In the recently decided U.S. Supreme Court case of Leegin Creative Leather Products Inc. v. PSKS Inc., the United States Supreme Court overturned some 96 years of precedent established in the case of Dr. Miles Medical Co. v. John B. Parkinsons Co.1 It also made life a little more complicated for firms that distribute products in both Canada and the United States.
Dr. Miles stood for the proposition that agreements between suppliers and customers that established agreed minimum resale prices were per se illegal. Leegin, which involved the distribution of belts, purses and other leather fashion accessories, determined that such agreements are not per se unlawful, and should be examined pursuant to the rule of reason, as are most other vertical restraints.
This decision, however logical and appropriate it may be, will provide particular challenges for firms with distribution north and south of the 49th parallel, and as a result, for their Canadian advisors. Even prior to Leegin, there were discrepancies between the U.S. and Canadian price maintenance laws which posed challenges for Canadian counsel attempting to adopt and/or adapt U.S. distribution strategy in Canada. In the U.S., the Colgate 2 doctrine provided that unilateral decisions by suppliers not to supply products to discounters were lawful, so long as such conduct was truly unilateral. Implementing and policing a “Colgate Policy” could be complex and costly, but it was lawful if done properly. On the other hand, pursuant to Section 61 of the Competition Act, a refusal to supply based on the customers low pricing policy is per se unlawful,3 even if entirely unilateral.
That is, even a distribution policy based on Colgate offends the Canadian price maintenance law. Prior to Leegin, however, it was presumed that it was per se unlawful, both north and south of the border, to agree with the customer as to a minimum resale price. Now, in the United States not only a refusal to supply to discounters, but also agreements with resellers as to minimum resale price are not per se unlawful – rather both are subject to a rule of reason analysis. Both types of conduct are per se unlawful in Canada.
North American firms are used to thinking about Canadian antitrust law as similar to but somewhat less restrictive than U.S. antitrust law. As noted above, resale price maintenance was one area where Canadian law was slightly more restrictive than the U.S. equivalent already. Indeed, some Canadian cases4 have held that not only is refusal to supply because, as a primary reason, a customer has a low pricing policy per se unlawful, refusal to supply to a customer if the low pricing policy is only one of a number of reasons for the refusal may be per se unlawful. That is, as a practical matter any customer who has a low pricing policy represents a danger for distributors in Canada. Any refusal to supply them – for virtually any reason – may well result in a per se challenge on the basis of Section 61 of the Canadian Competition Act. Leegin has made the difference between the U.S. and Canada with respect to price maintenance even more stark and significant.
On the basis of Leegin, one may reasonably expect that U.S. suppliers of products which do not enjoy market power will consider, and may well enter into, minimum resale pricing agreements with distributors or retailers. They may seek to enter into similar agreements in Canada as part of an efficient North American distribution system. It will be for Canadian counsel to remind U.S. based firms that such agreements, at least until Canadian law is varied in some way, will be found to be per se unlawful north of the 49th parallel.