Articles Posted in Resale Price Maintenance

Resale Price Maintenance

Author: Jarod Bona

Some antitrust questions are easy: Is naked price-fixing among competitors a Sherman Act violation? Yes, of course it is. Indeed, it is a per se antitrust violation.

But there is one issue that is not only a common occurrence but also a source of great controversy among antitrust attorneys and commentators: Is price-fixing between manufacturers and distributors (or retailers) an antitrust violation? This is usually called a resale-price-maintenance agreement and it really isn’t clear if it violates the antitrust laws.

For many years, resale-price maintenance—called RPM by those in the know—was on the list of the most forbidden of antitrust conduct, a per se antitrust violation. It was up there with horizontal price fixing, market allocation, bid rigging, and certain group boycotts and tying arrangements.

There was a way around a violation, known as the Colgate exception, whereby a supplier would unilaterally develop a policy that its product must be sold at a certain price or it would terminate dealers. This well-known exception was based on the idea that, in most situations, companies had no obligation to deal with any particular company and could refuse to deal with distributors if they wanted. Of course, if the supplier entered a contract with the distributor to sell the supplier’s products at certain prices, that was an entirely different story. The antitrust law brought in the cavalry in those cases.

You can read our article about the Colgate exception here: The Colgate Doctrine and Other Alternatives to Resale-Price-Maintenance Agreements.

In 2007, the Supreme Court dramatically changed the landscape when it decided Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet). The question presented to the Supreme Court in Leegin was whether to overrule an almost 100-year old precedent (Dr. Miles Medical Co.) that established the rule that resale-price maintenance was per se illegal under the Sherman Act.

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Author:  Steven J. Cernak

With the number of vaccinations rising and mask mandates going away, it appears that life might be heading back towards something like the “old normal.” But during the pandemic, businesses and consumers formed new habits. How many of those new actions will continue post-pandemic and how will those changed processes affect antitrust practice? With all the caveats about predicting the future, here is one set of opinions.

Joint Ventures

At the beginning of the pandemic, many law firms chose to remind their readers that antitrust laws still applied and, for instance, price-fixing was still per se illegal. We chose to remind our readers that pro-competitive joint ventures of various sorts have always been fine under the antitrust laws and might prove useful to businesses struggling to survive a pandemic and lockdowns. The DOJ and FTC also reminded everyone that antitrust laws still applied but, to their credit, also pointed to permissible joint ventures. They also streamlined their review processes for parties wanting an advisory opinion on joint efforts related to the pandemic.

Obviously, it is too early to tell if there has been any change in the number of price-fixing and similar conspiracies consummated during the pandemic; however, it does appear that many businesses did use joint ventures to improve efficiency. As of this writing, at least six joint efforts took advantage of DOJ’s streamlined Business Review Letter processes to obtain greater antitrust certainty about their joint efforts. Also, over 160 notices under the National Cooperative Research and Production Act were filed with DOJ and the FTC in the past twelve months. While many of those notices were merely updates from a much smaller number of joint ventures to disclose changes in membership of the consortium, they do provide some evidence that many companies remembered the pro-competitive business benefits of some collaborations of competitors. As businesses look for ways to improve efficiencies in uncertain times, look for these collaborations to continue.

Pricing

Pricing at all levels of distribution sends key signals to consumers, distributors, and manufacturers and so is often an important antitrust topic. As we explained early in the pandemic, however, price gouging is not a violation of the federal antitrust laws. State price gouging laws and contractual provisions were used early in the pandemic to protect consumers from high prices and manufacturers from blame for high prices by authorized and other distributors. Fears of price gouging seemed to fade early in the pandemic and, other than isolated incidents caused by temporary shortages, seem unlikely to return; instead, the pricing issue currently top of mind is general price inflation, a topic not covered by antitrust laws.

Supply Chain Issues—From Just in Time to Just in Case?

At the beginning of the pandemic, it was shortages of toilet paper and other paper products.  Here near the end, it is a shortage of computer chips for motor vehicles (and other products), chicken, and other products. Both the products and the causes of the shortages seem to have changed during the pandemic. The toilet paper shortage was caused by a sudden and extreme temporary increase in demand; the more recent ones are caused by various supply chain and labor issues resulting in multiple and long-term dislocations.

