Thank you for sharing!

Your article was successfully shared with the contacts you provided.
In an age of big-box discounters and anonymous Internet sales, what can brands that place a premium on service, product knowledge and customization, and boutique stores that create a unique shopping experience attentive to customer needs, do to compete and thrive? While the retail market has entered a radically different age of commoditization, the law regulating certain resale price policies between manufacturers and retailers has remained rooted in early 20th-century conceptions of economic reality. Now, in a recent and potentially far-reaching decision, the U.S. Supreme Court overturned a century-old rule prohibiting manufacturers from entering agreements with their distributors to set minimum retail prices. In so doing, the court acknowledged that the law had become too rigid to accommodate rapidly changing modes of economic competition. In the antitrust case of Leegin Creative Leather Products Inc. v. PSKS Inc., the Supreme Court considered the question of whether Leegin could enforce a minimum resale price maintenance (RPM) agreement for the distribution of its Brighton line of women’s fashion accessories, in order to defend its brand and competitive position. The case originated when Leegin cut off shipments to one Texas retailer that had discounted its goods. Since the Supreme Court’s ruling in the 1911 Dr. Miles case, the law of the land has been that manufacturers could not enter into agreements with retailers that set a minimum retail price on the sale of its goods. Violations of that rule were deemed to be per se infringements of the 1890 Sherman Antitrust Act. In overturning Dr. Miles, the court has struck a necessary balance between the demands of the market and maintenance of a rigorous antitrust regime. The court acknowledged that minimum RPM agreements restrict price competition among retailers selling the same brand, but found that these agreements may have the effect of increasing competition among different brands, which is a key objective of antitrust policy. Leegin sought to distinguish itself in a highly competitive market, not by offering consumers low prices but by providing strong service and artful displays. By setting a minimum resale price, Leegin was banking on creating incentives for retailers to invest in better service, prominent displays and more advertising to promote its Brighton line. In a competitive market, where consumers have choices among many brands, minimum RPM agreements may help certain companies to differentiate their products, without fear of others free-riding on the service and sales efforts of their distributors. The court does not say that all such minimum RPM agreements are lawful. Rather, it says that these agreements are not automatically illegal and that courts should apply the rule of reason to determine whether they, on balance, restrict or enhance competition. The court invited lower courts to scrutinize RPM agreements for potential anti-competitive effects. Those decisions will provide future guidance on the nature and circumstances of permissible RPM programs. Key to whether such agreements enhance or restrict competition under the rule-of-reason test is the market power of the manufacturer. If a producer has such a powerful market position that its brand dominates sales of a particular product, resale price policies could give the producer effective control over the price of a particular good, thereby threatening harm to consumers. The court cited other cases in which an RPM agreement may be unreasonable, including when such agreements are prevalent in an industry, when they emanate from a powerful retailer or when they encourage or arise from a manufacturer or retailer cartel designed to discourage discounting. The possibility remains that federal or state antitrust agencies may bring enforcement actions if they believe RPM programs to be anti-competitive under antitrust or unfair-competition laws. The main argument against the court’s decision is that it will have the effect of raising consumer prices. There is no denying that the intent and effect of minimum RPM agreements is to keep certain brand prices higher than they would be if distributors were allowed to compete fully against each other for sales of that brand. But maintaining higher prices for one brand may create opportunities for other manufacturers to compete even more effectively on the basis of price, which might explain why few of the big discounters and Internet sellers filed briefs in support of sustaining Dr. Miles. The Leegin decision supports the basic economic freedom of companies to compete as they see fit and to suffer the consequences should they choose poorly. By promoting even greater competition among manufacturers with different business models, the decision not only makes good economic sense but supports the fundamental purpose of the antitrust laws. In then end, consumers will be the final arbiters and beneficiaries of Leegin, making their own calculus about what they value more � price, quality, service or the shopping experience. Neil Motenko is a partner in the litigation department, and co-chair of the antitrust practice group, of Boston-based Nutter McClennen & Fish. Kathryn Conde is a partner in the firm’s litigation department, concentrating in antitrust, trademark, copyright and trade regulation.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.