Supreme Court Abandons Per Se Prohibition Of Resale Price Maintenance

Article by Richard Liebsekind, Bruce W. McDiarmid and Joseph R. Tiffany

On the last day of the 2006 Term, by a five-to-four vote, the U.S. Supreme Court held that minimum resale price maintenance - commonly called RPM - would no longer constitute a per se violation of the antitrust laws, overruling its 1911 decision in Dr. Miles.1 In doing so, the Court followed the recommendation of the Solicitor General, the Antitrust Division of the U.S. Department of Justice, and the Federal Trade Commission, and many but not all economists.

In Leegin Creative Leather Products, Inc. v. PSKS, Inc., No. 06-480, the Court (in an opinion by Justice Kennedy, writing for himself, Chief Justice Roberts, and Justices Scalia, Thomas and Alito) held that resale price maintenance would now be governed by the "rule of reason," under which RPM's legality would be evaluated based on the defendants' market power, competitive justifications offered and the likely anticompetitive effect of the practice. "'Under this rule, the fact-finder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.'" 2 Under a per se rule, by contrast, proof of the agreement generally suffices to prove the violation (although a private plaintiff must still prove antitrust injury and damages).

While Dr. Miles and later cases held that RPM was illegal per se, the Supreme Court had also long recognized that a manufacturer generally has the right to deal or not deal with distributors and retailers as it saw fitóknown as the Colgate doctrine.3 To reconcile the two doctrines, the Court has held that a manufacturer may suggest resale prices to its retaileróand may terminate retailers who do not follow the suggestionóso long as the manufacturer and retailer do not actually agree on the price to be charged.

The Leegin decision may simplify retailers' lives by obviating the need for "Colgate policies" and the risk that they stray into actual agreement. Indeed, the Court recognized that its prior RPM jurisprudence "is a flawed antitrust doctrine that serves the interests of lawyersóby creating legal distinctions that operate as traps for the unwary." Slip op. at 25. Leegin should also protect most "minimum advertised price" ("MAP") policies, under which the manufacturer requires the retailer to advertise prices no lower than a specified minimum, unless the policies are the product of a horizontal cartel.

Instead, many manufacturers will be able to implement resale price maintenance and establish the retail prices of their productsóif they can persuade retailers to carry their products on that basis. So long as the manufacturer has a relatively small share in its market, it should be able to agree with its retailers on the prices to be charged for its products without fear of federal antitrust liability. New products and new manufacturers, in particular, can rely on Leegin's acknowledgement that RPM may promote their entry into the market.

Two caveats: States might interpret their own antitrust laws differently (or might reimpose RPM prohibitions legislatively),4 and some plaintiffs might allege surprisingly narrow market definitions.5 For manufacturers with larger market shares, Leegin may have the ironic effect of leading to more protracted antitrust litigation over RPM, in which the parties must join issue on the many elements of a rule-of-reason case.

Leegin in Context - Another Step in the March Toward Rule-of-Reason Treatment for Vertical Restraints

In overruling Dr. Miles and making RPM subject to the rule of reason, the Court has followed a 30-year trend to make "vertical restraints"óagreements between manufacturers and retailers, or between other firms that are not direct competitorsósubject to the rule of reason rather than subject to per se condemnation. This...