presents resale price maintenance: minimizing...

presents

Resale Price Maintenance: Minimizing Antitrust Scrutiny

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Structuring Pricing Agreements Amid Differing State, Federal and International Treatment of RPM

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:Ryan C. Tisch, Counsel, Crowell & Moring, Washington, D.C.

Lizabeth A. Brady, Chief, Multistate Antitrust Enforcement, Florida Attorney General's Office, Tallahassee, Fla.Phili C L P t H L ll W hi t D C

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Philip C. Larson, Partner, Hogan Lovells, Washington, D.C.

Tuesday, August 10, 2010

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The Federal Law on Resale PriceThe Federal Law on Resale Price Maintenance Agreements:

The More Things Change . . .g g

Ryan C. TischCrowell & Moring LLPg

August 10, 2010

4

What is Resale Price Maintenance?

• A vertical agreement, usually between manufacturers and their distributors ormanufacturers and their distributors or retailers

• On the price at which the distributor or• On the price at which the distributor or retailer may resell a product

Maximum resale price maintenance is analyzed– Maximum resale price maintenance is analyzed under the rule of reason since State Oil v. Khan(1997).( )

– Minimum resale price maintenance has had a more tortured history.

5

The Way We Were

• Dr. Miles (1911): Resale price maintenance agreements violate Section 1agreements violate Section 1.

• Colgate (1919): Announcement of a unilateral pricing policy and subsequentunilateral pricing policy and subsequent refusals to deal do not violate Section 1.Beech Nut (1922); Parke Davis (1960):• Beech-Nut (1922); Parke, Davis (1960): Acquiescence from retailers through coercion is still an agreement scope ofcoercion is still an agreement – scope of Colgate extremely limited.

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The Way We Were

• Spawned a generation of other pricing methodologies designed to achieve pricingmethodologies designed to achieve pricing uniformity without offending the law:

“Colgate policies”– Colgate policies– Price suggestion (MSRP)

• Led to some mixed results:• Led to some mixed results:– No history of rule of reason analysis of RPM

Effective control of resale prices by many– Effective control of resale prices by many manufacturers, with high transaction costs

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Today’s Landscape (In Theory)

• Leegin (2007):Considered potential procompetitive– Considered potential procompetitive justifications for RPM (incentivizing retail services, promoting market entry) and potential , p g y) panticompetitive harm (policing cartels, forestalling retail innovation)

– Decided that minimum RPM does not “always or almost always tend to restrict competition and decrease output ” and that the rule of reason isdecrease output, and that the rule of reason is the appropriate mode of analysis.

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The Leegin Roadmap

• Leegin set out some potential factors for a court to consider in a rule of reason analysiscourt to consider in a rule of reason analysis of RPM:

Prevalence: how many manufacturers in the– Prevalence: how many manufacturers in the industry use RPM?

– Impetus: did the manufacturer or the pdistributors/retailers push for RPM?

– Market Power: does the manufacturer or do the distributors/retailers have a market position that would allow them to abuse RPM?

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So That Settles It, Right?

• Meager post-Leegin caselawBabies R Us– Babies R Us

• Case survived motion to dismiss; class certified July 2009y

• Relies on theory in which dominant bricks and mortar retailer coerced manufacturers to agree on RPM ith I t t t il tiRPM with Internet retailers, preventing discounting

• Ticks two of the three Leegin boxes: a dominantTicks two of the three Leegin boxes: a dominant retailer pushing for RPM

– Toledo Mack

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Nope.

• Confusion continues to reign over RPM at the federal levelthe federal level.– Very little caselaw

Enforcement priority from DOJ– Enforcement priority from DOJ– Potential federal repealer legislation– And that’s all besides the state and international– And that s all besides the state and international

issues!

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Views from the Federal Enforcement Community

• Agencies view RPM generally negativelyFTC and DOJ support Leegin repealer– FTC and DOJ support Leegin repealer legislation

– Agencies feeling their way toward anAgencies feeling their way toward an enforcement rationale

• Nine West– FTC permits RPM but ominously focuses on its

potential anticompetitive outcomes

• NAMMNAMM

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Agency Perspective

• Christine Varney’s Views“Structured application” of Leegin– “Structured application” of Leegin

– Plaintiff must show existence and scope of agreement and structural conditions suggestingagreement, and structural conditions suggesting policy is anticompetitive.

– Burden shifts to defendant to show plaintiffs are pwrong about the market, or that policy is procompetitive.

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Varney Paradigms

• “Manufacturer-Driven RPM”Manufacturer Collusion– Manufacturer Collusion

• RPM covers much of the market• Manufacturers can coordinate (market structure isManufacturers can coordinate (market structure is

concentrated)• RPM helps detect cheating

– Exclusion Strategy• Dominant manufacturer• RPM covers most of the market• Foreclosure effects on rival manufacturer

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Varney Paradigms

• Retailer-Driven RPM– Retailer Exclusion– Retailer Exclusion

• One or more retailers with market power• Coercion of manufacturers to adopt RPM, and RPM

covers much of the market • Significant exclusionary effect on actual rival

Retailer Collusion– Retailer Collusion• RPM is pervasively used (more than 50% of market)• Retailer coercion (not merely persuasion)• Manufacturers unable to thwart retailer collusion

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Federal Repealer Legislation

• Parallel bills in House and SenateS 148• S. 148 – Introduced January 2009

R t d t f J di i C t J l 2010– Reported out of Judiciary Cmte. July 2010• H. 3190

– Introduced July 2010– Still in committee

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So, Where Does That Leave Us?

• Uncertainty forces a return to the (relative) safety of Colgate read in light of recentsafety of Colgate, read in light of recent single-firm conduct decisions

• Regime permits manufacturers to achieve• Regime permits manufacturers to achieve relative price uniformityBut prohibits the efficiencies of an• But prohibits the efficiencies of an agreement in favor of MSRPs/Colgate policiespolicies

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STATE ENFORCEMENT IN A POST‐LEEGIN WORLD

LIZABETH A. BRADYCHIEF OF MULTISTATE ANTITRUST ENFORCEMENT OFFICE OF THE FLORIDA ATTORNEY

GENERALTALLAHASSEE, FLORIDA*

*THE VIEWS EXPRESSED IN THIS POWER POINT ARE MY OWN AND NOT THOSE OF THE FLORIDA ATTORNEY GENERAL, NAAG, OR ANY OTHER ATTORNEY GENERAL

HISTORICAL PERSPECTIVEHISTORICAL PERSPECTIVE

• Before the Leegin decision States were veryBefore the Leegin decision States were very active in pursuing vertical price fixing cases when it appeared that consumers hadwhen it appeared that consumers had suffered economic harm

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EXAMPLES INCLUDEEXAMPLES INCLUDE

• State of New York v. Keds Corporation 1994‐1State of New York v. Keds Corporation 1994 1 Trade cases (CCH) §78,549.(S.D.N.Y. Mar 21 1994)

• In re Nine West Shoes Antitrust Litigation 80 F. Supp. 2d 181 (S.D.N.Y Jan 7 2000)

• In re Compact Disc Minimum Advertised Price Antitrust Litigation 216 FRD 197 (D.Me 2003)

• State of NY et al. v. Salton 265 F. Supp. 2 d 310 S.D.N.Y. May 30, 2003

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• In each of these cases states were able toIn each of these cases, states were able to recover significant amounts on behalf of their consumersconsumers

• Keds ‐ $ 4 Million

• Nine West‐ $ 34 Million $

• CD’s ‐ $143 Million

• Salton ‐ $ 8.2 Million

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• What is the appeal of vertical cases• What is the appeal of vertical cases to AGs?

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• Higher prices to consumers are the inevitableHigher prices to consumers are the inevitable result of retail price maintenance

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• Opportunity to recover damages on behalf ofOpportunity to recover damages on behalf of consumers

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• Strong public belief that retail priceStrong public belief that retail price maintenance is or should be illegal

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THE LEEGIN DECISIONTHE LEEGIN DECISION

• Ended per se treatment of minimum resaleEnded per se treatment of minimum resale price maintenance agreements

• Adopted a “rule of reason analysis”• Adopted a rule of reason analysis

• But it did not legalize all minimum resale i iprice maintenance agreements

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STATE REACTIONS TO LEEGINSTATE REACTIONS TO LEEGIN

• Support federal legislation overturning LeeginSupport federal legislation overturning Leegin

• Enact “Leegin Repealer Legislation” similar to Illinois Brick Repealer legislationIllinois Brick Repealer legislation

• Rely on state law

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STATE SUPPORT OF FEDERAL LEGISLATION REPEALING THE LEEGINLEGISLATION REPEALING THE LEEGIN

DECISION• October 30 2007 Kohl Clinton and Biden introduce• October 30, 2007 Kohl, Clinton and Biden introduceS 2261 “Discount Pricing Consumer Protection Act”– 32 States expressed support32 States expressed support– Didn’t make it out of committee

• January 2009 Kohl introduces S.148 to restore original anti‐minimum pricing provisions of the Sherman Act– Passed by voice vote out of committee in March 2010– Senate judiciary committee issued report recommending– Senate judiciary committee issued report recommending passage on July 21, 2010

– 41 States expressed support

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LEEGIN REPEALER LEGISLATIONLEEGIN REPEALER LEGISLATION

• MARYLAND PASSES LEGISLATION TO REPEALMARYLAND PASSES LEGISLATION TO REPEAL LEEGIN DECISION EFFECTIVE OCTOBER 1, 2009

– “a minimum price below which a retailer, wholesaler or distributor may not sell awholesaler or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce”of trade or commerce

– MD Code Ann., Comm Law §11‐204 (b)

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RELY ON STATE LAWRELY ON STATE LAW

• STATE POST LEEGIN LITIGATION– FOUR NOTABLE CASES

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• New York, Illinois, Michigan v Herman MillerMiller

USDC S.D.N.Y. 08‐cv‐02977 (Mar 21, 2008)

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ALLEGATIONSALLEGATIONS

• SRP used by Herman Miller to artificially inflateSRP used by Herman Miller to artificially inflate retail price and price levels of Aeron chairs

• Brought under Federal and State LawBrought under Federal and State Law

• Sherman Act and Clayton Act

NY G l B i l § 340(1) 342 342• NY General Business law § 340(1), 342, 342‐a

• 740 Illinois Compiled Statute 10/3

• Michigan Antitrust Reform Act, Mich Comp Laws Ann § 445.771, et seq.

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RESOULTION

• SETTLEDSETTLED

• INJUCTIVE RELIEF

$ 0 000• $750,000

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STATE EX REL COOPER v. MCLEOD OIL COMPANY INC.,

• (WAKE COUNTY SUPERIOR COURT)(WAKE COUNTY SUPERIOR COURT)

File No. 05 cv 13975 (July 30, 2005)

34


• Alleged that a gasoline jobber obtainedAlleged that a gasoline jobber obtained agreements from the retail stations it supplies to raise pricesto raise prices

All d i l i f N C G S § § 75 1 75 1 1• Alleged violation of N.C.G.S. § § 75‐1, 75‐1.1 and 75‐2

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RESOLUTIONRESOLUTION

• INJUNCTIVE RELIEFINJUNCTIVE RELIEF

• $25,000 CIVIL PENALTY

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PEOPLE OF CALIFORNIA v. DERMAQUEST, INC.

• No RG 10497526 (Cal Super Ct Alameda CtyNo RG 10497526 (Cal Super. Ct. Alameda Cty filed February 23, 2010)

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• DermaQuest entered into distribution andDermaQuest entered into distribution and sales agreements prohibiting sales at less than SRPSRP

• State alleged that the arrangement constituted vertical price maintenanceconstituted vertical price maintenance

• Brought under Cal. Bus. & Prof. Code section 1672016720

38


• SETTLEDSETTLED

• CONTRACTS TERMINATED

C• INJUNCTIVE RELIEF

• $70,000 CIVIL PENALTIES

• $50,000 ATTORNEYS’ FEES

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New York v. Tempur‐Pedic International, Inc.,

• No. 0400837 (N.Y. Sup. Ct., N.Y.C., filed March 29 2010)29, 2010).

40


• Alleges Tempra‐Pedic contractually restrainedAlleges Tempra Pedic contractually restrained discounting and made statements in writing that it would not do business with any retailerthat it would not do business with any retailer that charged retail prices different than those set by itset by it

• Alleges violations of New York state law section 369 a of New York General Businesssection 369‐a of New York General Business law

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• Fully briefedFully briefed– Argument August 10, 2010

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OTHER STATE STATUTORY OPTIONSOTHER STATE STATUTORY OPTIONS

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CONSUMER PROTECTION STATUTESCONSUMER PROTECTION STATUTES

• Vertical price fixing could be viewed as aVertical price fixing could be viewed as a deceptive and/or unfair trade practice

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INDUSTRY SPECIFIC STATUTESINDUSTRY SPECIFIC STATUTES

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LIQUOR OR BEERLIQUOR OR BEER

• Kan Stat Ann §41‐701(f)Kan. Stat. Ann. §41 701(f)

No supplier, wholesaler, distributor, manufacturer or importer shall by oral ormanufacturer or importer shall by oral or written contract or agreement, expressly or impliedly fix maintain coerce or control theimpliedly fix, maintain, coerce or control the resale price of alcoholic liquor, beer or cereal malt beverage to be resold by suchmalt beverage to be resold by such wholesaler, distributor, manufacturer or importerimporter.

46

RETAIL GASOLINERETAIL GASOLINE

• “It shall be unlawful for refiner or otherIt shall be unlawful for refiner or other supplier to fix or maintain the retail price of motor fuel at a retail outlet supplied by thatmotor fuel at a retail outlet supplied by that refiner or supplier”

Fla Stat §526 307(1)Fla. Stat. §526.307(1)

also N.Y. Gen Bus. Law §370‐F

47

• Be Careful What You Ask For And ProceedBe Careful What You Ask For And Proceed With Caution

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DESIGNING MINIMUM RPM PROGRAMS TO COMPLY WITH CONFLICTING LEGAL STANDARDSCOMPLY WITH CONFLICTING LEGAL STANDARDS

Philip C. LarsonHogan LovellsWashington DCWashington, DC(202) 637-5738 Strafford [email protected] August 10, 2010

The Challenge for CounselorsThe Challenge for Counselors

As the earlier presentations made clear, there is no easy or l l t t d th f li t i t i fl th lclearly protected path for suppliers trying to influence the resale

price of their products• Leegin seems to offer new flexibility but• Leegin seems to offer new flexibility but federal law only must be vertical and satisfy rule of reason must be vertical and satisfy rule of reason

• State laws will likely apply, and some much less flexible• International suppliers also need to consider enforcement• International suppliers also need to consider enforcement

policy of other nations in which their goods or services are sold

50

What are the alternatives?What are the alternatives?

If you can’t find a way not to have your sales subject to f i dl t t l t ti l tiunfriendly state law, potential options are• Agency relationship

U f h l l i ti l fl• Use of wholesale price as practical floor specified amount hi h f ifi d % f ’ l higher of specified amount or % of customer’s resale

price• MAP Program intended to affect only advertised not• MAP Program – intended to affect only advertised -- not

actual -- resale price• Colgate program

51

g p g

The Challenges of MAP ProgramsThe Challenges of MAP Programs• Traditionally treated more favorably than RPM agreements or

policies where V l Voluntary Adherence to MAP merely controls customer’s eligibility for

supplier’s coop advertising funds Customer free to advertise below MAP at own expense

