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• Litigation

New Rule on Resale Price Maintenance

Leegin Creative Leather Products v. PSKS, Inc.
On June 28, 2007 by a 5 to 4 vote the United States Supreme Court ended the 96-year old per se ban on minimum resale price maintenance (“RPM”). Now, RPM will be judged under the rule of reason, at least in federal antitrust cases and in those states whose antitrust laws follow federal precedent. Nothing in the decision affects horizontal price agreements, which remain per se illegal. (Horizontal agreements may be among manufacturers or among retailers. A manufacturer must still avoid becoming a party to a horizontal price agreement among its retailers.)

In the past, if a dealer could prove that it had an agreement with a manufacturer to set minimum retail prices, the dealer had established an antitrust violation. Particularly if the manufacturer had terminated the dealer for violating this agreement by selling below the agreed price, the dealer could often prove substantial damages. Now, the same dealer would have to prove not only the existence of an agreement with the manufacturer on retail prices but also that the effect of that agreement was to harm competition. At least where the manufacturer’s products are in competition with those of other manufacturers, proving an adverse effect on competition will not be easy.

Nevertheless, manufacturers should be circumspect about entering RPM agreements with their dealers. (The same principles apply with respect to manufacturers’ agreements with wholesalers, wholesalers’ agreements with retailers, and manufacturers’ agreements with retailers.) Despite the difficulties faced, some dealer plaintiffs will attack RPM agreements under the rule of reason. The Supreme Court has suggested that the outcome of such cases may turn on whether many competing manufacturers employ RPM, whether the source of an RPM agreement was a manufacturer or retailers, and what market power a dominant manufacturer or retailer possesses. Consumer class actions are possible too.

Also, many states may not follow the change in federal antitrust law. That is, they may continue to hold under their state antitrust laws that RPM is per se illegal. (Thirty-seven state attorneys general filed a brief with the Supreme Court unsuccessfully opposing the above-described change in federal law.) A dealer in a state retaining the old rule may well render a manufacturer who enters resale price agreements vulnerable to damages under that state’s law, despite the federal change.

Over the years Congress has at times dealt with RPM. While a legislative return to the old rule is possible, it certainly is not going to happen under the current administration, which argued successfully for the new rule in the Supreme Court, and may not be high on the agenda of whoever controls Congress and the White House in 2009.

The foregoing general discussion should not be treated as legal advice, which should only be based on a detailed understanding of a client’s needs and circumstances.