with that kind of "business arrangement".

I'm not.

Second, not all vertical price restraints are legal. Go over to Google and type in "Nine West Antitrust" - or just click this link: http://www.google.com/search?hl=en&ie=UTF-8&oe=UTF-8&q=nine+west+antitrust

You'll find that its not quite so simple as "vertical restraint good, horizontal restraint bad". There are a lot of nuances involved; the Nine West case looks, on the surface, to be nearly IDENTICAL the issues at hand in the scuba marketplace. Obviously, someone miscalculated over at Nine West's executive offices!

However, the issue here isn't about the legality of this practice. Its about the effect of the practice.

While I will argue that this should be illegal, that's my opinion - and worth what 'ya paid for it.

Rather, my argument is that the practice is wrong, even if completely legal; I make no argument that it is not. Quite to the contrary - everything that I can see (and those in attorney general's offices I've shown the documents to) say that it is.

The debate in the context of Diver's Union (and my personal views) simply isn't about legality - its about acceptance by consumers, the impact on the market, and whether you are willing to spend your dollars in agreement with such policies.

Second, there is a real difference of opinion between the various dealers. Some not only like this system, they have told me that they pressed for it, and that this came about in this business not from the "top down", but rather as a coordinated act by the RETAILERS! Now that's an anecdote, but if true, it would be "game over" in terms of the anti-trust implications. There is some evidence for this in the public record, in that the Scuba Retailer's Association apparently collapsed over a FTC lawsuit drawn as a consequence of their alleged attempt to "blacklist" a direct seller of snorkels! Their view is not going to change, unless the rug is pulled out from under them, either as a consequence of the policies changing or their shop taking a dirt nap.

There are other retailers who are clearly against this system, usually because they recognize that they're losing MAJOR sales volume to folks like LP, and have no way to stop it under this distribution scheme. (They're right, by the way.) There are also some who are against it because of what they perceive as grossly uneven enforcement - which, if the anecdotes are to be believed, is also true. The problem with that uneven enforcement is that because there is no agreement, say much less a UNIFORM one with dealers, a dealer who gets nailed for discounting while a competitor does not has nothing he can do about it. These dealers are frequently silent, though, out of fear of retribution if they speak about this. I've had several tell me this - that they fear involvement in a movement to fix this problem as it would lead to one or more of their manufacturers cutting them off "just because" - a right typically reserved in these agreements.

Then there are retailers who simply don't know which devil is better - or worse. They know the devil they have now, with the current system. They do not know what the other devil looks like or would mean to their business. They "go along", not necessary out of conviction, but out of lack of understanding of what the change would mean to them, and inertia.

I've talked to about a hundred shops, and they can be roughly divided into these three camps on this matter, and in roughly equal numbers.

The warrranty argument is, or should be, a non-issue. First, there is a difference between a warranty and a service policy. Diver's Union makes no effort to claim that the latter is not a legitimate "value add" that can be "sold" - say, only through face-to-face sales. The "free parts for life" deal is not a warranty - its a service policy. Its also of very little real value, given that the labor is not included, is typically several times the cost of the parts, and often the intervals required to keep it "qualified" are shorter than really required - so you're spending money unnecessarily.

A warranty is a different matter. Beyond the express warranties on most products, there is the implied warranty issue, most of which cannot be disclaimed. A defective product fails the implied warranty tests. I have, by the way, talked to several major manufacturers (Scubapro included) and have brought this up - they all IMMEDIATELY said "if you had a defective regulator in our normal one year period, we'd repair or replace it - irrespective of where you bought it." So they may SAY they won't, but that appears to be a scare tactic - they know what reality is when it comes to implied warranties of merchantability and fitness, and none of them appear ready to play that game in truth when challenged on the phone.

