Between 1911 and 2007 there was a clear federal rule stating that minimum resale price maintenance agreements (i.e. agreements between manufacturers and resellers not to discount a product below an established price floor) were per se illegal. As a result of this per se federal rule against minimum resale price maintenance, many manufacturers instead adopted suggested resale pricing policies pursuant to which the manufacturers would announce suggested prices and indicate that they would not deal with resellers that ignored the suggested prices. Suggested resale pricing policies did not violate the per se rule against minimum resale price maintenance because the policies were found to be merely “suggestions” and not actual “agreements”.
However, in 2007 the United States Supreme Court held in Leegin Creative Leather Prods., Inc. v. PSKS, Inc. that minimum resale price maintenance agreements were no longer per se illegal, but would instead be assessed under the “rule of reason” analysis. The “rule of reason” assesses whether or not the pro-competitive benefits of a minimum resale price maintenance agreement (i.e. stimulating competition, providing consumers with more options, etc.) outweigh any anti-competitive harm associated therewith (cartel organization, price fixing, etc.).
The Leegin decision prompted legislative action at the federal level during 2009, as bills were introduced in the United States Senate and the United States House of Representatives (each titled “The Discount Consumer Protection Act”) to declare minimum resale price maintenance agreements as per se illegal. During 2010, each bill was reported out of committee and placed on the Senate Legislative Calendar and the Union Calendar, respectively. Attorneys General representing thirty-eight (38) states also signed a letter to the Judiciary Committees for the Senate and the House of Representatives indicating their support for The Discount Consumer Protection Act.
So long as the Leegin decision remains valid law, manufacturers that currently have or are interested in enacting minimum resale price maintenance agreements need to keep the following points in mind.
- “Rule of Reason” Still Applies. The Leegin decision did not legalize minimum resale price maintenance agreements. Such agreements remain subject to the “rule of reason” analysis. As a result, parties must carefully evaluate the need and pro-competitive justifications for a minimum resale price maintenance agreement, and must further craft any such agreement with the “rule of reason” analysis in mind. A minimum resale price maintenance agreement that is challenged in a legal proceeding will likely be a costly matter to defend, and the penalties associated with such agreements that do not satisfy the “rule of reason” analysis are severe.
- Potential Challenges Under State Laws. Even though minimum resale price maintenance agreements are no longer per se illegal under federal antitrust law, such agreements arguably remain per se illegal under the laws of several states (including heavily populated states such as New York, California and Texas). The Attorneys General in both California and New York filed enforcement actions during 2010 under state antitrust laws to challenge minimum resale price maintenance agreements. Other states, including Maryland, have passed laws following the Leegin decision to declare minimum resale price maintenance agreements per se illegal. As such, parties that conduct business (perhaps even business via the internet) in states that prohibit minimum resale price maintenance agreements are subject to risk that such agreements will be challenged under state law. As noted above, the cost of defending a minimum resale price maintenance agreement against such a challenge, whether at the federal or state level, is an expensive proposition.
- Suggested Resale Pricing Policies as a Continuing Alternative. Despite all of the uncertainty arising in connection with the Leegin decision, the risks associated with suggested resale pricing policies have certainly lessened. Prior to Leegin, a suggested resale pricing policy would have been per se illegal if the policy was found to constitute an “agreement” (as opposed to being a unilateral policy). After the Leegin decision, a suggested resale pricing policy that is found to constitute an “agreement” would, at least under federal law, still withstand an enforcement challenge if the policy can satisfy the “rule of reason” analysis.
McGrath North will continue to monitor the pending federal legislation and corresponding state legislation and enforcement actions relating to minimum resale price maintenance agreements.