Q: A few weeks ago, Prestige Cruise Holdings, parent of Regent Seven Seas Cruises and Oceania Cruises, announced a new anti-commission-rebating policy, effective May 1, punishable by reducing commissions or marketing funds, canceling or denying group contracts or prohibiting the agency from further sales of Regent and Oceania. We have no plans to start rebating any portion of our commissions to clients, especially since some of the cruise lines are effectively cutting commissions by excluding portions of the sale from the amount on which the 10% is calculated. However, what business does the cruise line have telling us what to do with our commission? Is this policy legal?
A: The policy is legal, and I believe that line supplier intends to enforce it, at least as far as advertised offers by agencies. However, as stated in the trade press, the policy does not appear to apply to discounts or rebates that you do not advertise or promote.
Under the law, the cruise line is the principal, and you are the agent, in a principal-agent relationship. It is legal for a principal to set all the terms of sale by its agents, including the prices at which the agent may sell the principal's products.
Since the principal has the right to prohibit discounting by the agent, and since rebating is just indirect discounting, it follows that the principal may prohibit rebating by the agent. The principal may prohibit advertisements of discounts below the principal's own website rates while tacitly allowing unadvertised rebates, as Prestige appears to have done.
My legal analysis depends on whether you are acting as sales agent for the cruise line and not as a principal in your own right. When you sell a cabin to a couple, family or small group, there is no doubt that you are acting as the line's agent.
On the other hand, if you charter a ship, or if you buy a group of cabins under your agency's name for resale to a group or the public, you are not acting as the line's agent. Therefore, any attempt by the cruise line to control your selling prices is a form of attempted price-fixing called "resale price maintenance."
Until 2007, resale price maintenance was always illegal under the Sherman Antitrust law. However, in that year the Supreme Court overturned 96 years of prior decisions and held that resale price maintenance is not always illegal because resale price maintenance can lead retailers to compete efficiently for customer sales in ways other than cutting the retail price.
Since 2007, the law has been in a state of flux, but generally speaking, a supplier or manufacturer can now dictate the prices at which retailers can sell products, as long as the supplier does not possess monopoly power, there is no collusion among suppliers and there are at least arguably some benefits for consumers. Prestige and its new policy probably meet those requirements.
Therefore, in the case of cruises, it is probably correct to say that a small competitor such as Prestige Cruise Holdings can prohibit discounting even if your agency does not act as the line's agent. So the new policy could legally apply to your agency regardless of whether you are selling as agent, chartering or buying cabins for resale.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].