Licensees And Intellectual Property Owners Affected By Supreme Court Abandoning Century-Old Per Se Rule Against Resale Price Maintenance

"[I]t is a flawed antitrust doctrine that serves the interests of lawyers ó by creating legal distinctions that operate as traps for the unwary ó more than the interests of consumers ó by requiring manufacturers to choose second-best options to achieve sound business objectives."

Leegin Creative Prods., Inc. v. PSKS, Inc., No. 06-480 (June 28, 2007).

In a decision of significance to manufacturers and retailers and to intellectual property owners and licensees, the U.S. Supreme Court has jettisoned a century-old rule that it is per se illegal, under Section 1 of the Sherman Act, for manufacturers to require their resellers to sell at or above agreed-upon resale prices. In Leegin Creative Leather Products, Inc. v. PSKS, Inc., No. 06-480 (June 28, 2007), the Court held that all such vertical price restraints are to be judged by the rule of reason. Under the rule of reason, a vertical price restraint will be found to violate federal antitrust law only if, after weighing all the circumstances, a fact-finder concludes that its anticompetitive impact outweighs its procompetitive effects. In sum, while all such restraints may not survive antitrust scrutiny, they are no longer deemed illegal on their face and may be justified as fostering, rather than impeding, competition.

The decision is of particular interest to intellectual property owners because of its potential impact on the marketplace prices set by licensees. As is true of other vertical relationships, a licensor of intellectual property rights is no longer absolutely forbidden from arranging with its licensees to maintain minimum resale prices, and may advance procompetitive justifications for such agreements such as quality control, provision of retailer services, or encouraging market entry by new firms. These arrangements will now be evaluated on their individual merits, not prohibited wholesale.

Background on the Leegin Dispute

PSKS, the plaintiff in Leegin, operated a retail store under the name "Kay's Kloset." Kay's purchased Brighton brand women's belts and other accessories from Leegin. Leegin told Kay's (and its other retailers) that it would only do business with retailers that followed its suggested resale prices for Brighton products. When Kay's started selling Brighton products at prices below those suggested by Leegin, Leegin suspended all shipments to Kay's. Kay's sued Leegin alleging that its pricing policy, which was incorporated into marketing agreements with retailers, violated ß 1 of the Sherman Act, 15 U.S.C. ß 1.

Leegin contended that its policy was procompetitive because it encouraged retailers to...

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