On June 28, 2007, in Leegin Creative Leather Products v. PSKS, Inc., the U.S. Supreme Court, in a 5 to 4 decision, rejected the long-standing precedent that vertical agreements on minimum resale prices are per se illegal, overruling its own 1911 decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., and holding that the reasons underlying the Dr. Miles case did not justify application of a per se rule to minimum resale price agreements. Under the per se rule, minimum resale price agreements were automatically held to be illegal, without regard to any pro- or anti-competitive effects. Resale price maintenance, also know as vertical price-fixing, refers to agreements between manufacturers and retailers or other distributors establishing the resale price of products or services. The Court’s ruling in Leegin aligns federal antitrust law on minimum resale price agreements with that of vertical agreements setting maximum resale prices and non-price conditions of sale. Under Leegin, courts will now analyze minimum resale price agreements under the rule of reason, which permits such agreements unless their anticompetitive effects outweigh the pro-competitive benefits. Among the justifications for minimum resale price agreements, the Court identified the following benefits: – “Giving consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between;” – “Allowing manufacturers to protect high-service retailers from discounting ‘free riders'” who then “capture some of the increased demand those services generate;” and – Providing “new firms and brands” with a way to ensure the margins necessary “to make the kind of investment of capital and labor that is often required of products unknown to the consumer.” The Court cautioned that in assessing these agreements under the rule of reason courts should consider: (1) “the number of manufacturers that make use of [resale price agreements] in a given industry;” (2) the source of the minimum resale price restraint; and whether “the dominant manufacturer or retailer can abuse resale price maintenance for anticompetitive purposes.” Leegin does not render all minimum resale price agreements legal. It also does not necessarily require the abolition of per se prohibitions against minimum resale price agreements in the laws of several states. It will, however, allow manufacturers greater flexibility to develop pricing policies that can survive antitrust scrutiny. Ira Rosenblatt is a business and corporate lawyer and a co-founder and Director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in Martindale-Hubbell’s National Bar Register of Pre-eminent Lawyers. He can be reached at [email protected].