Second, when it comes to warranty repairs, dealers do not "eat" those. At least not for any reputable manufacturer or product. I'd NEVER handle a product that expected me to do that as a dealer - I'd expect to be able to charge back the labor time on warranty repairs to the manufactuer, and that parts would be provided by them as required. This was something that I negotiated on ALL product lines I handled - either they were "instant replacement", with the manufacturer eating them on that basis, or they paid us for labor and provided parts at no charge. I have heard that many dealers ARE expected to "eat" warranty repairs in the scuba business - at least the labor - but have no proof of it. If true, that's outrageous and a big part of the problem - one that divers have enabled by ratifying the policies that DU is trying to get rid of! The freeloading argument, if it has any validity at all, is part and parcel of this.

A bit more info to go along with the rest.... hope its helpful.

 

[WJL]

The question is where does LP get their product?

King Kong Matt once bubbled...


I've heard two versions, both of which may or may not be true.

1) They buy from dealers who are willing to violate their dealership agreements with the manufacturers

2) They buy from abroad (Europe) where the manufacturers and dealers have different arrangements, i.e. no vertical price fixing in place

From what I can see, it looks like LP is an authorized dealer for most of what it sells. Those manufacturers who sell directly to LP have decided that they prefer getting the higher volume of sales LP provides them to worrying about what effect those sales are having on their small volume dealers who compete with LP.

If LP is selling products for which it is not an authorized dealer, and I don't know that they are, my guess is that they are buying them from authorized dealers who are violating their contracts. It is difficult and expensive for manufacturers to police their "minimum price" and "exclusive territory" clauses in their dealer contracts. Many just sigh and look the other way. Some try to be hard-nosed, as we see from the letters Genesis mentioned when he started this thread. The manufacturer seeking to enforce a clause preventing a dealer from selling to other dealers can record the serial numbers of the units it sells to its dealers. It then buys a unit from the unauthorized dealer, and traces the serial number back, and terminates the offending dealer. This is a lot of trouble to keep up with, and most manufacturers lose interest after a while. Threatening letters work almost as well, especially if one or two offenders are terminated with great fanfare.

I doubt if it is happening in the scuba industry, but some manufacturers have multiple distribution chains, like one division selling to retailers, and another division selling to wholesalers, and another selling to institutional customers, and another selling overseas, and another selling outdated or surplus product. Aggressive discounters sometimes buy straight from one division which is happy to make the sale, when the sale violates the policies of another division of the same seller.

Buying the products from overseas and shipping them back here is also a possibility, but more dangerous for the discounter. This practice falls under the "gray market" rubric that NEW mentioned earlier. (Thanks for the compliment NEW). It is almost impossible to do this without violating federal trademark laws and/or customs regulations which have some serious teeth. As in you could go to jail.

 

[King Kong Matt]

WJL once bubbled...
If LP is selling products for which it is not an authorized dealer, and I don't know that they are, my guess is that they are buying them from authorized dealers who are violating their contracts...

Scubapro

 

[Genesis]

which is what I think you're referring to WJL, does not appear to prevent a LEGITIMATE mark from being imported without consent.

It clearly covers the importation of a counterfeit item (e.g. something that has a "Scubapro" trademark on it, or is sold as same, but really isn't their product). I cannot find the language that would even appear to cover the importation of a product that is the legitimate product of a given company (eg. the trademark is not being diluted or infringed - it really IS their stuff.) There are customs regulations to be followed and duties to be paid for importation - which I bet are in fact being paid. You definitely don't want to screw with US Customs.

The camera folks have been doing this since the '70s at least in NYC, and I am unaware of any of them going to jail or having their stock seized. Leisurepro is run by one of those folks, by the way.....

I suspect they've figured out exactly how far those laws can be bent before they break.

 

[WJL]

Genesis once bubbled...
The Lanham At, which is what I think you're referring to WJL, does not appear to prevent a LEGITIMATE mark from being imported without consent.

I once went through a case where I tried to make exactly that argument on behalf of a "gray market" discounter. You're correct that the language of the statute does not seem to apply. After all, how can Johnson & Johnson claim that BandAids bought in Europe and resold here as exactly what they are, are not their own trademarked product? The settled case law says that they can pretty much do just that. They can use federal trademark law as a weapon to police their distribution chain. Ask NEW, who I think is more active than I am in that area of practice. I've always thought of this as yet another example of the golden rule: he who has the gold makes the rules.

