The Limitations Imposed by Law - Case Study Example

Corporation Law Problem The expense of creating a brand for whatever product requires substantial investment not only in terms of financial resources but it is literally the investment of blood, sweat and tears to develop a product line acceptable to its targeted clientele. Any good brand combined with equally good business plan and sound marketing strategy generates awareness and ultimately, loyal patronage. Once the brand is established and gained recognition, the creator or owner thereof must protect its proprietary rights against market forces subject only to the limitations imposed by law. Among the products in the market which existed and survived even in the most challenging and tumultuous economic times is the clothing industry. Clothing are considered basic necessities which transcend age, gender, race and social standing but if the brand is developed for women who wants to indulge in fashionable and trendy clothing, would the product line still be classified as ordinary consumer product? It is in this context that Habien S.A. (Habien), a manufacturer of fashionable clothing for women, seeks guidance as MegaStore Plc (MegaStore), a retail grocery and general clothes store, is threatening to report Habien to the Competition authorities and/or institute legal action against it for its refusal to allow access to its fashionable clothing line for the distribution and/or sale of MegaStore at its retail store for being a “price-cutter”. The factual antecedents are— Habien manufactures clothing line through its own design team who is responsible for the product line changes every three months. Its products are sold by retailers who met Habien’s requirements of retail experience, store location, ambience and appearance and agree with Habien’s policies with respect to retail prices and no discount rule except on the third month or season turn-over, pre and post sale services, capacity to move products quickly and efficiently to achieve minimum quarterly sales, to provide expert staff and to avoid selling through the internet without prior permission. With this marketing strategy, Habien was able to corner 15% of the high end women’s clothing market in the UK which is still expected to expand. MegaStore wanted to carry Habien’s clothing line however Habien denied MegaStore’s request that it be supplied with the high end clothing line as it does not fit the criteria of Habien’s existing distribution chain. After a forthnight, Habien received a letter from MegaStore demanding access to the clothing line otherwise it will take the matter up with the competition authorities and/or bring legal proceedings. Under these circumstances, would an inquiry by the competition authorities or legal action against Habien prosper? The answer is no and to support this position it is important to discuss relevant laws and its applicability to Habien’s predicament. The relationship between two juridical entities shall be governed by a contract or agreement executed for the purpose. At first glance, it could be gleaned that there is no contractual obligation between Habien and MegaStore. There was no meeting of the minds yet so to speak since the three essential requisites—offer, acceptance and consideration—for contractual responsibility to arise are not satisfied. There was an initial meeting to discuss the terms and conditions but neither party accepted. When the offer was rejected, the mandatory requisites of acceptance was not fulfilled consequently no contractual relationship was created between the parties. These are the mandatory and concurring elements compliance of which must be shown with certainty and failing, the parties cannot invoke or demand contractual performance. This view is consistent with the ruling of the House of Lords in the case of Gibson v Manchester City Council (1979) which explicitly states that a relationship is not indicative of a contract if offer and acceptance could not be found and it is not shown at which stage the parties considered themselves contractually bound. A contract requires reciprocity of actions rather than a unilateral act which may be demanded at will by one party. It is binding and demandable upon the parties who have agreed and established the parameters, the terms and conditions and extent of their obligation. MegaStore cannot however unilaterally demand access to sell Habien’s clothing line unless the consent of the brand creator has been procured first but on one hand, Habien can impose upon MegaStore compliance with certain standards before it can be considered to sell the fashionable clothing line. Contracts must be mutually beneficial to both parties but in the instant case, Habien, as the brand owner, is given wider latitude to enter into an agreement or contract with an entity which can promote not only patronage of the product but maintain, if not elevate, its status as well. Habien must protect its innovative product line by choosing its retailers. This situation does not put MegaStore at a disadvantage since the terms and conditions are the standard requirements imposed among all Habien’s retailers to protect its proprietary rights. The standards are equally applied to all retailers which do not distinguish one retailer from another. As brand creator, it has foremost obligation among its clientele to maintain not only its reputation and goodwill but ensure the quality of the product and service as well which is to provide distinctive, trendy and fashionable clothing every season. The requirements imposed by Habien do not violate any law and neither is it against public policy or morals. Habien’s business and its fashionable clothing line are considered intellectual and skilful proprietary handiworks which must be protected to maintain its esteemed place in the fashion industry. Its marketing strategy and skilful designs distinguish it from the rest of the businesses in the same industry. Undoubtedly, its perfected business processes are likewise considered assets in its trade which must be protected as well. Thus, Habien cannot be forced to enter into a contract which would be detrimental to its business, trade or property and freedom to enter into a contract or agreement must not likewise be curtailed or interfered with if the terms and conditions imposed legitimately and reasonably protect the interests of the parties. Parties to a contract are free to establish and accept the terms and conditions but if one of the parties chose not to accept the terms and conditions, such party cannot sue or bring an action in court since no contractual relations were establish in the first place. With the imposition of certain requirements such as fashionable store location, limited stocks, no selling through the internet and no discount policy except on season turn-over, still the Competition Law of 1998 cannot be invoked to compel Habien to supply MegaStore with its clothing line. The anti-competitive behaviour of business entities is sanctioned pursuant to the Competition Act 1998 and the Treaty of Functioning European Council. Under the Competition Law of 1998 in relation to the Treaty of Functioning European Council, prohibit certain acts which may affect trade within the United Kingdom and/or its Member States as to prevent, restrict or distort competition by directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts. However, Habien cannot be held liable under the Competition laws of the United Kingdom or the European Member States—firstly, by imposing certain conditions it is not motivated to prevent, restrict or distort competition. MegaStore is not its competitor, they may have offered similar services but their target markets are different hence no there is no competition between. Habien attained success in the fashion business not because it has prevented or restricted competition but because it has implemented innovative business and marketing strategies as well as produced a distinctive and trendy product lines with a short turn-over of three months in its season’s selection that encourage client patronage. In so doing, Habien was able to perfect its marketing strategy by making its product line relevant and timely as the seasons’ changed. The conditions imposed by Habien do not restrict or prevent competition but incorporated as part of its business processes to enhance its product’s marketability and brand only. It cannot likewise be said that Habien has created a monopoly by imposing certain conditions and in so doing captured at least 15% of the female market in the UK. Good marketing strategy is a legitimate business tool to enhance profit and to protect the proprietary interest of a company such as Habien, thus it cannot be penalized or sanctioned for implementing measures which enhance its business image. Secondly, Habien by prohibiting the sale of the product line in the internet, requiring minimum sales every quarter and imposing “no discount policy” except on the leg of the season do not constitute unfair trading conditions or unfair selling prices. One of the featured services of Habien is its personalized pre and post sales services and by selling in the internet, such service is diminished and other problems such as unsatisfied clienteles and/or consequential losses through the return of alleged faulty products may arise from internet selling. The minimum sales requirement is another business strategy implemented to ensure that the quarterly sales level is maintained, if not surpassed. These policies are methodologies chosen by Habien to maximize its sales and in no way to circumvent the competition law. The no discount policy of Habien is supported by Andy Preston, a leading Sales expert and selling for small businesses, in an article entitled “Why price cuts don’t work?” and stating in no uncertain terms “that price cutting can have disastrous long term effects on both the general public’s perception of the brand and on company profits”. He further stated that price cutting affects companies of all sizes but more especially brands and those with a defined image and recommended that companies must think of ways of engaging and interacting with its customers through other types of sales promotions or mechanics instead. In the same article he warned that price cutting is merely a palliative remedy and businesses can gain more customers by offering something different through the use of clever promotional technique. Hence, the use of Habien of tools or strategies to enhance its business is acceptable and customary in the industry and not an anti-competition measure. Presently, the trend in various jurisdictions as enunciated in a decision of the United States Supreme Court in the case entitled Leegin Creative Leather Products, Inc. v PSKS, Inc., recognized the validity of manufacturer’s vertical minimum price agreements with its retailers as this encourages inter-brand competition which gives rise to a healthy market competition. In contrast, a horizontal price-fixing agreement between retailers known as intra-brand competition is discouraged as this violates the anti-competition principle. Also, in the decision the U.S. Supreme Court ruled that application of the Sherman Antitrust Act (1890) should be treated as a common-law statute which must be allowed to evolve in the courts as economic knowledge and circumstances change. Thirdly, when Habien limited its production, it is not aimed to create a shortage in supply to increase the price or to prejudice consumers but merely to ensure that the products produced would be sufficient to supply the demands of its clientele and considering its short season cycle it is more prudent to produce limited stocks. This is a marketing strategy which is employed to make the clothing line available to its targeted clientele or market only and thus maintain its distinctive and trendy product line. Fourthly, the conditions required by Habien among all its retailers are not dissimilar conditions thus all its retailers are selling under the same atmosphere and trading practices. There is no discriminatory clause against other retailers or MegaStore and neither is one retailer given more concessions than other retailers. All the retailers of Habien is marketing the products under the same conditions hence there is no distortion that can be alleged or charged against it. Lastly, Habien did not impose supplementary obligations which are not germane to the original contract. The undertaking between Habien and MegaStore had conditions been accepted is limited to the supply of fashionable clothing products and no other accessory contracts are appended thereat. The manner with which Habien’s product line are marketed must nonetheless be included as part of the conditions as these are business tools to enhance its sales output. The governing body known as Office of Fair Trading (OFT), created under the Enterprise Law that regulates the business relations of entities and investigates any violation of the Competition Law, however has no jurisdiction over Habien since it did not commit any impropriety which would warrant investigation by this Body. The Competition and Enterprise Laws cannot be invoked against Habien since the primordial considerations of these laws are to restore any imbalance created by restricting competition or creating monopoly, to protect the competitive processes and provide remedies and penalties in cases of violation which would ultimately redound to the benefit of the consumers. However, the creations of Habien are conceptualized to target specific market and its marketing strategies were designed to promote its goodwill and its continued relevance in the market by constantly improving its product line and creating original and trendy clothing every season. References Gibson v Manchester City Council. 1 WLR. 294. House of Lords. 1979. 22 Nov. 2010 http://netk.net.au/Contract/Gibson.asp. United Kingdom. Competition Law of 1998. 22 Nov. 2010 http://www.statutelaw.gov.uk/content.aspx?activeTextDocId=1455848. Treaty of Functioning European Council. Official Journal of the European Union. EC 83/47. 30 Mar. 2010. 22 Nov. 2010 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:EN:PDF. Preston, Andy. “Why price cuts don’t work?” 22 Nov. 2010 http://www.bytestart.co.uk/content/24/24_6/price-cuts-crunch.shtml. United Kingdom. Enterprise Law of 2002. 22 Nov. 2010 http://www.legislation.gov.uk/ukpga/2002/40/contents. Leegin Creative Leather Products, Inc. v PSKS, Inc. 551 U.S. 877 .2007. 24 Nov. 2010 http://www.oyez.org/cases/2000-2009/2006/2006_06_480. United States of America. Sherman Antitrust Act (1890). 22 Nov. 2010 http://www.stolaf.edu/people/becker/antitrust/statutes/sherman.html. Read More