Franchising After Leegin: A License to Fix Prices?

For decades, many franchisors and manufacturers have struggled with how to prevent discounting by franchisees, dealers, and distributors. This has been especially true in industries where low margins and free riding by discounters make it difficult for other franchisees, dealers, and distributors to meet their suppliers’ standards for product promotion and support. Efforts by franchisors and manufacturers to police discounting, however, risk running afoul of antitrust law prohibitions against resale price maintenance, i.e., vertical minimum price fixing. For nearly a century, resale price maintenance agreements have been held to be per se unlawful in violation of § 1 of the Sherman Act. In other words, agreements fixing the minimum resale prices of franchisees, dealers, and distributors have been presumed to be unreasonable restraints of trade “without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.”

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