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Per se illegality of resale price maintenance – alive and kicking
May 27, 2010
Antitrust Law Alert
Author(s): John R. Foote

June 28, 2010, will be the third anniversary of Leegin Creative Leather Prods. Inc. v. PSKS Inc., 551 U.S. 877 (2007), the Supreme Court’s controversial decision in which it reversed earlier case law holding resale price maintenance (or RPM) agreements to be per se violations of the antitrust laws, thereby leaving such agreements subject to rule of reason analysis. Despite nearly three years under Leegin, at least in federal courts, per se treatment of RPM is still alive and kicking—not only in Congress but also in some of the states with the most significant economies in our country.

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As recently as May 13, 2010, Senator Herb Kohl (D-Wis.) announced his plan to offer Senate Bill 148,[1]  which seeks to codify per se illegality of RPM agreements, as an amendment to Senate Bill 3217, the “Restoring American Financial Stability Act,” which is being marked up by senators in an attempt at a final vote within the next week. Kohl cites media reports that more than 5,000 companies have put minimum pricing policies in place since Leegin, affecting the prices of consumer products from electronics and video games to toys, rental cars, and bathtubs. Legislation to overturn Leegin has the support of at least 35 state attorneys general.   Even Christine Varney, Assistant Attorney General,[2] Antitrust Division of the U.S. Department of Justice, has proposed analyzing RPM agreements by applying a version of “Quick Look” scrutiny rather than full-blown rule of reason analysis.[3]

While efforts to overturn Leegin and reinstate per se treatment of RPM agreements on a national level have not yet been (and may never be) successful, per se treatment of RPM agreements is alive and well in several states. In April 2009, Maryland enacted legislation declaring RPM agreements to be per se illegal under its state antitrust law. Maryland Commercial Law Code 11-204(b) amended the Maryland equivalent of Section 1 of the Sherman Act by declaring that any contract, combination, or conspiracy that sets minimum prices is an unreasonable restraint of trade. The Deputy Chief of the Antitrust Division of the Maryland Attorney General has confirmed that section 11-204(b) was
intended to overturn Leegin and preserve the per se rule for RPM agreements.[4]  In addition, according to one article analyzing state antitrust laws with respect to RPM, there is existing legislation that could be interpreted as rendering RPM agreements per se illegal in at least the following thirteen states—California, Connecticut, Kansas, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, Ohio, South Carolina, Tennessee, and Virginia.[5]  

Antitrust enforcers in both New York and California have publicly taken the position that RPM agreements remain subject to the per se rule under their states’ antitrust laws. More importantly, they are backing up those pronouncements with actions that seek to enforce the per se illegality of RPM agreements.

In February of this year, the California Attorney General filed suit in California state court, alleging that DermaQuest, which makes beauty-care products, committed a per se violation of California’s antitrust statute by entering into agreements with sellers of its cosmetic products prohibiting them from reselling below DermaQuest’s suggested retail price. California v. DermaQuest Inc., No. RG10497526 (Superior Court for the County of Alameda, filed February 23, 2010). Within less than 30 days after the filing of the complaint, DermaQuest entered into a Consent Decree, in which it agreed to disavow the challenged contracts, to not enter into RPM agreements in the future, and to pay $70,000 in civil penalties and $50,000 towards the state’s legal costs. See 98 Antitrust & Trade Reg. Rep. (BNA) 316 (3/12/10).

Shortly after the DermaQuest case settled in California, the New York State Attorney General filed a similar suit against Tempur-Pedic International, a manufacturer of pillows and mattresses, under Section 369-a of the New York General Business Law, alleging that Tempur-Pedic entered into RPM agreements that required resellers of its products to charge prices dictated by Tempur-Pedic. New York v. Tempur-Pedic International, Inc., No. 0400837 (N.Y. Sup. Ct., N.Y.C., filed March 29, 2010). See 98 Antitrust & Trade Reg. Rep. (BNA) 464 (4/16/10).[6

Given that two of the most important states in terms of economic activity clearly continue to treat RPM agreements as per se price-fixing, and many of the other states that have supported national legislation to overturn Leegin may follow suit, the impact of Leegin on RPM agreements is questionable. Certainly, it is imprudent to conclude in reliance on Leegin that RPM agreements will be judged solely under the rule of reason, particularly for any manufacturer with distribution in California, New York, or Maryland. The more prudent conclusion for any company with national distribution would be that RPM agreements are at risk of being challenged as per se violations by one or more states and should probably be avoided in favor of a unilateral resale pricing policy.  Companies with national distribution that are currently parties to RPM agreements with their distributors should seek legal advice regarding those agreements.


 

  1. Senate Bill 148, the “Discount Pricing Consumer Protection Act,” cleared the Senate Committee on March 18, 2010. A companion bill in the House of Representatives, sponsored by Representative Henry Johnson (D-GA), cleared the House Judiciary Committee in January 2010.
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  2. See Alan M. Barr, FTC Hearings on Resale Price Maintenance, “State Challenges to Vertical Price Fixing in the Post-Leegin World” (May 21, 2009), available online at http://www.ftc.gov/opp/workshops/rpm/
    may09/docs/abarr.pdf
    .
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  3. See, e.g., Christine Varney, Assistant Attorney General, DOJ, “Antitrust Federalism: Enhancing Federal/State Cooperation” (Oct. 7, 2009), available online at http://www.justice.gov/atr/public/speeches/
    250635.htm
    .
    [Back to reference]
  4. See Alan M. Barr article cited in note 2 above.
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  5. Richard A. Duncan & Alison K. Guernsey, “Waiting for the Other Shoe to Drop: Will State Courts Follow Leegin,” 27 Franchise L.J. (WTR. 2008) at 174.
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  6. Previously, in 2008, Illinois and Michigan had joined New York in alleging that a furniture manufacturer’s RPM policy was unlawful price-fixing under state antitrust statutes.  New York v. Herman Miller Inc., No.08 CV-02977, 2008-2 Trade Cases (CCH) ¶ 76,454 (S.D.N.Y., filed March 21, 2008). The complaint appears to have alleged that the challenged RPM agreements constituted a per se violation. That action was settled within days for $750,000. See New York v. Herman Miller Inc., No.08 CV-02977 (S.D.N.Y. March 25, 2008) (Stipulated Final Judgment and Consent Decree), available online at
    http://www.oag.state.ny.us/bureaus/antitrust/pdfs/
    Signed_FJ.pdf
    .
    [Back to reference]

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.