Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

The Senate is Considering Minimum Resale Pricing for Contact Lenses

NPR has the story.  Under federal law, of course, RPM is subject to the Rule of Reason.  Apparently the Senate is interested because a large portion of the contact lens market is subject to the restrictions.

It is unclear to me whether the manufacturers have truly nationwide policies or whether they have excepted those states that still treat — or may treat — minimum RPM as per se unlawful.

Update: After hearing a bit more about this, it sounds like these are Colgate unilateral pricing policies (no agreement; if retailers don’t abide, they don’t receive more product).  But I’m not entirely sure.

Resale Price Maintenance: Toto, We’re In Kansas Again

No, Not That Kind of RPM

To bookend my recent discussion of the New York appellate division’s decision in Tempur-Pedic, I’ll mention here the Kansas Supreme Court’s decision in O’Brien v. Leegin Creative Leather Products, Inc., No. 101,000 (May 4, 2012).  There, the court held that vertical RPM is subject to challenge under Kansas state law, and that the Rule of Reason does not apply.  The relevant Kansas statutes forbid all vertical price-fixing by two or more persons or between persons.

Thus, despite the U.S. Supreme Court’s decision in Leegin Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that RPM is subject to the Rule of Reason under federal law, per se challenges remain viable under some states’ laws.  Manufacturers and suppliers should take note.

Antitrust Issues In Retail Networks Can Be Difficult to Find

According to presenters at a Global Competition Review panel today, antitrust problems in retail networks can be difficult to find.  For the report on the panel, click here (sorry, it may be behind a paywall).

The article reports that according to the panel, antitrust cases in the retail sector are becoming more and more complex, frequently including hub-and-spoke conspiracies and most favored customer cases as well as resale price maintenance (RPM).  The panel included European regulators from Germany’s Federal Cartel Office, France’s Competition Authority, and Belgium’s Competition Council.

At least some panelists advocated for a more interventionist approach when dealing with decreased competition and vertical cartels in the European retail market.

I’m not sure about that conclusion, but I do agree that there are competition and distribution law issues lurking in many retail networks.  See, e.g., the Tempur-Pedic case I reported on earlier today.

Is Resale Price Maintenance Illegal Under New York Law?

In People v. Tempur-Pedic International, Inc. (May 8, 2012), the appellate division of the New York Supreme Court affirmed a trial court’s decision dismissing the New York Attorney General’s complaint and finding  that Tempur-Pedic had not violated New York General Business Law Section 369-a by entering into Resale Price Maintenance (RPM) agreements with its retailers.

The appellate court agreed with the trial court that Section 369-a does not make RPM illegal as a matter of law — it only provides that RPM agreements will not be enforceable or actionable at law.  In other words, manufacturers cannot enforce RPM agreements under New York law, but they do not violate the law by entering into such agreements.

The appellate court also found that the Attorney General did not actually establish any RPM agreements, but merely that Tempur-Pedic had enacted its minimum price policy and that retailers independently decided to acquiesce to the pricing scheme in order to continue carrying Tempur-Pedic products.  An agreement as to advertising (apparently a sort of coop advertising program) could not be the subject of a vertical RPM claim, the court ruled, because such an agreement does not restrain resale prices, but merely restricts advertising.

This decision largely keeps New York law consistent with federal law and many other states’ laws — although New York is somewhat unique in not allowing the parties to RPM agreements to enforce them in court.

Obscure New York Law Does Not Render Resale Price Maintenance Illegal

This is from a few months back, but I haven’t mentioned it yet on this blog.

Resale Price Maintenance (RPM) is no longer per se unlawful under federal law.  Nor is it per se lawful.  Since Leegin, 551 U.S. 877 (2007), some states have been stepping up their own RPM enforcement efforts.  New York, for one, had been advocating that New York law automatically barred RPM agreements.

In making this argument, The New York Attorney General did not rely upon the Donnelly Act, New York’s version of the Sherman Act, but rather upon Section 369-a of the N.Y. General Business Law and Section 63(12) of the N.Y. Executive Law.  The AG’s arguments were rejected in New York v. Tempur-Pedic Int’l, No. 0400837 (N.Y. Super. Ct., Jan. 14, 2011).  The court held that Section 369-A makes contracts for resale price maintenance unenforceable and not actionable, but not illegal.  The court also held that Tempur-Pedic’s minimum advertised pricing program was not a retail price agreement.  This despite the fact that the program was part of a contract with retailers, and n0t a unilateral policy.

Tempur-Pedic aside, it remains generally advisable to structure MAP programs as unilateral policies, rather than agreements, precisely to avoid debates about whether or not RPM agreements are involved.

Are Minimum Advertised Price Programs Good or Bad?

In a previous post, I linked to an article laying out a number of criticisms of Minimum Advertised Price (MAP) programs.

I won’t address each and every one of the numerous critcisms, but starting in this post I will briefly address some of them.

1. MAP programs discriminate against the online sales channel: it’s not obvious what Mr. Pierce means by this criticism.  Perhaps he is referring to the difficulties of determining whether or not an online price is “advertised” or not (see my previous post).  In any event, generally speaking, cooperative advertising incentives need to be reasonably available to all distributors or dealers.

2. Successful online dealers have significant costs: Undoubtedly true.  And if a MAP program were justified on the grounds that e-commerce is cheap and therefore needs price controls, it might be objectionable.  But MAP programs rarely are so justified.

3. Manufacturers should not protect inefficient dealers: All things being equal, cheaper distribution is better distribution.  But MAP programs do not necessarily prevent cheaper distribution.  They prevent the advertising of prices below a certain threshold — or, more precisely, in most cases, present such advertising if the dealer wants to receive some advertising coop monies.  Would manufacturers really want to keep distribution costs up?

4. MAP pricing is not automatically legal: The author appears to be conflating MAP pricing and resale price maintenance (RPM).  It is certainly true, however, that RPM is not per se lawful.

5. MAP pricing may facilitate unlawful collusion: This is a potential danger, and requires that MAP programs be structured appropriately.  Usually, however, this potential danger can be mitigated adequately.

I’ll address more of the criticisms in an upcoming post.

Minimum Advertised Price Programs

Under federal law, it is no longer per se illegal for a manufacturer to agree on resale prices with its distributor.  State laws still vary, however, and even under federal law the practice can be unlawful under a detailed market analysis that weighs all the pro-competitive and anti-competitive effects of the resale price maintenance.

However, manufacturers and distributors can avoid these complexities if they do not agree on resale prices, but agree on minimum advertised prices.  The distributors are free to set their own prices, but if they want advertising co-op funds (or other benefits), then they cannot advertise lower prices.

I’ll post more on MAP programs in a bit.

 

Enforcing Online Resale Prices Can Be Problematic

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007), held that resale price maintenance – even minimum resale price maintenance – is not per se illegal under federal antitrust laws. However, resale price maintenance, or RPM, remains vulnerable to attack under various state laws. In California v. Bioelements, Inc., Cal. Superior Ct. (Riverside County, Jan. 11, 2011), the California Attorney General reached an agreement with a cosmetics company to resolve charges brought under the Cartwright Act and California’s Unfair Competition Law that the company had engaged in price-fixing by prohibiting retailers from selling products online at a discount from suggested retail prices. The Attorney General did not charge that products sold in brick-and-mortar stores were subject to any similar agreement. The settlement agreement contemplates injunctive relief and civil penalties. Bioelements cautions that RPM remains problematic, and illustrates the limits of what manufacturers can do to address tensions between online and brick-and-mortar distribution – e.g., tensions caused by the perception that online retailers may “free ride” on the efforts of brick-and-mortar distributors.

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