Tiptoe through the Tilli (and the antitrust ramifications)

The one great thing (to lawyers) regarding the burgeoning craft and hobby industry is…

The more players you have in the field, the more likely it is that the players will start to step on other people’s toes.

You can see this, in fact, in the trademarks field: bitchin’ about certain marks notwithstanding, you can only guess at the number of businesses that have started up with a name containing a variant of “ewe” or “knit” or “yarn” in a punny way. Even off-spellings: right now, there’s an opposition proceeding before the USPTO concerning KNIT STIX — the company with these applied for a trademark registration, and now the application is being opposed by a company I’ve never heard of that says it started using “Knit Stix” itself not long before the application was filed for its own rosewood knitting needles. And there may be a so-called “Stitch & Bitch Cafe”, but there’s also a “Knit Cafe” (registered US trademark, too) and a “Stitch Cafe” out there, too. Oh, and Artfibers is seeking to register YARNTASTING, a term I’ve seen used by other shops as well (I couldn’t place them in order of time definitively, but personally my earliest recollection is Artfiber’s).

There’s a rational for defending a trademark: this is how your customers know you, and you don’t want your customers to confuse you with someone else; not only may that someone else be a competitor, but it might be a competitor with bad products or service. And you certainly don’t want to be associated with that. Whether your trademark rights are deserved, or whether there is confusion, of course, is another question.

But there’s more than just who-called-what-first disputes in the business. Some yarn distributors or manufacturers don’t want to sell with retailers that routinely discount yarns: they don’t want their yarns being sold at a cut price. I don’t know if they still do it, but I recall that distributors would double-check to see if new shops were actually bona fide bricks-and-mortar or only had an online presence. And have you ever noticed only 10% variance on prices of certain brands of yarn? Is that the practical effect of competition among retailers, or some other reason?

You can probably figure out the answer yourself. Here’s one example: one shopowner blogged that she was told by Tilli Tomas to start using “keystone” pricing for their luxury yarns because competing retailers complained about her discount pricing. This shopowner announced then a sale, and then the next week, she was advised by the company that they would no longer provide yarn to that shop.

This isn’t an unusual practice. Some distributors don’t want their products offered with eBay, because it is perceived to lend the product a… shall we say, downmarket cachet; I remember hearing once that Colinette wanted to get their products off eBay, but now I can’t find the reference. Others specifically refuse to continue supplying a retailer that routinely undercuts other retailers of the same yarn line. Of course, this lead to a whiff of something that smells like price fixing (also called price maintenance, or vertical price maintenance) — and in the case of Tilli Tomas, an outright accusation on the net.

An “anonymous” commenter to the shopowner’s blog suggested that the reason for enforcing pricing was to ensure supply through competing retailers — the logic goes that if one discounter undercuts all other retailers, then the other retailers will not be able to stock the yarn and the only source of the yarn will be the discount retailer; this would negatively impact the ability of the distributor to expand the product line. That might make sense, assuming that a single retailer could not reach the entire market; but that likely made more sense back in the day when yarn wasn’t available to order over the Internet.

For Canadians, here’s the web version of a pamplet about price fixing published by the Competition Bureau (this website also has links to the Canadian Competition Act, and a more academic dissertation on various competition issues including price fixing). For those of you in the 11th province (or 4th territory, I’m not picky) a very bare-bones and brief explanation of price fixing. Either my intuitive searching skills fail me, or the Federal Trade Commission’s website isn’t a very good source for this kind of information (surprising).

Found via LJ.

Edited to add: By the way, there’s a feature I really like about Sarah’s Yarns, the shop in question. She tries to show you the drape of swatches knit from the yarns she stocks — for example, take a look at the left-hand column on this page.

And edited again to add: From the US DOJ, there’s an antitrust primer for law enforcement personnel.

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12 Responses to Tiptoe through the Tilli (and the antitrust ramifications)

  1. melissa says:

    Jeeze man, I just wanna knit some pretty stuff for my friends or or myself to wear so I can say, “thanks, I made it” when I recieve a compliment.
    All this controversy about keeping the integrity of luxury yarn really burns me up.
    I guess I thought that the point of a beautiful yarn was to enjoy the feel of it sliding through my fingers as I create a lovely garment (or accessory)!!
    When did knitting become so elitist?!?
    I’ll happily stick to my ‘lion brand yarn’ and enjoy my craft (and its cute, cozy biproducts) in peace without the snobbery!!!
    Long live discount yarn stores!!!

  2. Ana says:

    I think it’s important to get all the information on these yarn companies in one place, so I’ve started a blog so that people can go to one place and see a list of consumer-unfriendly yarn companies.

    http://keystoneyarns.blogspot.com/

    I’m not interested in falsely accusing people, so I’m asking that if people have written evidence of keystone pricing practices, such as sales agreements stipulating certain prices, that they e-mail them to me so I can post them to the blog.

    I’m open to other input on this as well. Thanks!

  3. Susan says:

    The Fiesta yarn’s agreement states that authorised dealers must not sell on eBay or other auction sites, and that yarn is to be priced at keystone prices. (www.fiestayarns.com/xtra/starterkit.pdf)

    Susan

  4. j. says:

    Dividing up distribution territory by market or geographically is a different issue — for example, a company could give exclusive rights for Europe to Distributor A, and exclusive rights for North America to Distributor B, and enter into contracts with each to specify that neither shall sell in the other’s territory (or to customers in the other’s territory). That’s very common, and not in itself illegal… as to whether this is what Colinette is attempting to do, well, both Cucumberpatch and Jannette’s are still offering on eBay.

    There’s logic to carving up by territory: by promising distributors an exclusive market, the distributorship is more attractive and allows the distributor to concentrate on developing the market, leading to what ought to be the most efficient and/or widespread coverage of that market and maximum availability of the product to the consumer, right? The connection between the benefit to the consumer (available product) and the creation of an exclusive territory is a lot clearer to me than however the consumer allegedly benefits by fixing a mandatory minimum retail price. The logic from the “anonymous” comment was that other retailers would drop the product line if undercut… but those other retailers were in the same geographical region, so the threat of lack of availability to the American market doesn’t really have as much force.

    There may be some legal way to maintain a certain minimum price, but the one guaranteed legal way to do is to distribute it yourself…

    Re Babies: all I’ve found, so far, is a case involving Toys ‘R’ Us entering into some kind of vertical restraining deal with suppliers — preventing them from supplying discount club chains, or something like that. Deliberately undercutting a competitor’s price (and taking a loss to do so) in order to hurt the competitor may constitute predatory pricing, which I don’t think was the issue in the TRU case I found.

    On another note, as I was googling about I found a 2005 report on the commencement of an antitrust suit by AMD against Intel. Intel was alleged to have bullied PC vendors to keep them from using AMD chips. I’m only linking to it because I wanted to quote this:

    The complaint is vivid and explicit in its detailed recounting of how Intel allegedly treated its partners. For example, Intel allegedly threatened Dell with “retribution” if the company dealt with AMD; demanded that Hewlett-Packard fire a high-ranking executive for negotiating a deal to use AMD’s Athlon64 in its commercial computer line; and “beat [Gateway] into guacamole in retaliation” for dealing with AMD.

    Mmm… guacamole.

  5. Margaret says:

    What an interesting conversation! Personally, the Collinette thing has driven me up a wall (and driven me to make friends with a VERY friendly knitty.com girl from England who will send me cheap colinette yarn!! Even with airmail shipping? I save more than half on the US colinette price. I expect the yarn police to knock on my door anyday now :)

  6. yahaira says:

    as a newish yarn store owner, I can tell you that they still do check and sooo many companies won’t let me order from them because I’m ‘internet only’ right now. At TNNA I saw many online stores lie about it and say they are ‘regular retailers’ and I was also snubbed by distributors as soon as they saw my ‘internet tag’, skacel comes to mind.

    as for the pricing, well I charge basically what they tell me. If I get the yarn at a good deal (say at a good exchange rate) I try to pass that on to my customers. Since I’ve opened I’ve seen stores start undercutting me, while other stores charge double what I do. I’ve even had yarn dyers try to cut me off from certain distributors because we we’re using the same yarn. Wasn’t there some legal case with Babies’rUs or Baby Depot undercutting all their competition so they would go out of business?

    To make a long story short, knitting is highly political.

  7. Ana says:

    Ironically, they don’t seem to care when retailers mark up their prices. I travel 28 days out of the month for work, so I’ve been able to compare prices on different knitting supplies. I always try to support LYS, but this time I had to put my foot down. The LYS in Overland Park had addi turbos for $3 more than they cost at my LYS in Oregon, putting them at an outrageous $16, not including tax. Only $3 more, you might say… but it really made me mad.

    So, I went home an ordered some of the new circulars off Knitpicks. For $5. I used to feel guilty shopping at knitpicks, but I’m over it.

    There are shops that do a good job of ordering yarn creatively, rather than blindly stocking all the name brands. Yarn Barn in Lawrence gets bulk natural yarns from some supplier (I’m guessing on the internet) and they’re affordable, and absolutely wonderful to work with. The alpaca I bought was the softest thing in the store– and probably the cheapest per yard, because it didn’t come with all the marketing BS.

    Ok, done with my rant.

  8. Becky says:

    That really gets complex. It’s very interesting and gives me a new perspective of pricing, too.

  9. Liz in Chicago says:

    What I’ve heard is that Colinette doesn’t want British shops to offer yarn SPECIFICALLY TO AMERICANS since it undercuts the price that U.S. distributors have to charge, or words to that effect. I heard it from Jannette’s Rare Yarns on eBay. Her comment was along the lines of, “Well, I’m not sure what I think about that.” And that was the last I heard of it.

    As for Sarah/Tilli…Sarah respects her customers. Tilli apparently does not. It’s an easy choice for me.

  10. Elaine says:

    Ashford (spinning wheels, fiber and yarn and weaving equipment) has done this all along. Actually, I’m not positive if it’s Ashford or it’s one and only US distributor. No retailer is permitted to sell below SRP according to the wholesale agreement. This is the reason why some stores make their sales more attractive by offering ‘freebies’ instead of discounting price. BTW, it is also prohibited for a retailer to advertise used Ashford products.

  11. Janice in GA says:

    Fascinating. I’d missed all this brouhaha before your post here. I gather that there are other yarn companies that are basically doing the same thing? And kudos to JaggerSpun for being rational about resellers.

  12. JoVE says:

    Hmmm. I suspect there is at least some intelligent discussion of it in all the ranting about the price of gas. thanks again for informing us all of interesting facts that we are just not geeky enough (in the right ways) to go looking up ourselves.