District court case could affect implementation of minimum resale price maintenance programs.
Sellers must still exercise great caution when designing minimum resale price programs for their resellers in the United States following the recently settled New York v. Herman Miller, Inc. case. This is despite the Supreme Court of the United States' landmark ruling just last year in Leegin Creative Leather Products, Inc. v. PSKS, Inc. that minimum resale price maintenance (MRPM) programs are no longer illegal per se but are to be evaluated under the Rule of Reason by weighing their anticompetitive harm against their pro-competitive benefits.
The Herman Miller case, which was brought by the Attorneys General of the States of New York, Illinois and Michigan, alleged that Herman Miller, Inc. (Herman Miller), a seller of high-end ergonomic office chairs, violated federal and state antitrust laws by establishing an MRPM program that had the effect of raising prices to consumers. On March 27, 2008, the U.S. District Court for the Southern District of New York entered a consent decree settling the case wherein Herman Miller agreed to cease its MRPM program and pay civil penalties of $750,000. As a result, sellers should note that certain states, 37 of which formally opposed the outcome in Leegin, are actively prosecuting MRPM programs, despite the Supreme Court's ruling in Leegin.
The states of New York, Illinois and Michigan alleged that Herman Miller's suggested retail price (SRP) policy was actually an MRPM program that violated Section One of the Sherman Act and various state antitrust laws, because the policy allegedly sought to "stabilize and artificially raise retail prices and retail price levels" for Herman Miller's Aeron™ chairs. Under the SRP policy, resellers allegedly had to agree with Herman Miller not to advertise below its dictated prices for Aeron™ chairs "in any medium where prices can be seen by consumers," including in-store price tags and resellers' own internet websites, or face termination or loss of access to Herman Miller's products for one year.
The complaint also alleged that Herman Miller implemented its SRP policy as a result of complaints from some of its resellers that other resellers were discounting the prices of Aeron™ chairs and causing margins to fall. The complaint went on to allege that as a result of the SRP policy "the vast majority of retailers raised and maintained their retail price at the SRP level," and that the SRP policy "eliminated the advertised price as a selling tool." To cure this allegedly anticompetitive conduct, the complaint sought an injunction preventing Herman Miller from continuing its MRPM program as well as having Herman Miller pay for New York's, Illinois' and Michigan's costs, including attorneys' fees.
The Herman Miller case has several notable aspects for sellers and how they distribute their products. Sellers should take these into account when deciding whether to implement their own MRPM programs.
First, the complaint does not clearly lay out under which of the two legal standards, per se illegality or the Rule of Reason, Herman Miller's program violated the antitrust laws. Rather, the complaint merely alleges that Herman Miller's SRP policy was an unreasonable restraint of trade. Thus, these states do not appear to be analyzing MRPM programs under the Rule of Reason as Leegin holds they should. Indeed, the complaint does not allege that Herman Miller possessed a large share of any market. Instead, the complaint merely alleges that Aeron™ chairs are "very popular and highly sought-after." Thus, even sellers with small market shares that implement MRPM programs may be at risk for prosecution. Also, it is clear that these states did not consider whether the SRP policy promoted inter-brand competition against other brands of high-end office chairs, even if it reduced intra-brand competition for Herman Miller’s Aeron™ brand office chairs.
Second, sellers should note that Herman Miller's SRP policy only prohibited advertising below a certain price and did not actually prohibit resellers from selling below the minimum advertised price set by Herman Miller. In other words, Herman Miller’s SRP policy was a minimum advertised price program and not by its terms an explicit MRPM program. While Herman Miller’s SRP policy was aggressive by prohibiting retailers from advertising prices below minimums set by Herman Miller even on retailers' in-store price tags and their own internet websites, the complaint does not allege that Herman Miller sought actually to prohibit resellers from setting lower prices.
Third, the complaint alleged that Herman Miller implemented its SRP policy only after receiving complaints from some of its resellers about discounting by other resellers. This fact, if true, undermined Herman Miller's ability to argue that it enacted its SRP policy for pro-competitive purposes.
Thus, sellers considering a MRPM program since the Leegin decision should proceed very cautiously. They should, at a minimum, ensure that any MRPM program promotes inter-brand competition and only minimally restricts price.
The Herman Miller case illustrates that certain states, such as New York, Illinois, Michigan and California, will likely continue to prosecute MRPM under a per se approach, despite the Leegin decision. One possible explanation for this inconsistency is that the Herman Miller case resulted from a five-year investigation that predated the Leegin decision and was filed in conjunction with a consent decree without any admission of liability. Nevertheless, Herman Miller still had to endure a five-year investigation and a costly settlement to resolve these claims. This should give all sellers, not just those with high market shares, pause before implementing any MRPM program.