So much for Leegin...

As we have mentioned previously in the blog, companies still face real risks with respect to resale price maintenance despite the Supreme Court's 2007 ruling that such policies are not per se illegal. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007).

A recent $35 million class action settlement involving retail giant Babies R Us is one example of the continued risks. See McDonough v. Toys ‘R’ Us, et al., No. 2:06-cv-0242-AB (E.D. Pa.) and Elliott v. Toys ‘R’ Us, et al., No. 2:09-cv-06151-AB (E.D. Pa.).

In this case plaintiffs alleged that Babies R Us, a dominant retailer of baby products, coerced manufacturers of baby products to adopt resale price maintenance polices that insulated Babies R Us from price competition -- particularly internet retailers. Babies R Us allegedly threatened not to carry the manufacturer's products unless the manufacturers agreed to prevent internet retailers from discounting their products.

The court granted plaintiff's motion to certify the class in July 2009. The court recognized that vertical price restraints are analyzed under the rule of reason, under Leegin, but the court found that plaintiffs could prove their case under the rule of reason because the RPM policies were instituted at the request and direction of a dominant retailer -- rather than as a means for the manufacturers to more effectively compete against each other.

A $35 million settlement agreement was announced in January 2011.

There seem to be two big lessons from this case: (1) RPM policies need to come from the top down -- not from the bottom up; and (2) beware of email communications between manufacturers and retailers.