On February 22, 2011, the U.S. Supreme Court declined to further refine or reconsider its 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Leegin I), when it denied PSKS’ latest certiorari petition. In Leegin I the Court decided that that minimum resale price maintenance (RPM) agreements should be examined under the rule of reason, rather than the per se, standard. In so doing, the Court overturned Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). In minimum RPM arrangements the resellers agree that they will not sell a supplier’s products at a price lower than that to which it agreed with the supplier.
After its Supreme Court defeat, PSKS filed a second amended complaint alleging that: (1) independent retailers were involved in the enforcement of Leegin’s RPM policy; (2) at a meeting, more than 100 retailers reached a consensus regarding special discounts and incentives that was later adopted as Leegin’s policy; (3) Leegin was the hub in a hub-and-spoke conspiracy by intervening to resolve pricing disputes between and among competing retailers; and (4) Leegin, acting at the retail level, agreed with other retailers on the resale price. Based on these allegations, PSKS argued that even under the Supreme Court’s reasoning in Leegin I, the challenged RPM arrangements were illegal per se.
The district court, however, dismissed PSKS’ new complaint and the Fifth Circuit affirmed that dismissal. The Fifth Circuit determined that the RPM arrangements alleged did not raise the type of horizontal concerns that Leegin I acknowledged would make the conduct illegal per se. For example, the court noted that PSKS did not claim that retailers were the "source" of the RPM policy or that Leegin established the policy at the retailers’ urging or that any agreement existed among retailers or between competing manufacturers to set resale prices.
The Fifth Circuit rejected PSKS’ argument that the rule of reason was inapplicable because Leegin competed with its resellers. In addition, the Fifth Circuit held that PSKS had failed to plead a proper relevant product market because, despite having alleged two alternative markets, neither proposed market included interchangeable substitute products nor recognized the cross-elasticity of demand for Leegin’s products. Next, the court rejected PSKS’ claim that Leegin’s RPM program artificially inflated consumer prices, and stated that the "claim defies the basic laws of economics. Absent market power, an artificial price hike by Leegin would merely cause it to lose sales to its competitors." The court further found that PSKS’ complaint failed because it did not plausibly allege harm to interbrand competition. Although the case was dismissed, the amendments made to PSKS’ original complaint are instructive as to the types of arguments being made post-Leegin I in an effort to challenge RPM agreements, particularly under federal law.
The Supreme Court denied certiorari despite the fact that a variety of constituencies, including state and federal legislators, Internet and other retailers, state attorneys general and some academics have been working hard to undo Leegin I. As long as RPM is not automatically illegal under federal law but is automatically illegal in the view of some states, uncertainty exists for manufacturers wanting to control resale prices, either independently or by agreement.