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Herman Miller Settles Pricing Antitrust Suit for $3/4 million

Tuesday 25 March 2008

Just days after three states sued Herman Miller for violating antitrust laws over minimum advertised pricing rules, the company announced Tuesday a settlement had been reached.
The lawsuit, filed by New York Attorney General Andrew Cuomo and joined by Illinois and Michigan, claimed the company artificially inflated resale prices for its Aeron chairs, a violation of antitrust laws.

The lawsuit contended the pricing policy, started by the company in 2002 to combat discounting on its flagship chair, prevented retailers from advertising prices below those set by the company, limiting competition.

The lawsuit was filed Friday. By late Tuesday, it was over. A New York judge had signed a settlement agreement.

The consent decree prohibits Herman Miller for the Home from entering into agreements with its retailers relating to the Minimum Advertised Price Program until Dec. 31, 2010. The company also agreed to pay $750,000 to be divided between the states involved.

But wording in the settlement allows Herman Miller to do exactly what it has done in the past -- prevent companies from advertising its furniture below a minimum price.

\"We have had, we still have, a minimum advertised pricing program,\" said company spokesman Mark Schurman, noting that violators can be suspended for a year or lose the right to sell Herman Miller altogether. \"That policy is still in place following this agreement.\"

Susan Monroe knows all about Herman Miller\'s minimum pricing policy. Monroe owns Three Chairs Co., a furniture retailer with stores in Michigan and Indiana.

Twice she has lost the ability to sell certain Herman Miller products after inadvertently violating the minimum advertised price policy. She was also queried by the New York Attorney General\'s Office as part of its investigation into Herman Miller\'s pricing practices.

\"It has been a problem for me,\" said Monroe, who worked for Herman Miller for 15 years before opening her own stores. \"A couple of times we had things on the web site that we hadn\'t caught (the price of) in time to change it. It\'s hard sometimes when you are trying to change things on the floor, on the counter books and on the web site.

\"The products were advertised at an incorrect price. They sent me a letter and said I was losing (the right to sell the Herman Miller product) for a year, which is painful for a retailer. We\'re capable of slipping up. They don\'t send a letter saying change it. They send a letter saying you can\'t sell the product. There\'s no warning.

\"Your response is like you\'ve been spanked. You had your patty slapped. I didn\'t like it very much. It hurts business -- not only my business -- but their business as well.\"

Still, she understands the reasons behind the minimum advertised price policy. And the line is important enough to her that she will follow the rules.

\"The are trying to keep people from comparison shopping between retailers,\" she said. \"Some of it is in my best interest. They also want high end products marketed that way. I guess they feel furniture like an Eames lounge shouldn\'t be a sale item.\"

Despite the settlement, Herman Miller \"categorically denies any wrongdoing,\" according to a press release announcing the deal.

\"In reaching the settlement, all parties acknowledge that the agreement does not constitute either an admission or denial of liability or wrongdoing,\" according to the statement.

The company is pleased to have reached the settlement and put the matter to rest, said Herman Miller Chief Executive Officer and President Brian Walker.

\"Our determination to settle was a purely pragmatic business decision that will allow us to eliminate the continuing distraction and expense of the investigation and instead focus on sustaining the success we\'ve enjoyed with the Herman Miller for the Home business,\" he said. \"Our customers will continue to enjoy the best in authentic, modern residential design as we continue to expand our contemporary and classic designs.\"

Herman Miller has long tried to keep Aeron prices steady. It began after the dot.com bust left the market flooded with gently used, bargain priced Aerons.

As early as 1998, Herman Miller retailers started selling the Aeron on the Internet and at discount prices. Smaller retailers complained that discounting by larger Herman Miller retailers was eroding margins. To stabilize prices, the company set minimum prices on Jan. 1, 2002.

Any retailer that advertised below Herman Miller\'s suggested retail price would be terminated or lose access to the company\'s product for one year, according to the lawsuit filed in U.S. District Court in Manhattan.

The company has watched prices carefully. In 2002, the company tried to track down the dealer who sold Aeron chairs to Costco Warehouse, which in turn was selling them for $599 -- $200 less than the minimum price.

Herman Miller sought and received agreements from retailers that they would advertise Aerons at or no lower than the prices dictated by the company and at or no lower than the discount level set by Herman Miller during sale periods.

While it does outline the price at which a retailer can advertise one of its products, Herman Miller does not dictate how much the retailer actually sells it for. But the lawsuit contends the minimum advertised price effectively does that anyway.

According to the lawsuit , \"the purpose of this scheme was to unlawfully stabilize and artificially raise retail prices and retail price levels and to reduce retail price competition for (Herman Miller\'s) Aeron chairs.\"

Herman Miller stabilized the retail price of Aeron chairs and insured that they were sold at artificially inflated prices through its \"Suggested Retail Price\" policy, according to the filing. Under the SRP policy (Herman Miller) retailers had to agree with (the company) not to advertise below its dictated prices for Aeron chairs in any medium where prices can be seen by consumers.

\"As a result of these anticompetitive practices, consumers were denied the benefits of unrestrained price competition on the Aeron chairs and Aeron prices to consumers were raised above their competitive levels,\" the lawsuit contended.

The settlement to the lawsuit, which came after a five year investigation by the New York Attorney General Office, was precipitated in part by a recent Supreme Court decision that ruled in favor of a company on its pricing policy.

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