Background
Analysis
Comment


The state of Maryland recently added a new provision to its state antitrust law to prohibit minimum resale price maintenance agreements between a supplier and its reseller customers. Maryland has now joined a number of other efforts to limit the effects of the 2007 Supreme Court Leegin decision, which held that these agreements would no longer be regarded as illegal per se under federal antitrust law and would instead be subject to review only under the more flexible rule of reason (for further details please see "Rule of Reason Applied to Vertical Agreements on Minimum Resale Price"). This and similar statutes will limit the extent to which national and regional suppliers may rely on Leegin with regard to sales in the affected states.

Background

In Leegin Creative Leather Prods, Inc v PSKS, Inc(1) the Supreme Court reversed the longstanding rule that minimum resale price maintenance agreements between a supplier and its reseller customers are per se illegal under federal antitrust law.(2) The court recognized that these agreements can have both positive and negative effects on consumers and ruled, by five judges to four, that they violate federal antitrust law only if they are shown to reduce competition unreasonably.

Prior to the court's ruling, the attorneys general of many states had submitted an amicus curiae brief urging that minimum resale price maintenance agreements should continue to be regarded as unlawful per se. The Leegin decision prompted a variety of efforts to limit or eliminate it at both the state and federal level. Although many state antitrust laws are similar or virtually identical to federal law and follow federal interpretations, some states (eg, California, New York and New Jersey) maintained that their laws continued specifically to prohibit these agreements. Other states, such as Maryland, began to consider legislation that would modify state antitrust laws to continue to make minimum resale price maintenance agreements unlawful per se. At the federal level, Leegin opponents introduced legislation that would make similar amendments to federal antitrust law. The current version of that legislation (S 148) is very similar to the new Maryland statutory language and is still pending in Congress. In addition, the Federal Trade Commission will hold hearings during May 2009 to examine the history, effects and appropriate antitrust analysis of resale price maintenance.

Analysis

The new Maryland statute repeals and re-enacts Section 11-204 of the Maryland Commercial Law from October 1 2009. Section 11-204(a)(1), the analogue to Section 1 of the federal Sherman Act, provides that "[a] person may not... [b]y contract, combination, or conspiracy with one or more other persons, unreasonably restrain trade or commerce". New Section 11-204(b) then provides that:

"[f]or purposes of subsection (a)(1) of this section, a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce."

Thus, the amended section will effectively make minimum resale price maintenance agreements between a supplier and its reseller customers illegal per se in Maryland in lawsuits brought under Maryland state antitrust law.

In practical terms, this means that national or regional suppliers in the United States which wish to agree with their reseller customers on a minimum resale price for the supplier's product or service may need to avoid sales in Maryland and any other states that have adopted similar statutory language. However, in practice this may be difficult, particularly in an era of extensive internet sales. In any event, such a restriction could substantially undermine the benefits that the Supreme Court Leegin decision provides in cases brought under federal antitrust law.

Of course, suppliers could still seek to require their reseller customers to adhere to the supplier's specified minimum resale prices under the so-called Colgate doctrine. That doctrine, first enunciated in United States v Colgate & Co,(3) allows a supplier freely to determine the parties with which it will deal. So long as a supplier merely declares unilaterally and on its own initiative that it will terminate customers that resell its product or service below some specified minimum price, and unilaterally enforces that declaration without an explicit or implicit resale price maintenance agreement with its customers or with third parties which help monitor compliance, there will be no agreement to which Section 1 of the Sherman Act could apply. The same should be true as to the amended provisions of Section 11-204 of the Maryland Commercial Law. However, in the past suppliers' efforts to take advantage of the Colgate doctrine have often been unsuccessful because even the most casual conversations on resale price maintenance can be construed as resulting in an illegal agreement. Even where successful, compliance efforts have often resulted in what appears to be and is unnecessarily artificial, strained and harsh supplier treatment of reseller customers.

Comment

The Supreme Court's adoption of a rule of reason standard for analyzing minimum resale price maintenance agreements under federal antitrust law means that the legality of such agreements under federal law will be determined by their actual competitive justifications and effects. Suppliers that wish to influence or control the resale prices of their products or services no longer need to fear that a finding of an agreement with customers to maintain resale prices would automatically condemn such an agreement under federal law. However, the new Maryland statute and other similar state statutes could substantially undermine the benefits of Leegin for national or regional suppliers, unless they can find a way to avoid having their products and services purchased and resold in a manner subject to per se condemnation under these state antitrust laws. Even if suppliers could manage to do so, the effort to control resale prices in those states under the Colgate doctrine still presents the same challenges and risks that it did prior to Leegin.

For further information on this topic please contact Philip C Larson at Hogan & Hartson LLP by telephone (+1 202 637 5600) or by fax (+1 202 637 5910) or by email (pclarson@hhlaw.com).

Endnotes

(1) 127 S Ct 2705 (2007).

(2) Sherman Act § 1, 15 USC § 1.

(3) 250 US 300 (1919).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription