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Leegin and RPM [Nearly] One Year Later

Leegin and RPM [Nearly] One Year Later. Michael Lindsay. Leegin. Decided in June 2007 Reversed long-standing Dr. Miles rule of per se illegality for minimum resale price maintenance

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Leegin and RPM [Nearly] One Year Later

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  1. Leegin and RPM[Nearly] One Year Later Michael Lindsay

  2. Leegin • Decided in June 2007 • Reversed long-standing Dr. Miles rule of per se illegality for minimum resale price maintenance • Per se rule appropriate only for restraints that “restraints . . . that would always or almost always tend to restrict competition and decrease output”

  3. Leegin, cont’d • “Economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance” • Prevent free-riding and thus promote provision of pre-sale services • Facilitate market entry for new firms and brands

  4. Leegin, cont’d • “Minimum resale price maintenance can stimulate interbrand . . . by reducing intrabrand competition” • “primary purpose of the antitrust laws is to protect [interbrand] competition”

  5. Issues • What will Congress do? • How will federal courts use Leegin? • What will states (and state attorneys general) do? • What will juries think about RPM?

  6. Proposed “Discount Pricing Consumer Protection Act” • July 31, 2007: Senate Judiciary Subcommittee on Antitrust holds hearing on Leegin • Oct. 30, 2007: Senator Kohl introduces S.2261 • Bill would amend Sherman Act §1,adding: • “Any contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate this Act.”

  7. Kohl Remarks on Discount Pricing Act • “Allowing manufacturers to set minimum retail prices will threaten the very existence of discounting and discount stores, and lead to higher prices for consumers.”

  8. Remarks on Discount Pricing Act,cont’d • “[Even if] today's giant retailers such as Wal-Mart, Best Buy or Target can`take care of themselves’ and have sufficient market power to fight manufacturer efforts to impose retail prices . . . I am particularly worried about the effect of this new rule permitting minimum vertical price fixing on the next generation of discount retailers.”

  9. Remarks on Discount Pricing Act,cont’d • “If new discount retailers can be prevented from selling products at a discount at the behest of an established retailer worried about the competition, we will imperil an essential element of retail competition so beneficial to consumers.”

  10. Some Cases • Jacobs v. Tempur-Pedic Int ’l, WL 4373980, at ‘3-’4 (N.D. Ga. Dec. 11, 2007) (applying Leegin and Twombly on Rule 12 motion; analyzing under Rule of Reason, dismissing for failure to allege plausible market and injury) • Alaska Rent-a-Car, Inc. v. Cendant Corp., 2007 WL 2206784 (D. Alaska Jul. 27 2007) (rejecting challenge to pricing provisions in national accounts program, reference to Leegin in dictum) • Arista Records LLC v. Lime Group LLC, 532 F.Supp.2d 556 (S.D.N.Y. 2007) (noting vertical RPM agreements can still violate antitrust laws, but finding lack of antitrust injury)

  11. Total Benefits Planning Agency Inc. v. Anthem Blue Cross & Blue Shield, 2007 WL 2156657 (S.D. Ohio July 25, 2007) (analyzing vertical price restraint under Rule of Reason, dismissing under Rule 12) • Lotus Business Group LLC v. Flying J Inc., 32 F.Supp.2d 1011 (E.D. Wis. 2007) (sustaining Wisconsin’s gasoline minimum mark-up statute under state action doctrine --even though industry-wide minimum would suppress interbrand competition and be condemned under Leegin Rule of Reason approach) • Tunica Web Advertising v. Tunica Casino Operators Association, 496 F.3d 403 (5th Cir. 2007) (in group boycott case, citing Leegin in support of proposition that per se rule only applies in situations where one of the conspirators is a direct competitor of the victim)

  12. Herman Miller Inc. • New York, Michigan, Illinois challenge a MAP program for Aeron chairs • Began with discounters, followed by dealer complaints and adoption of MAP policy • One-year termination for noncompliance • Allegations • “Agreements” on advertised price • Higher prices through elimination of “advertised price as selling tool”

  13. Result • Consent decree • Settlement payment to States: $750,000 • Case brought under federal and state laws • Illinois statute expressly provides Rule of Reason analysis for vertical pricing agreements

  14. Lessons from Mock Trial • Program must have explainable rationale • Benefits to consumers, not to dealers • Must address loss of retailer’s independence • Risk-shifting, such as inventory buy-back • Practical burden for defense to justify program • “We’re all consumers”

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