Did You Know the US Supreme Court Changed Software and SaaS Distributor – Reseller Law in 2007?

Did You Know the US Supreme Court Changed Software and SaaS Distributor – Reseller Law in 2007?

I bet you missed it, but I always look for the software  law perspective of these cases (how does this apply to software/SAAS reseller agreement, software/SAAS distribution agreements and software/SAAS oem agreements). The law used to be that when someone resells your product you could not tell them that they could not resell the product below a certain price (i.e. a floor). You could  suggest that they hold to a certain price but you  could not mandate the floor price. Violating this rule used to be a big no, no. By the way, this explains why you often see ‘Suggested Retail Price’ on merchandise tags. In legal jargon, this is called ‘Resale Price Maintenance.’ To cut a long story short (and it is a long story), 96 years of law was changed by the US Supreme Court in the 2007 decision in the Leegin case.

Essentially, manufacturers can now influence resale prices in certain situations. So what are those situations? Well the legal standard changed to what is called a ‘Rule of Reason’ from a ‘Per Se Rule.’ Without boring you to tears, what this means is it depends on the facts and circumstances, effect on competition, competition within the channel, etc, etc.

Bringing this down to reality and specifically to the software world, I have often heard about software resellers free loading and not providing the value-added services they are required/supposed to provide. Then at the last minute one of these resellers underbids a project that one of your other resellers has been working on for months (of course this is the one that does not free ride and provides lots of value). Prior to this decision, there was not much a software vendor could do; but that has now changed.  As a general matter, if you are selling software that requires significant services or well trained value add resellers, etc. then I suggest there would be a compelling reason to say that under the change in the law you could mandate that the free riding resellers could not bid below a certain price.

This area of the law is pretty (actually very) tricky, so I would not institute any kind of pricing plan or change in pricing action without talking to an attorney that specializes in antitrust matters first. If you are a software based company, you may want to see if they can take advantage of this change in the law as part of your channel strategy. It often amazes me how often changes in the law don’t trickle down to the software world, so don’t let that happen to you.

If you want more details, read these articles:   Article 1 Article 2

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