 

[Northeastwrecks]

Genesis once bubbled...
which is what I think you're referring to WJL, does not appear to prevent a LEGITIMATE mark from being imported without consent.

It clearly covers the importation of a counterfeit item (e.g. something that has a "Scubapro" trademark on it, or is sold as same, but really isn't their product). I cannot find the language that would even appear to cover the importation of a product that is the legitimate product of a given company (eg. the trademark is not being diluted or infringed - it really IS their stuff.) There are customs regulations to be followed and duties to be paid for importation - which I bet are in fact being paid. You definitely don't want to screw with US Customs.

The camera folks have been doing this since the '70s at least in NYC, and I am unaware of any of them going to jail or having their stock seized. Leisurepro is run by one of those folks, by the way.....

I suspect they've figured out exactly how far those laws can be bent before they break.

In summary:

The Copyright Act prohibits the unlawful use of copyrighted works, which would include instructions and might include packaging.

The Lanham Act prohibits the unlawful use of marks used in trade or commerce to identify goods or services. This could include, for example, the distinctive "S" on a Scuba Pro Reg, together with packaging, branding and other means of identifying products.

Title 19 prohibits the importation of infringing goods through the imposition of an exclusion order by the ITC. Goods sold outside of their seller's territory are infringing goods.

Nothing in the Lanham Act, the Copyright Act or Title 19 requires that the goods subject to an ITC Exclusion Order be counterfeit.

Note that this is not a theory. I've done it to foreign distributors who got it into their eager little minds that it would be profitable for them to try to gray market my client. I wish that I would have been in their offices when they learned that their products were being destroyed.

Enforcement of these statutes is not automatic; rather it depends upon a complaint by a person with standing, such as a manufacturer. It also costs a fair amount of money to do it right.

Just because a particular manufacturer or industry doesn't complain doesn't change the law.

 

[DivePartner1]

Thanks for clearing that up, NE. Where should we mail your fee?

 

[Genesis]

I know that many people have won insane suits that have no basis in reality, and twist the words of the law, but that doesn't mean that the law actually SAYS that.

In this particular case, though, gray market cameras before scuba were here for a very, very long time in NY, and again, I've never seen Canon, Olympus or Nikon (or any of the other manufacturers) manage to shut down that distribution - even though virtually ALL of those items came from overseas.

I suspect there are ways to do it right and ways to do it wrong, like most things. If you do it right you stay out of jail and they can't shut down what you're doing. If you do it wrong they can.

Just like price restraints - which are, in some cases, illegal, and in others not, with the issue often turning on exactly what words are used where and how things are structured.

In any event, Diver's Union and the petition really isn't about legality. Its about acceptable conduct in the eyes of the consumer, about consumers ratifying the decisions that manufacturers and dealers make with their wallets, and using the only power that ultimately matters in a consumer marketplace - the power of the wallet - to effect change.

 

[Northeastwrecks]

Thanks. No fee. The last thing I need is a UPL question.:wacko: :wacko: :wacko:

I should note that the field gets more complex when you're dealing with some types of agreements. However, this is the bare bones version.

 

[runvus4]

Actually in the Photography equipment market, they do have some enforcement of the importing/grey marketing of trademarked symbols. It's just not widespread throughout the industry because the trademark holder has to request enforcement action from customs and very few companies have bothered to take the trouble to do so. If you bring the item in "greymarket", then customs can seize the items and/or remove the trademark infringement component from the item (which can damage the item if you have to machine off a logo).

It is also enforced on a spotty basis in the high end microphone business for the same reason, but there at least one of the manufacturers have gone a little further and even taken legal action against grey marketers utilizing the trademark to advertise grey market goods (so they just advertize without showing the trademark...)

Goods can be imported without the trademark and re-sold, as long as the governemt get's it import duties and the state get's it's sales tax...

Personally I think that enforced minimum prices were good for LDS's when the market was smaller and there was less mail order competition, but in the face of "mail order/grey market goods", minimum prices are more hurtful to local dive shops than helpful.