In late June, 2007, the United States Supreme Court struck down its 96-year old rule that made it per se illegal under Section 1 of the Sherman Act for a manufacturer or other supplier to fix the minimum resale price of its products. Many of our clients have struggled with how to manage their product distribution strategy and still stay within the rule prohibiting resale price maintenance (RPM). The Supreme Court’s decision in Leegin Creative Leather Products v. PSKS, Inc. should make that tightrope substantially easier to walk.

The Leegin case does not make vertical price fixing arrangements per se legal. Indeed, the court noted “[r]esale price maintenance, it is true, does have economic dangers.” The Supreme Court, however, announced that such arrangements will be evaluated under a “Rule of Reason” standard (just as vertical non-price restraints such as exclusive territorial arrangements are currently adjudicated). In other words, the anticompetitive effects on competition from a vertical resale pricing restraint that is challenged by a customer (or other party) will be balanced against the purpose and pro-competitive effects of the arrangement.

The court suggested a number of factors relevant to the “Rule of Reason” inquiry that courts in the future will need to consider in dealing with RPM cases. They include:
• “The number of manufacturers that make use of the [RPM] practice in a given industry” (the more that do, the greater the potential issue)
• “The source of the [RPM] restraint” (fewer issues if a manufacturer unilaterally adopts the arrangement than if a retailer or retailer group were the impetus)
• The market power (share) of the manufacturer adopting the RPM practice

While it is clearly too early to evaluate its lasting effect, we believe that the Supreme Court’s Leegin decision should provide the basis for legal counsel to advise that many vertical price restraints will not present any material risk of antitrust liability.

If you wish to discuss this Briefing, please contact us.

Robert B. Fleming, Jr. 716.848.1376 rfleming@hodgsonruss.com
Valerie E. Stevens 716.848.1365 vstevens@hodgsonruss.com