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Commercial Litigation Woods Lonergan LLP

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INTERNET - U.S. Census Data Shows Internet Market Creep

Date: 
July 1, 2010

Lawrence Lonergan

We recently wrote about challenges based on state law to Resale Price Maintenance and warranty disclaimer policies that effectively prevent Internet Retailers from discounting and competing with the bricks-and-mortar distributors. Given new data released by the U.S. Department of Commerce, it appears even more probable that these policies are not, as the manufacturers claim, designed purely to enhance the image of the manufacturer’s brand.
 
The driving force behind the implementation of these price-inflating policies is undoubtedly the enormous growth of the Internet and resultant loss of market share by the bricks-and-mortar distributors to Internet Retailers. A recent quarterly analysis from the U.S. Department of Commerce (Exhibit C) revealed that e-commerce sales grew 14.3% compared to the first quarter of 2009, following a fourth quarter 2009 gain of 14.6% over the previous year (U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, 1st Quarter 2010, available at http://www.census.gov/retail/mrts/www/data/pdf/10Q1.pdf). The Commerce Department figures also show the continuing shift of retail sales to the web. While e-commerce grew 14.3% compared to the first quarter of 2009, total adjusted retail sales (excluding grocery sales) grew only 3.42%, meaning that e-tail grew at more than four times the rate of the stores against which Internet Retailers like Homecenter.com mainly compete.
 
This is sufficient motive for manufacturers and their bricks-and-mortar retailers to undertake price-fixing schemes to derail the Internet locomotive. These figures also explain why many manufacturers would do well to jump on the Internet express and retract their price-stabilizing policies. With advances in profits and market share in a very shaky market, no producer can afford to ignore such a fast-growing and reliable distribution channel.