At bottom, many of these dislocations stem from companies trying to implement their interpretations of the Toyota Production System, particularly a just-in-time supply chain. Such supply chain management reduces costs and inefficiencies by eliminating buffer stocks and working closely with a smaller network of suppliers. In normal times, such systems reduce costs; however, they can be fragile and unable to quickly adjust to exogenous supply shocks, like natural disasters or unexpected bankruptcies. All such systems are based on assumptions that such shocks will not take place or that sufficient additional supply can be quickly found and substituted. When those assumptions turn out to be wrong, businesses can suffer.

Will living through these trying times cause businesses to think more about “just-in-case” supply?  Will manufacturers be more likely to object on antitrust grounds to supplier consolidation that leaves one fewer potential, even if not current, supplier?  Will “5-to-4” mergers now be problematic? Will the FTC object to a hospital merger that could reduce supply unlikely to be used except in a pandemic? If businesses, economists, and enforcers modify their thinking on “efficiencies”, merger review results could be different at least on the margins.

Fewer Smoke-Filled Rooms But Not Necessarily Less Price Fixing

Business travel seems to be coming back, though apparently more slowly than personal travel.  As companies and their employees have become more comfortable interacting virtually, it seems unlikely that travel to trade association and other meetings of competitors will soon, if ever, get back to prior levels. If so, there would be fewer opportunities for competitors to physically meet in typical “smoke-filled rooms” or hotel bars or other places where anti-competitive agreements have been hatched in the past. But that does not mean fewer opportunities to collude—it just means the conspirators will use Zoom, WhatsApp or many other communication and messaging methods. Fortunately, DOJ has understood these trends for years, as detailed in the links here.  For counselors and antitrust compliance specialists, we might need to update our training examples.

Zoom—The Next Google? 

Remember when you first discovered Google? Not only how well the search engine worked but how clean the site was, except when it included cute drawings and links like the Santa Tracker on Christmas Eve? Might be hard to remember now but the company whose motto was “Don’t be evil” seemed to be universally popular. Now? Well, it still remains at least respected and used by a lot of people, but it has also gathered enemies across the political spectrum and around the globe, often for alleged antitrust violations.

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Author: Jarod Bona

We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.

The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.

Today, we will talk about MAP Policies and how they relate to the antitrust laws.

What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?

A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.

In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.

As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.

Typical targets of MAP policies are online retailers and straight price competition. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies often emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.

In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies. Not surprisingly, the impetus to implement and enforce MAP policies often come from established retailers.

We receive a lot of calls and emails with questions about MAP policies, from both those that want to implement them and those that are subject to them.

Do MAP Policies Violate the Antitrust Laws?

MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.

But we can add further context to better understand the level of risk for particular MAP policies.

There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility.  The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.

Because of the limited case law, you should consider, as we do, that there will be a greater variance in expected court decisions about MAP policies, which creates additional risk. This may particularly be the case at the state level because state judges have little experience with antitrust.

In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.

If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.

A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.

Resale Price Maintenance

Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.

Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California, New York, and Maryland may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.

Under federal law, courts now usually analyze resale-price-maintenance agreements under the antitrust rule of reason.

Colgate Policies

Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.

The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.

Back to MAP Policies and Antitrust

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Antitrust-and-Distribution-2021-300x200

Author:  Steven J. Cernak

Recently, I was researching antitrust developments in 2020 to update my Antitrust in Distribution and Franchising book.  While there were several developments last year, what struck me was the large number of potentially drastic changes to antitrust distribution law that started to play out in 2020 but are continuing into 2021.  Whether you think of them as shoes to drop or dogs yet to bark, these three potential changes are the key ones to watch in 2021.

Legislative Changes to the Antitrust Laws?

In the Fall of 2020, the U.S. House Judiciary Committee issued its Majority Report on its lengthy Investigation into Digital Markets. While the bulk of the Report focused on a few big tech companies like Google, Facebook, and Amazon, the Report also recommended that Congress override several “classic antitrust cases” that allegedly misinterpreted antitrust law applicable to all companies.  Because we have covered several of those recommendations in detail already (see below), I will just focus on potential applications to distribution here.

  1. Classic Antitrust Case: Will Congress Override Brooke Group, Matsushita, and Weyerhaeuser—and Resurrect Utah Pie?
  2. Classic Antitrust Cases: Trinko, linkLine and the House Report on Big Tech.
  3. What Happens if Congress Overrides the Classic Antitrust Platform Market Case of American Express?

First, the Report recommended overriding Trinko, a case that has made refusal to deal claims against monopolists very difficult to bring, as we detail in the next section. In Trinko, the Court practically limited such claims to those that are nearly identical to the claims in Aspen Skiing, namely that the monopolist ended a prior voluntary course of dealing with the plaintiff for no good reason. Might an override of Trinko make it easier for a plaintiff-retailer to object if a monopolist defendant-retailer kicks the plaintiff off the defendant’s platform?

Second, overriding Trinko might also alter one of its more famous holdings, that the mere possession of monopoly power and the ability to impose “high” prices does not violate Sherman Act Section 2. While most states have price gouging laws, Trinko found that charging a “high” price was not “monopolization.”  If Congress overrides Trinko—and adopts the broader “abuse of dominance” standard for Section 2 cases, as the Report also recommends — might we end up with a federal price gouging law?

Third, the Report also is concerned about monopolists charging too low a price and recommends overriding Brooke Group and its “recoupment” requirement for successful predatory pricing claims.  As we covered previously, the Supreme Court was worried about discouraging low prices for consumers by companies with large market shares and so adopted a two-part test in Brooke Group that is difficult for plaintiffs to meet.  Plaintiffs must show very low prices, usually below average variable costs, plus the probability that the defendant later will be able to raise prices to recoup its losses.  If Congress overrides the recoupment prong of Brooke Group, might we see less aggressive pricing from companies with high market shares?

Fourth, overriding the recoupment prong also might revive long-dormant primary line price discrimination claims under Robinson-Patman.  While there are few Robinson-Patman claims in total today, all of them are secondary line claims:  Manufacturer 1 sells the same commodity to Retailer A at a lower price than to Retailer B, who claims an injury to itself and competition. In Brooke Group, the Court looked at primary line discrimination claims and applied the same two-part test for predatory pricing to primary line claims:  Manufacturer 1’s lower prices to Retailer A must be below its average variable costs and Manufacturer 1 must be able to later recoup its losses before a court can find harm to competition and Manufacturer 2. Before Brooke Group, the Supreme Court’s test had been the one from the oft-criticized Utah Pie opinion that focused on the defendant’s intent to lower prices for the entire market.  If Congress overrides the recoupment prong of Brooke Group, might we see price discrimination claims from manufacturers who cannot, or do not want to, match the lower prices of their competitors?

As of this writing, Sen. Amy Klobuchar has introduced legislation that would drastically change the antitrust laws.  While most of the proposed changes relate to merger review, the proposed legislation would expand the definition of “exclusionary conduct” subject to the antitrust laws and create a presumption that such conduct by “dominant firms” is anticompetitive.  Might we see changes to the antitrust laws that drastically change how manufacturers, distributors, and retailers deal with one another?

Supreme Court Weighs in on Refusal to Deal Law?

As we have discussed several times (see here, here, and here), the courts are skeptical of claims that a monopolist’s refusal to deal with some other company, usually a competitor, is monopolization. Generally, even a monopolist has no duty to deal with its competitors. One of the few exceptions is when the facts are very close to Aspen Skiing where the Court did find such a violation of a duty to deal.

In Aspen Skiing, the Court found a refusal to deal violation because of what it saw as the defendant’s decision to terminate a “voluntary (and thus presumably profitable) course of dealing” and its “willingness to forego short-term profits to achieve an anti-competitive end.”  Many refusal to deal claims flounder because the defendant and plaintiff had never entered any sort of “course of dealing.”  But even if that prong is met, many lower court judges, such as then-Judge Gorsuch in the 10th Circuit’s Novell case, emphasize that a monopolist might “forego short-term profits” but for pro-competitive ends. Those cases, therefore, require a plaintiff to show that defendant’s conduct is “irrational but for its anticompetitive effect.”

The District Court in Viamedia, Inc. v. Comcast Corp. granted defendant’s motion to dismiss the refusal to deal claim, despite termination of a prior voluntary course of dealing, because the “potentially improved efficiency” resulting from the termination showed that the move was not “irrational but for its anticompetitive effect.”

