Pricing Puzzle

It didn't take long for Congress to politicize the Supreme Court's landmark June 2007 antitrust decision in Leegin Creative Leather Prods. Inc. v. PSKS. Outraged at the court's reversal of the century-old rule that minimum resale price maintenance (RPM) was per se illegal, consumer advocates in the Senate prompted a Judiciary subcommittee hearing on the subject on July 31, barely one month after Leegin came down. Minimum RPM plans are agreements between entities at different levels of the distribution chain that set the price resellers can charge their downstream customers.

"It remains to be seen whether the arguments that prevailed in the Supreme Court will pass muster with Congress," says Michael Lockerby, a partner at Foley & Lardner.

In other words, it's not as if Leegin gave manufacturers carte blanche to prohibit discounting. "It's not yet clear exactly what Leegin means because cases interpreting it have not worked their way through the system," says Wayne Mack, a partner at Duane Morris. And there are other uncertainties. Thirty-eight state attorneys general intervened in Leegin, urging the court to retain the per se approach.

"The overwhelming majority of states, including California and New York, have statutes that prohibit RPM agreements," Mack says. Some state statutes are quite broadly worded, prohibiting agreements to "maintain" or "regulate" prices. Hawaii, for example, prohibits "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce," but also expressly declares it illegal to "fix, control or maintain, the price of any commodity."

Finally, the Supreme Court's 1919 decision in United States v. Colgate allows manufacturers to unilaterally announce an RPM policy and then refuse to do business with resellers who fail to comply.

"According to Colgate, an antitrust violation occurs only when there has been an agreement between supplier and purchaser or a conscious commitment to a common scheme for an illegal purpose," says Stephen Bolerjack, of counsel at Dykema Gossett.


Julius Melnitzer

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