Beware And Be Smart: California Remains A Danger Zone For Resale Price Restrictions

Most recently, the U.S. District Court of the Central District of California denied a retailer's motion to dismiss vertical price fixing claims filed under the state's Cartwright Act and Unfair Competition Law. California law mandates that all vertical agreements setting resale prices be treated as automatically or per se illegal. The retailer, Alan Darush, MD, APC (Darush), alleges that one of its principal suppliers of skin care products, Revision, L.P. (Revision), coerced compliance with its minimum suggested retail price program (MSRP Program) and agreed with one or more of its other retailers - Darush's competitors - to pressure and terminate those retailers in violation of Revision's MSRP Program.

Darush claims that Revision was well aware that retailers often were not adhering to the MSRP Program and that he only priced below the MSRP in order to remain competitive. Darush's complaint alleges that Revision repeatedly coerced Darush and threatened termination unless he complied with Revision's MSRP Program.

The complaint also cites to Revision testimony and documents from an unrelated trademark case, which appear to present a problem under California law. For example, Darush quoted e-mails between one of its competitors, Lovely Skin, and Revision, where the two discuss non-compliant retailers and how Revision is dealing with those retailers. In fact, in one e-mail Revision describes an earlier conversation with Lovely Skin, where they discussed "the low ... prices on the web and the fact that [Lovely Skin] would like to charge more" and Revision gives the assurance that it has "uncovered some of the biggest sites and ha[s] either shut them down or ... given warning to comply with [Revision's] policy." In another set of e-mails, Revision notes that it "either had [its retailers] raise their price or discontinued shipping products to them altogether" and then goes on to "ask that [Lovely Skin] raise [its] price." In a third e-mail string, Lovely Skin asks Revision for a list of the terminated retailers "so we aren't wasting our time keeping an eye on them" and Revision responds with a list of compliant Web sites and a list of Web sites terminated for MSRP Program violations. Revision also notifies Lovely Skin that it has "asked" a number of sites "to comply with [its] policies."

There remain a number of states that prohibit all resale price agreements, California among them. After reviewing Darush's averments, the court noted that under...