The Seventh Circuit reversed, finding that a plaintiff only must allege that defendant’s termination was “predatory.”  As the concurring judge described it, a plaintiff need only allege some anticompetitive goal for the termination. A defendant’s assertion of other, procompetitive, rationales for the conduct was a question for summary judgment, not a motion to dismiss. If allowed to stand, the court’s ruling would make it much easier for refusal to deal plaintiffs to survive to discovery, thereby encouraging more such claims.

Comcast petitioned the Supreme Court for certiorari and in December 2020, the Court sought the views of the Solicitor General. Any response from the Solicitor General could indicate whether the Biden Administration supports any change, large or small, as to how the Court has interpreted the Sherman Act in refusal to deal cases. Might the Court weigh in on refusal to deal monopolization cases and, if so, how would such an opinion affect the chances of new antitrust legislation?

Changes Driven by Amazon? 

Of course, we could not post about distribution and antitrust and not mention Amazon.  As we discussed earlier, Amazon’s Jeff Bezos was one of several big tech executives who testified at a Fall 2020 Congressional hearing. At the time, we described some potential antitrust claims raised by that testimony and concluded that ones alleging illegal tying or monopolization had the best chance of succeeding—and that even those faced some real questions.

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Author: Jarod Bona

If you are looking for controversy, you came to the right place. Today, we discuss resale price maintenance, one of the most contentious issues in all of antitrust. If you look around and see a bunch of antitrust economists, hide your screen so they don’t start arguing with each other. Trust me; that is the last thing you want to experience.

Let’s start with some background: A resale price maintenance agreement is a deal between, for example, a supplier and a retailer that the retailer will not sell the supplier’s product to an end user (or anyone, for that matter) for less than a certain amount. It is a straight vertical price-fixing agreement.

That type of agreement has a storied—and controversial—past. Over a hundred years ago, the Supreme Court in a case called Dr. Miles declared that this type of vertical price fixing is per se illegal under the federal antitrust laws. This is a designation that is now almost exclusively limited to horizontal agreements.

During the ensuing hundred years or so, economists and lawyers debated whether resale price maintenance (RPM) really should be a per se antitrust violation. After all, there are procompetitive reasons for certain RPM agreements and the per se label is only supposed to apply to activity that is universally anticompetitive.

After a trail of similar issues over the years, the question again landed in the Supreme Court’s lap in a case called Leegin in 2007. In a highly controversial decision that led to backlash in certain states, the Supreme Court lifted the per se veil from these controversial vertical agreements and declared that, at least as far as federal antitrust law is concerned, courts should analyze resale price maintenance under the rule of reason (mostly).

You can read more about Leegin and how courts analyze these agreements in our prior article. And if you want to learn more about how certain states, like California, handle resale price maintenance agreements, you can read this article. Finally, if you are looking for a loophole to resale price maintenance agreements, read our article about Colgate policies and related issues.

Minimum advertised pricing policies (MAP) are related to resale price maintenance: you can read our article on MAP pricing and antitrust here. You might also want to read Steven Cernak’s article about the four questions you should ask before worrying about the antitrust risks of new distributor restraints.

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Colgate Doctrine

Author: Jarod Bona

As an antitrust attorney with an antitrust blog, my phone rings with a varied assortment of antitrust-related questions. One of the most common topics involves resale-price maintenance. “Resale price maintenance” is also a common search term for this blog.

That is, people want to know when it is okay for suppliers or manufacturers to dictate or participate in price-setting by downstream retailers or distributors.

I think that resale-price maintenance creates so many questions for two reasons: First, it is something that a large number of companies must consider, whether they are customers, suppliers, or retailers. Second, the law is confusing, muddled, and sometimes contradictory (especially between and among state and federal antitrust laws).

If you want background on resale-price maintenance, you might also review:

Here, we will discuss alternatives to resale-price maintenance agreements that may achieve similar objectives for manufacturers or suppliers.

The first and most common alternative utilizes what is called the Colgate doctrine.

The Colgate doctrine arises out of a 1919 Supreme Court decision that held that the Sherman Act does not prevent a manufacturer from announcing in advance the prices at which its goods may be resold and then refusing to deal with distributors and retailers that do not respect those prices.

Businesses (with some exceptions) have no general antitrust-law obligation to do business with any particular company and can thus unilaterally terminate distributors without antitrust consequences. Before you rely on this, however, you should definitely consult an antitrust attorney, as the antitrust laws create several important exceptions, including refusal to deal, refusal to supply, and overall monopolization limitations.

