A new law has recently gone into effect in Maryland that bars manufacturers from setting the minimum prices at which its distributors and dealers resell their products to the public. This law addresses a recent Supreme Court decision, Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that changed long-standing precedent and eliminated the per se rule against such conduct under the federal antitrust statutes.
A manufacturer’s attempts to dictate the prices at which its goods are resold to the public by its distributors and dealers, commonly known as “resale price maintenance,” has been disfavored for most of the history of the Sherman Antitrust Act. In 1911, the U.S. Supreme Court (“the Court”) held that such conduct constitutes a per se violation of the antitrust laws. The case, Dr. Miles Medical Co. v. John D. Parks & Sons, 220 U.S. 373 (1911), imposed an absolute ban on “resale price maintenance” that stood for almost one hundred years.
However, in 2007, the Court overruled the Dr. Miles decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), holding that not all resale price maintenance agreements have anticompetitive effects, and therefore per se condemnation of all such agreements was not appropriate. Instead, the Court held that where a manufacturer seeks to impose minimum resale prices on a reseller, the lawfulness of the agreement should be analyzed under the “rule of reason,” which requires the court to weigh the procompetitive justifications for the agreement against its anticompetitive effects in determining whether the conduct passes muster under the antitrust laws. (Notably, 10 years earlier the Court instituted the rule of reason standard for agreements setting a maximum resale price, which had also been per se unlawful, in State Oil Co. v. Khan, 522 U.S. 3 (1997).)
The Court’s decision in Leegin was highly controversial when it was decided, and has continued to be so to this day. Leegin’s supporters point to the Court’s acknowledgement that the “economic literature is replete with precompetitive justifications for a manufacturer’s use of resale price maintenance,” and that resale price maintenance has the potential to “stimulate interbrand competition.” However, those opposed to Leegin maintain that resale price maintenance almost always eliminates discounting and leads to higher prices for consumers, thus warranting per se condemnation.
Since the Leegin decision, the center of this debate has moved from the courts to the legislature. Earlier this year, federal legislation was introduced by Sen. Kohl that would repeal the Leegin decision (S. 148) and reinstitute the per se standard for minimum resale price maintenance. However, attempts to reverse Leegin have also advanced at the state level, and at an even swifter pace. Earlier this year, the Maryland legislature passed a law, effective Oct. 1, amending the Maryland Antitrust Act to specify that “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.” Md. Code Ann., Comm. Law § 11-204(b) (eff. Oct. 1, 2009). Simply stated, the new Maryland law prevents application of the more lenient Leegin rule for purposes of Maryland antitrust law. In addition, the Attorneys General of several other states, including New York, Illinois and Michigan, have announced that resale price maintenance continues to be per se unlawful, despite Leegin, under their state antitrust laws, and have brought enforcement actions since Leegin that continue to assert a per se theory of liability.
Accordingly, while Leegin now permits resale price maintenance agreements under the federal antitrust laws (provided the conduct passes muster under the rule of reason) — at least until Sen. Kohl’s bill wins passage — the very same conduct exposes a manufacturer to per se antitrust liability in several states, most clearly Maryland. Because of the potentially serious legal consequences of violating antitrust laws, manufacturers that may be contemplating the use of resale price maintenance agreements would be well advised to seek legal advice to ensure compliance with both federal law and the state antitrust laws in every state in which they operate.