If you recently bought baby products from Babies"R"Us and were dismayed by the high prices of such products, you are not alone. On July 15, 2009, a federal judge in Pennsylvania granted class action status to a lawsuit filed against a division of popular toy and baby goods store Toys"R"Us Inc. The lawsuit alleges that the store conspired with merchants to fix prices on many items sold at their Babies"R"Us chain.
The lawsuit charges that Babies"R"Us worked with various manufacturers to keep competitors, especially those that sell items online at discounts, from offering reduced prices to customers. They allege that doing this forced shoppers to pay more while preserving business at the chain and reducing competition.
What Is a Class Action Lawsuit?
A class action lawsuit is a form of a lawsuit where a large group of people collectively bring a claim to court. A few people, or "plaintiffs," act as representatives of the larger group, or class.
To bring such a claim, a suit is filed with one or several named representatives on behalf of the proposed class. The proposed class must consist of a group of individuals that have suffered a common injury or injures. After the complaint is filed, the lawyers file a motion to have the class "certified." The judge will then determine if the proposed class meets the standards for class certification.
If so, such as in the Toys"R"Us suit, the few named plaintiffs will go to trial as a representative class and participate in all law and plaintiff-related activities. The other members of the class, who weren't named in the suit, won't have to participate in the trial, but will get a part of the award.
In the Toys"R"Us case, the judge's decision allows 10 individuals to represent thousands of other consumers across the country who bought products from Babies"R"Us chains. They will go to trial to prove that items sold by Babies"R"Us between 2001-2006 were controlled by minimum-pricing agreements. These goods include strollers, high chairs, car seats and breast bumps.
What Are Price-Fixing and Minimum-Pricing Agreements?
Price-fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it's an agreement intended to push the price of a product as high as possible, leading to profits for all the sellers.
In this case, the sellers are accused of minimum-price fixing, meaning that they set a common minimum price to sell their product. That means that competition is reduced and consumers end up overpaying.
According to the suit, from 2001 to 2006, Babies"R"Us told companies like Medela that they had to enforce resale-price maintenance, which means that they had to tell their Web retailers, who can more easily discount products since they avoid certain costs, to sell the products at a set price, otherwise their supply will be cut. If they resisted, Babies"R"Us threatened to cut off the manufacturers, according to the suit, and refuse to sell their products in Babies"R"Us stores. Since Babies"R"Us sold 30% to 50% of these companies' products, Medela, which is based in Switzerland, and other brands like BabyBjörn, the Swedish strapmaker, and Maclaren, the UK strollermaker, had no real choice but to go along.
Is Price-Fixing Illegal?
Not always. A 2007 US Supreme Court case decided that minimum-pricing agreements between manufacturers and retailers are not inherently illegal. The Court said the pacts could be lawful if consumers received a benefit, such as better services, which outweighed the harm of paying higher prices.
After that decision, similar price-fixing lawsuits have been thrown out of courtrooms. However, U.S. District Court Judge Anita Brody said that while agreements "setting minimum resale prices can have pro-competitive justifications," the Supreme Court "stated that lower courts must be diligent in eliminating their anticompetitive uses from the market."1 Judge Brody also pointed out that in its decision the Supreme Court warned that minimum pricing agreements enforced by a "dominant retailer" could also be anticompetitive.
In this case, the Babies"R"Us unit of Toys"R"Us can be considered a dominant retailer. Babies"R"Us accounted for between 10% to 50% of the manufacturers' US sales and prices on more than $500 million in baby products sold by Babies"R"Us between 2001 and 2006 were controlled by minimum pricing agreements.
Greg Gundlach, a marketing professor at the University of North Florida, who isn't involved with the case, estimates that consumers paid $85 million to $100 million more for the goods in question than they would have without pricing agreements. Mr. Gundlach said he based his estimate on a study that found consumers historically have paid between 19% to 27% more when vertical pricing agreements are implemented.
Who Is Involved in the Class Action?
The case will include Babies"R"Us shoppers who purchased:
- BabyBjorn baby carriers between Feb 2, 2000, and April 30, 2005
- Britax car seats from Jan. 1, 1999, until Jan. 19, 2006
- Maclaren strollers from Oct. 1, 1999, until Jan. 19, 2006
- Medela breast pumps from July 1, 1999, until Jan. 19, 2006
- Peg Perego strollers from July 1, 1999, until Jan. 19, 2006
"I want to let Babies"R"Us and other retailers know that consumers aren't going to put up with unfair trade restraints,"2 says a named plaintiff. As the case proceeds to trial, new case law may be set in price-fixing. In the meantime, if you are looking for sales on baby products, you may want to shop elsewhere.
What Does This Means for You, As a Consumer?
As a consumer, you want to feel comfortable with the goods that you buy. Especially when it comes to baby products, you prefer to buy from a reputable source. However, when you spend months looking for bargains, it is frustrating to see that the price is the same everywhere, even online. The fact that Babies"R"Us was able to manipulate the baby market in such a way is frustrating for consumers. This lawsuit will compensate those who have been injured by overpaying for the products, but even more importantly, will set the example for companies to not enter into such price-fixing agreements.
Also, if you are now worried that you won't be able to buy quality baby products, you don't need to be concerned. In the past, because of Babies"R"Us alleged actions, many smaller retailers and online sources, who typically carry better prices, were unable to compete with the giant. Now, you will be able to buy baby goods from other sources, and better yet, shop around for bargains and lower prices. The FTC Web site has additional information about vertical price agreements.
1McDonough v. Toys "R" Us Inc., Civil Action, No. 06-0242 available at http://www.paed.uscourts.gov/documents/opinions/09d0819p.pdf citing Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705, 2719 (2007).
2Sean Gregory, "Did Babies"R"Us Gouge Mommy and Daddy?", Time.com, July 21, 2009, http://www.time.com/time/business/article/0,8599,1911832,00.html, accessed August 20, 2009.
Questions for Your Attorney
- Can a consumer file a lawsuit against a business or businesses individually or must one join in a class action lawsuit if one is already pending?
- I think I have a possible claim as a consumer against a company that might be suitable for a class action lawsuit; can you review my claim?
- Are the representative plaintiffs in a class action lawsuit treated any differently than members of the class they represent? If the lawsuit results in a judgment for the plaintiffs, are the representatives' damages the same as everyone else's?