Both federal and state antitrust law focuses on the agreement aspect of resale-price maintenance agreements. So if a company unilaterally announces minimum prices at which resellers must sell its products or face termination, the company is not, strictly speaking, entering an agreement.

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Golden Gate Bridge California

Author: Jarod Bona

In an earlier article, we discussed Leegin and the controversial issue of resale-price maintenance agreements under the federal antitrust laws. We’ve also written about these agreements here. And these issues often come up when discussing Minimum Advertised Price (MAP) Policies, which you can read about here.

As you might recall, in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet), the US Supreme Court reversed a nearly 100-year-old precedent and held that resale-price maintenance agreements are no longer per se illegal. They are instead subject to the rule of reason.

But what many people don’t consider is that there is another layer of antitrust laws that govern market behavior—state antitrust law. Many years ago during my DLA Piper days, I co-authored an article with Jeffrey Shohet about this topic. In many instances, state antitrust law directly follows federal antitrust law, so state antitrust law doesn’t come into play. (Of course, it will matter for indirect purchaser class actions, but that’s an entirely different topic).

For many states, however, the local antitrust law deviates from federal law—sometimes in important ways. If you are doing business in such a state—and many companies do business nationally, of course—you must understand the content and application of state antitrust law. Two examples of states with unique antitrust laws and precedent are California, with its Cartwright Act, and New York, with its Donnelly Act.

California and the Cartwright Act

This blog post is about California and the Cartwright Act. Although my practice, particularly our antitrust practice, is national, I am located in San Diego, California and concentrate a little extra on California. Bona Law, of course, also has offices in New York office, Minneapolis, and Detroit.

As I’ve mentioned before, the Supreme Court’s decision in Leegin to remove resale-price maintenance from the limited category of per se antitrust violations was quite controversial and created some backlash. There were attempts in Congress to overturn the ruling and many states have reaffirmed that the agreements are still per se illegal under their state antitrust laws, even though federal antitrust law shifted course.

The Supreme Court decided Leegin in 2007. It is 2020, of course. So you’d think by now we would have a good idea whether each state would follow or depart from Leegin with regard to whether to treat resale-price maintenance agreements as per se antitrust violations.

But that is not the case in California, under the Cartwright Act. Indeed, it is an open question.

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Antitrust-and-Distribution-200x300
Contrary to the belief of many of today’s businesspeople, antitrust law’s coverage of distribution did not start with Amazon or even the Internet.  For decades, manufacturers have sold their products to resellers of all types to increase the distribution of their products.  Manufacturers always have been interested in how their products, often with their brands, are resold.  They often have tried to dictate or influence the pricing and marketing tactics of their resellers.

Since 1890, US federal antitrust law has been there every step of the way, drawing the line between permissible and impermissible restraints.  The 2020 edition of Cernak’s Antitrust in Distribution and Franchising summarizes where those lines are today.

In just over one hundred pages, the book provides concise, plain English coverage of all the antitrust topics manufacturers and retailers—and their representatives—need to understand.  Businesspeople can quickly get up to speed on potential distribution options.  Libraries can provide their users, especially students, an efficient way to start their research.  Generalist lawyers can review summaries of the key principles and cases necessary to assist their clients.

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Author: Steven Cernak

Like many crisis situations, the Coronavirus Pandemic has created concerns and even outcry about price gouging for certain products.

If your company manufactures one of these products and your dealers and retailers have suddenly jacked up prices for them, what can you do?

Antitrust-Pricing-Restraints-300x150
Author: Steven Cernak

While I was the in-house antitrust lawyer for General Motors, outside counsel on several occasions suggested to me that GM should “institute a Colgate program” or “a minimum advertised price (MAP) program.”  I am confident that all those lawyers could have helped build a fine Colgate program or other method that would restrict how GM dealers and distributors priced and marketed GM products – but the suggestion was still wrong for a few reasons.

First, it vastly overestimated the control that I or any other lawyer had over GM pricing decisions.  More importantly, it assumed that the suggested restraint was right for that GM product at that time, an unsafe assumption given the wide variety of products and services that GM sells in different regulatory and competitive environments.  Before suggesting a tool to use, the attorney should have helped me determine if it was right for GM’s business situation.

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