• Courts and agencies have been less sympathetic where not all these elements present [e.g., Worldhomecenter.com v. Kichler, 05-cv-3297, 2007 WL 963206 (E.D.N.Y. 2007); Worldhomecenter.com v. Thermasol, 05-cv-3298, 2006 WL 1896344 (E.D.N.Y. 2006); In the matter of Sony Music Entertainment, Inc. et al., FTC Docket No. C-3971 reported at http://www ftc gov/os/caselist/c3971 shtm]C 3971, reported at http://www.ftc.gov/os/caselist/c3971.shtm]

• Attempts to adopt and enforce MAP Programs especially challenging in the context of Internet sales May be difficult to distinguish advertised and actual resale prices

52

May be difficult to distinguish advertised and actual resale prices May be more likely to affect actual resale prices

Challenges for Colgate ProgramsChallenges for Colgate Programs

• Contrary to human nature Too much “chatter” Hard to keep clearly unilateral and supplier-imposed C lt i l f j t Can result in loss of major customers

• Seems arbitrary if properly enforced• May prompt litigation by terminated dealers (in addition to• May prompt litigation by terminated dealers (in addition to

governmental challenges)• Seeks to achieve the same result as an agreement –

legality may depend on how result is achieved and not on outcome

• NY challenge to Tempur-Pedic policy could be seen as

53

NY challenge to Tempur-Pedic policy could be seen as challenge even to Colgate

“Maximizing the Odds” of a Unilateral Program Under ColgateUnder Colgate

These may not all be necessary in every instance, and they t b ffi i t i i t b t h ld imay not be sufficient in some instances, but should increase

odds of success• Use of written statement to explain the policy• Use of written statement to explain the policy Not in dealer agreement Explain reasons scope enforcement etc – see key Explain reasons, scope, enforcement, etc. – see key

points below Be sure consistent with any “dealer” agreement, y g ,

“dealer” protection statute, etc. Educate both internal and external readers as to what

li i d i ’ d i d h i ’ d i i

54

supplier is and isn’t doing and how it’s doing it

“Maximizing the Odds” of a Unilateral Program Under Colgate (cont.)Under Colgate (cont.)

• Be sure it’s unilateral and vertical No agreement with dealers No agreement with other suppliers Not imposed on supplier by dealer group or, perhaps,

by powerful individual dealerS h li d h l i f• State what policy and what penalties are for non-compliance

• Confirm dealer freedom to decide whether to comply• Confirm dealer freedom to decide whether to comply• Tell dealers not to tell supplier whether they will comply

and that supplier doesn’t want to knowpp


• Ask dealers not to complain about or report conduct of th d l d th t ill h dlanother dealer and say that company will handle

enforcement on its own• Don’t discuss what one dealer is doing with another dealer• Don t discuss what one dealer is doing with another dealer• No warnings or “second chances”• No exceptions or “protected” dealers – enforce uniformly• No exceptions or protected dealers – enforce uniformly

as to all• Enforce “quietly” – no notice except to the dealer who is q y p

affected unless some compelling reason to do so• Termination is the safest remedy (however excessive or

bi i i i )arbitrary it may seem in some circumstances)


• Any termination should be for indefinite, unspecified periodperiod

• Designate one person (or a very small number) as the only one(s) authorized to discuss the policy with dealers Tell dealers that no one else is authorized to discuss

the policy with them T ll th li l th t th bj t t Tell other supplier employees that they are subject to

discipline up to and including termination if they discuss the policy with dealers

• Train the authorized person(s) and give them a list of accurate and appropriate answers for questions likely to arisearise


• Train other supplier employees (especially sales and k ti ) b t th f th li d thmarketing) about the reasons for the policy and these

rules

Other Significant Factors Under Rule of Reason (If Policy Not Unilateral)Reason (If Policy Not Unilateral)

• Origins (again important) P• PurposeProtect image of productEncourage dealer promotion and servicesEncourage dealer promotion and servicesAvoid “free riding”Promote interbrand competition

• Consistency of policy with purpose• Supplier’s market share

N b d bi d k t h f th li• Number and combined market share of other suppliers with similar policy

• Number and combined market share of dealers affected b h li

59

by the policy

Other ConsiderationsOther Considerations

• Dual distribution • Preemption

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