Subsequent to the Supreme Court’s 5-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), rejecting per se treatment of resale price maintenance, a groundswell erupted of outrage and threats of reprisal by federal and state legislators. On the federal front, several efforts to legislatively overturn Leegin have either died in committee or on the floor. The latest examples are Senator Kohl’s (D-Wis.) bill S.75 which recently passed out of the Senate Judiciary Committee along strict party lines (indicating no chance of reaching the Senate floor) and Rep. Johnson’s (D-Ga.) recent bill H.R. 3406 which has been referred to the House Judiciary Committee, undoubtedly for an ignoble death. At last count 41 state attorneys general had written Senators and Congressmen demanding a legislative repeal of Leegin. To date, these requests have not generated sufficient enthusiasm or appetite for the project.
On the state legislative side, and despite wide condemnation of Leegin by state legislators, only the Maryland Legislature has adopted a statute repealing the Leegin holding (see MD. CODE ANN. COM. LAW § 11-204(a)(1) (2009).
Unhappy with the Supreme Court’s decision, over the past few years a handful of states have stepped up their enforcement of resale price maintenance agreements under state laws. Several of the states’ targets have settled with the states and have paid large sums to avoid further challenge. For example, in 2012, the California Attorney General filed two separate antitrust lawsuits against DermaQuest, Inc., a corporation headquartered in California, and Bioelements, Inc., an Illinois corporation, challenging their resale price maintenance schemes. Facing allegations of per se illegality under state law, both manufacturers quickly entered into settlement agreements involving significant civil penalties and legal costs.
As another example, in March 2008, New York, Illinois, and Michigan filed suit in federal court against Herman Miller, a high-end furniture manufacturer, asserting a per se challenge under state and federal laws, for its suggested retail pricing policy that established a minimum advertising price. Shortly after the states filed suit, Herman Miller and the three states entered into a consent decree requiring the payment of a civil penalty of $750,000.
Other companies, like Tempur-Pedic International, Inc., have decided to resist the state challenges to resale price maintenance. Some readers may be familiar with Robert L. Hubbard, the chief antitrust enforcement officer of the New York State Attorney General’s Office, and his efforts to reinvigorate resale price maintenance rules across the country through the National Association of Attorneys General and particularly in New York. Despite these efforts, on May 8, 2012, a five-judge panel of the Supreme Court, New York County, ruled unanimously in People of the State of New York v. Tempur-Pedic International, Inc., Case No. 400837/201G (N.Y. Sup. Ct. App. Div. First Department , May 8, 2012) that New York General Business Law §369-a does not make resale price maintenance unlawful (i.e., per se illegal), only that contracts containing such provisions are unenforceable. While there are three other departments in the New York State intermediate appellate system, the Attorney General’s Office has not yet indicated whether it would pursue an appeal of the Tempur-Pedic decision or the filing of suits in the other departments.
The Leegin case itself has sparked a number of follow-on class actions. A Tennessee federal district court in Spahr v. Leegin Creative Leather Products, No. 07-CV-187, 2008 WL 3914461 (E.D. Tenn., Aug. 20, 2008), appeal dismissed, File No. 08-6165 (6th Cir. Nov. 20, 2008) held that the Tennessee Trade Practice Act would follow the Leegin decision and that a rule of reason standard should apply to resale price maintenance agreements.
In O’Brien v. Leegin Creative Products, a Kansas state trial court had ruled consistent with Leegin, and held that the state antitrust statute required that resale price maintenance agreements be judged under the rule of reason. Recently, on May 4, 2012, however, the Kansas Supreme Court reversed the lower court, giving little to no weight to federal precedent, and held that resale price maintenance is a per se offense under the Kansas Restraint of Trade Act. O’Brien v. Leegin Creative Leather Products Inc. No. 101, 000 (Sup. Ct. Kan. May 8, 2012).
The failure of federal and state governments to move forward legislatively on resale price maintenance, and the thin enforcement efforts of per se treatment by state attorneys general, may suggest a gradual death knell for per se treatment of resale price maintenance. This conclusion must be heavily caveated on a state-by-state basis (particularly New York, Illinois and California), where activist state attorneys general may push the envelope of their state statutes.
As a result, companies should proceed with caution and consult counsel before setting up resale policies. Manufacturers have been and remain free to set unilateral pricing policies and terminate retailers. However, states are carefully scrutinizing these policies for signs of implicit agreements that violate state laws. Companies with nationwide distribution or internet-based resale operations should fully examine state laws where their retailers operate and where customers might claim injury by higher prices. In the current economic climate, with increasing consumer prices and an increasing focus on consumer rights, it is foreseeable that other states may attempt to distinguish their antitrust laws from the Sherman Act and advocate for the continued use of the per se rule.