ALP: We want to maintain an upscale image for one of our products in relation to our competitors. Can we require distributors and retailers to agree not to resell our product below a specified price?

September, 2007

Q: We want to maintain an upscale image for one of our products in relation to our competitors. Can we require distributors and retailers to agree not to resell our product below a specified price?

A: Until very recently, the answer would have been an emphatic no. The action described is commonly known as resale price maintenance under the federal antitrust laws. Resale price maintenance occurs if a manufacturer or vendor of a product requires its distributor or retailer to agree not to resell the product below a specified price. Starting in 1911, the U.S. Supreme Court has consistently ruled that resale price maintenance automatically violates federal antitrust laws.

On June 28, however, the U.S. Supreme Court issued a ruling that has radically changed the law. In a case called Leegin Creative Leather Products, Inc. v. PSKS, the Supreme Court held that resale price maintenance is no longer automatically illegal under the federal antitrust laws. Instead, the Court rule that legality will now be determined by the relevant circumstances. One of the most important circumstances is whether or not the manufacturer or vendor has market power (i.e., whether the manufacturer or vendor has the ability to control prices in the market) for that product. Practically speaking, under the ruling, many if not most instances of resale price maintenance will be legal under the federal antitrust laws.

Even with the Supreme Court’s recent decision, there are still some risks associated with resale price maintenance. To avoid these risks, it is important to undertake legal analysis of the intended resale maintenance activities against the relevant circumstances to make sure that it would be deemed legal. In addition, legal analysis is important to make sure there will be no violation of state antitrust laws. While state antitrust laws typically follows federal antitrust law, states are generally not obligated to do so and particular states may continue to enforce an automatic prohibition against resale price maintenance.

In summary, the automatic prohibition against resale price maintenance under the federal antitrust laws, a prohibition that had been in effect for almost 100 years, has been changed. Resale price maintenance is now illegal under federal antitrust laws only if the relevant circumstances, including the market power of the manufacturer or vendor, indicate that there is a significant market impact. Under this criteria, many if not most resale price maintenance activities will be legal under federal antitrust laws. However, before engaging in such activities, an analysis of the circumstances should be undertaken to confirm legality under the new criteria and to confirm that state antitrust laws do not prohibit the activity.

Practices

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