Fellow Blog Follower, c’mon down you’re the next contestant on “Is Resale Price Maintenance Still Right?” Two recent state court decisions provide conflicting answers.
Almost five years have passed since the Supreme Court’s decision in Leegin, which overturned decades-old precedent and held that minimum resale price maintenance (RPM) agreements were not illegal per se under the antitrust laws. For those of you who haven’t followed antitrust quite as closely as you do advertising, minimum RPM agreements are between suppliers/sellers and their distributors/resellers that set the minimum prices that resellers must charge in the sale of the covered goods — or an agreement not to charge a customer less than $XX for a good. Leegin did not say these agreements were always a good thing — but did say that courts should look at the reasons behind such agreements and consider whether setting a minimum price might be a good thing if, for example, it encourages resellers to invest in well-trained sales staff in a nice store in a high-end mall. In such a case, a minimum price might be a good thing for competition and not anticompetitive.
Following the Supreme Court’s decision, several states have parted ways with the Court’s approach. Maryland has enacted a Leegin repealer. The California Attorney General has taken the position that minimum RPM agreements remain per se illegal under the Cartwright Act (the California state antitrust statute), and the California AG has brought several actions resulting in consent decrees challenging such agreements. The AGs of New York, Illinois and Michigan sued and quickly settled with Herman Miller (the makes of Aeron chairs like the one I’m sitting in right now) for RPM agreements alleged to be per se illegal under those states’ antitrust laws (and federal law).
In 2010 the NY AG sued Tempur-Pedic for alleged per se illegal RPM agreements, but not under the Donnelly Act (the NY state antitrust statute). Rather, the AG challenged the agreements under Section 369-a of the NY General Business Law and Section 63(12) of NY’s Executive Law. Section 369-a provides that:
“Any contract provision that purports to restrain a vendee of a commodity from reselling such commodity at less than the price stipulated by the vendor or producer shall not be enforceable at law.”
Section 63(12) authorizes the AG to challenge repeated illegal acts.
The trial court viewed matters differently than the AG, finding that Section 369-a made RPM agreements unenforceable but not illegal. On May 8, NY’s intermediate appellate court affirmed that decision. The appellate court also found that Tempur-Pedic’s advertising policy, which it required retailers to sign, pertained only to advertising and was not an RPM agreement.
A recent decision by the Supreme Court of Kansas further muddies the waters. A putative class of retail consumers sued Leegin (of Supreme Court fame) in state court under Kansas state law for RPM. Relying mainly on federal antitrust law, the trial court granted the defendant’s motion for summary judgment. The Kansas Supreme Court reversed, finding that RPM agreements are illegal per se under Kansas law. The court noted that the Kansas statute pre-dated the Sherman Act, and that the remedies provided by the Sherman Act supplemented but did not replace Kansas law. The court’s opinion read broadly also seems to find that both minimum and maximum RPM agreements (requiring a seller to charge no more than $XX for a good) are per se illegal.
So, if you’re a manufacturer with an RPM policy taking comfort in Leegin and the more open-minded federal approach to vertical price fixing, you may not want to be in Kansas (or Maryland, or New York, or California . . .) anymore. And for national resellers who do not want state-by-state distribution agreements but who want to have some say over how resellers price your products, it may be time to consider fashioning an old school Colgate approach and having a stated unilateral policy regarding resale rules rather than an agreement.