Maryland Makes Minimum Resale Price Maintenance Per Se Unlawful

30 April 2009 Publication
Authors: James T. McKeown

Legal News Alert: Antitrust

On April 14, 2009, Maryland amended its antitrust statute to make minimum resale price maintenance per se unlawful, thus expressly rejecting the U.S. Supreme Court’s 2007 decision in Leegin Creative Prods, Inc. v. PSKS, Inc., 551 U.S. 877. In Leegin, the Court jettisoned, for purposes of federal law, the century-old rule that minimum resale price maintenance was per se unlawful, holding instead that such arrangements offend the Sherman Act only when their anticompetitive effects are shown under the “rule of reason” to exceed their procompetitive benefits.

Maryland’s new law, which takes effect October 1, 2009, deems all agreements establishing a minimum resale price to be an unreasonable restraint by providing that “a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce.” This amendment to Maryland Commercial Code § 11-204 can be enforced through civil damage and injunctive actions by the Maryland Attorney General as well as by persons or businesses who have been injured (or are threatened with an injury) as a result of its violation. Willful violations of the law can lead to criminal prosecution, which can result in fines of up to $500,000 and imprisonment of up to six months.

History of Antitrust Treatment of Minimum Resale Price Maintenance Programs

In 1911 the U.S. Supreme Court held that vertical minimum resale price maintenance agreements were per se unlawful under the Sherman Act. The Court changed course in 2007, when it ruled in Leegin Creative Leather Products, Inc. v. PSKS, Inc. that vertical price restraints instead should be judged under the rule of reason because economists had long recognized numerous procompetitive justifications for their use. For example, a manufacturer may use resale price restraints to encourage retailers to invest in promotional efforts or services that help the manufacturer compete against rivals. Such restraints also may help a manufacturer attract and retain competent dealers and distributors, and could result in more brands entering the market. As a result, economists generally believe that resale price maintenance can benefit consumers by leading to more brand choices, enhanced services, and increased interbrand competition.

The Court recognized, however, that minimum resale price maintenance agreements could have anticompetitive effects in certain circumstances. For example, a manufacturer cartel might require minimum resale price agreements to make it easier for the cartel to monitor compliance with its unlawful pricing agreements. And the Court acknowledged that minimum resale price agreements resulting from reseller cartels would be prohibitively anticompetitive. To guide the lower courts in applying the rule of reason to minimum resale price agreements, the Court set out a number of factors that should be considered in determining whether resale price maintenance agreements are predominantly anticompetitive, such as whether many competing manufacturers engaged in the practice, whether the restraint was imposed “independent of retailer pressure,” and whether the manufacturer imposing the restraint has market power.

Reaction to Leegin

The antitrust laws of most states mirror the Sherman Act, and courts typically look to interpretations of the Sherman Act when evaluating claims brought under state law. The Supreme Court’s decision in Leegin, therefore, was seen as reducing the possibility that minimum resale price maintenance claims would be deemed per se unlawful under most states’ antitrust laws. In the almost two years since Leegin was decided, however, it has become clear that many state enforcement officials disagree with Leegin and may attempt to avoid its application to state law claims. For example, the top two antitrust enforcement officials in New York have expressly stated their belief that minimum resale price maintenance remains per se unlawful under New York’s antitrust law regardless of Leegin.

Hostility to Leegin also has emerged at the federal level. During her confirmation hearing, Christine Varney, the newly appointed Assistant United States Attorney General for the Antitrust Division, expressed her disagreement with the Leegin decision and stated her view that the Department of Justice could still prosecute resale price maintenance under the Sherman Act and, if it could not, that she would support a legislative change. Senator Herbert Kohl (D–Wisc.) introduced such legislation in 2007 and again in 2009. The “Discount Pricing Consumer Protection Act” would amend the Sherman Act to make minimum resale price maintenance agreements per se unlawful. One of the proposed findings of the bill is that the decision in Leegin “incorrectly interpreted the Sherman Act and improperly disregarded 96 years of antitrust law precedent in overturning the per se rule against resale price maintenance.” In 2008, the attorneys general of 35 states submitted a letter in support of the bill.

Practical Implications of Maryland’s New Law

Maryland’s new law creates potential risks for anyone that sells products in Maryland or sells to purchasers in Maryland. In addition to considering the full array of legal issues raised by the Leegin decision, firms that have implemented minimum resale price maintenance programs, or that are considering implementing such programs, now need to evaluate whether the new Maryland law applies to them and, if so, whether they need to change the program to comply with the law or avoid its application. The new law also serves as a reminder that minimum resale price maintenance programs are viewed unfavorably by many enforcement agencies and highlights the need to be continually vigilant about monitoring developments in this evolving area of antitrust law.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Rebecca Wickhem House
Milwaukee, Wisconsin
414.297.5681
rwickhemhouse@foley.com

G. Michael Halfenger
Milwaukee, Wisconsin
414.297.5547
mhalfenger@foley.com

James T. McKeown
414.297.5530
Milwaukee, Wisconsin
jmckeown@foley.com

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