Nearly 10 years after the Supreme Court removed the per se unlawful label from resale price maintenance (“RPM”) agreements,[1] the practice continues to land in the crosshairs of plaintiffs’ attorneys and state attorneys general. This may come as a surprise to some, because the Supreme Court stated that RPM can at times be pro-competitive, which was one of its bases for deeming RPM should be reviewed under federal law using the rule of reason. Under the rule of reason, a court must perform a detailed analysis of the relevant market and competition within that market to assess anticompetitive effects. Even if such effects are found, they are considered in the context of any pro-competitive benefits associated with the conduct. The Supreme Court listed a number of ways in which RPM could be pro-competitive and promote inter-brand competition, including by encouraging retailers to invest in services or promotional efforts that aid the manufacturer in competing against rivals or preventing free riding by retailers who invest very little in selling a product (and sell at a discounted price) on other retailers who invest more into marketing the brand (but sell at a higher price). RPM can still be unlawful under the rule of reason but plaintiffs have a much higher bar in proving so.

Many state laws and state antitrust enforcers, however, do not share the Supreme Court’s view, and RPM remains explicitly unlawful or the frequent target of state attorney general interest in those states. For instance, Maryland and California have laws that make RPM unlawful.[2] And attorneys general in Illinois, Michigan, and New York have targeted RPM in lawsuits with mixed success.[3] Most recently, the Maryland Attorney General sued Johnson & Johnson Vision Care, Inc. for violating its antitrust laws by “establishing a minimum retail price for the sale of contact lenses to consumers.”[4] By contrast, the Kansas state legislature made an abrupt pivot after its supreme court found RPM per se unlawful and enacted a statute reversing the decision and following federal law. Most states, however, have never directly spoken to the issue either by statute or by bringing a case. Thus, under state antitrust laws, the rules that apply to RPM are unsettled.

Additionally, even under federal law, plaintiffs remain active in challenging RPM provisions in litigation, including class actions. For instance, in In re: Disposable Contact Lens Antitrust Litigation, plaintiffs, on the same facts as the Maryland Attorney General’s suit against Johnson & Johnson, allege that major contact lens manufacturers conspired to fix prices for disposable contact lenses through RPM policies. This case is currently in discovery.[5] As another example, in In re: On-Line Travel Company (OTC)/Hotel Booking Antitrust Litigation, plaintiffs claimed that OTCs conspired with major hotel defendants to create and enforce RPM agreements to minimize competition on hotel room prices.[6] Plaintiffs argued that RPM agreements fixing the rate that OTCs could charge for a hotel room and requiring that the rate would be as favorable as the rate offered to any OTC competitor and on the hotel defendants’ own website were unlawful. Similarly, in House of Brides, Inc. et al. v. Alfred Angelo, Inc., the plaintiff, a retailer of bridal gowns, alleged that the manufacturer, which also had its own retail sales, violated federal and state antitrust laws by instituting a manufacturer’s suggested retail price (“MSRP”) and a minimum pricing policy (“MPP”).[7] The MSRP policy established the expected retail price for online sales, and the MPP represented the minimum price for products sold at brick and mortar stores. The manufacturer sought the retailer’s agreement to the policies and stopped selling to the retailer when it refused to agree. Both the OTC and House of Brides cases were dismissed.

Given this climate of uncertainty that remains surrounding RPM, what are retail and consumer products companies to do? Below we have listed the top 5 things retail and consumer product companies should remember when considering RPM or similar policies.

1. Stick to the Colgate Doctrine

The Colgate doctrine, dating back to the early 20th century, remains alive and well. Under the Colgate doctrine, companies are free to deal with whomever and on whatever terms they decide as long as all decisions are unilateral.[8] If a company wants to implement an RPM policy, it can announce such a policy; it can even announce that it will terminate distributors who do not comply with that policy, but it cannot obtain an agreement from a distributor to agree to follow that policy nor can it coerce a company to comply.

2. Consider a Minimum Advertised Price (“MAP”) Policy Instead

Although Colgate is a viable defense, instituting a MAP policy can be a less risky approach. A MAP policy is where a manufacturer requires that retailers not advertise their products below a certain price. These are frequently used, and courts have generally upheld MAP policies that only restrict advertised, not actual, prices. [9] For instance, retailers may only advertise products for sale at a certain price, but they can sell to customers at whatever price they choose. Doing so, however, can sometimes be a challenge where there is no practical way for a retailer to communicate a lower price to a consumer (i.e., some online sales). To reduce the risk even further, companies may unilaterally announce MAP policies (in alignment with Colgate), but this has not always been a requirement.

3. Evaluate Using a Consignment Arrangement

Companies may be able to set resale price when they use a consignment arrangements; that is, where the reseller is operating as an agent of the manufacturer or is selling on a consignment basis.[10] The law views consignment sales as occurring directly between the manufacturer and the consumer at prices properly set by the manufacturer. Thus, there is no “resale,” so no RPM.

4. Consider the Most Restrictive Jurisdiction (Federal, State, International)

If a product will be sold widely, manufacturers should consider conforming their pricing policies to the most restrictive jurisdiction in which they will operate. In the US, those jurisdictions are California and Maryland.[11] Practically, what that means is that if a consumer goods manufacturer decides to sell to an online retailer and wants to minimize its antitrust risk, the company should adhere to the laws in California in Maryland, which means avoiding using RPM policies. Instead, a less risky option is to use a MAP policy or true consignment arrangement. The danger is even greater when a product is sold outside of the US, where the antitrust laws of a number of significant commercial trading jurisdictions prohibit RPM, including the EU and China.

5. Consult with Antitrust Counsel

For all of these reasons, companies should consult antitrust counsel before instituting anything resembling an RPM policy or a MAP policy. Because of the uncertainty surrounding state law treatment of RPM and the circumstances that could make a MAP policy have the same effect as an RPM policy (i.e., no practical way for a retailer to communicate a discount), antitrust counsel should be involved to assess the risk of imposing any RPM or MAP policy. Hogan Lovells’ Antitrust, Competition, and Economic Regulation practice group routinely advises companies on questions involving the trickiest RPM and MAP policies in the US and globally. We can help meet your business goals while staying aligned with the antitrust laws.

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