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Resale Price Maintenance and Minimum Presenting a live 90-minute webinar with interactive Q&A Resale Price Maintenance and Minimum Advertised Pricing: Structuring to Minimize Antitrust Scrutiny State, Federal, and International Treatment of RPM Agreements and MAP Policies THURSDAY, FEBRUARY 28, 2019 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael A. Lindsay, Partner, Dorsey & Whitney LLP, Minneapolis William L. Monts, III, Partner, Hogan Lovells US, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1. Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-961-8499 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail [email protected] immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again. Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For additional information about continuing education, call us at 1-800-926-7926 ext. 2. Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “Conference Materials” in the middle of the left- hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon. U.S. Antitrust Rules for Unilateral Price Policies and Minimum Advertised Price Policies Michael A. Lindsay DORSEY & WHITNEY LLP February 28, 2019 Some Terminology • “Resale Price Maintenance” (RPM) describes a range of practices by which a manufacturer tries to influence a reseller’s pricing of the manufacturer’s products – Vertical relationship – “Vertical Price Fixing” is what you say if you don’t like it! • Two significant distinctions to bear in mind – Distinction 1: Actual selling price vs. advertised price – Distinction 2: Agreement vs. unilateral policy • “RPM Agreement” typically applies to actual selling price 6 Terminology, cont’d • Minimum Advertised Price Policy (MAP) – Applies only to advertised price, not to actual selling price • Gray area as to where advertising ends and selling price begins – In-store advertising in bricks & mortar stores – “Shopping cart” prices in online world • Unilateral Pricing Policy (UPP) – Applies to both advertised price and actual selling price – Conceptual distinction between advertised price and actual selling price becomes irrelevant – Sometimes referred to as “RPM Policy” or as “Colgate Policy” 7 Terminology, cont’d • Both UPP and MAP policies are unilateral policies – Reseller is free to disregard, but manufacturer can terminate or limit relationship – Inadvertence can convert a policy into an agreement • MAP can be implemented by agreement, rather than through unilateral policy – Debatable whether a contractual right is valuable for manufacturer – More value to legal enforceability insofar as MAP applies to “coop” advertising 8 U.S. Federal Law 9 RPM Agreements • Under federal law, resale price agreements that are truly vertical agreements are judged under the rule of reason – This was not the case when many of us went to law school! – You will still find counsel and business people who remember the old rules – And US law is an outlier on the global stage • The rule of reason approach results from the gradual removal of vertical agreements from the per se category – 1997’s State Oil v. Khan abandoned per se rule for maximum resale price agreements – 2007’s Leegin abandoned per se rule for minimum resale price agreements 10 Leegin Rationale • Economics does not justify a per se prohibition of minimum RPM agreements – RPM is not “always or almost always” anticompetitive – RPM can • Promote inter-brand competition by reducing intra-brand competition • Encourage provision of services by reducing “free-rider” problem of “discounting” resellers • Facilitate market entry by new brands, products, or firms • Administrative convenience does not justify a per se prohibition • But Leegin did not establish a rule of per se legality – Rule of Reason applies 11 When RPM Agreements Might Be Illegal • Enforcement mechanism for manufacturer cartel – “An unlawful cartel will seek to discover if some manufacturers are undercutting the cartel's fixed prices. Resale price maintenance could assist the cartel in identifying price-cutting manufacturers who benefit from the lower prices they offer” • Enforcement mechanism for retailer cartel – “A group of retailers might collude to fix prices to consumers and then compel a manufacturer to aid the unlawful arrangement with resale price maintenance” • Protecting a dominance of manufacturer or retailer – “A dominant retailer . might request resale price maintenance to forestall innovation in distribution that decreases costs” – “A manufacturer with market power . might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants” 12 MAP Policies and Agreements • Rationale in Leegin applies to MAP as well as RPM • Even some pre-Leegin cases suggested rule of reason treatment – In re Nissan Antitrust Litig., 577 F.2d 910, 915–17 (5th Cir.1978) – FTC in CD Music found MAP programs illegal under rule of reason where programs adopted by music manufacturers with collective 85%+ market share, each of whom had must-carry recordings – In Re Compact Disc Minimum Advertised Price Antitrust Litig., 216 F.R.D. 197 (D. Me. 2003) (citing lack of precedent for holding MAP policies or agreements illegal per se) 13 State Law 14 State Antitrust Law • States can and do have their own antitrust laws • Federal antitrust laws do not pre-empt state law – California v. ARC America Corp., 490 U.S. 93 (1989) • States are free to use antitrust laws to regulate markets somewhat differently than federal laws – Some states have broad principles or requirements (in statutes or in case law) to construe state law consistent with federal law • States have not uniformly embraced Leegin for interpretation of state antitrust laws 15 State Laws, cont’d • Resale pricing agreements (on actual reselling price) – Are judged under the rule of reason in most states, but – Remain per se illegal in several states (notably California and Maryland) • 50-state survey of state laws relating to RPM is available on Antitrust Source – https://www.americanbar.org/content/dam/aba/publishing/antitrus t_source/lindsay_chart.authcheckdam.pdf (last updated April 2017) – Send comments to [email protected] 16 California Statute • A “trust” is a combination – To “increase the price of merchandise or any commodity” • CAL. BUS. & PROF. CODE § 16720(b) (2009) – To “fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity” • CAL. BUS. & PROF. CODE § 16720(d) – To “agree in any manner to keep the price of such article . at a fixed or graduated figure” • CAL. BUS. & PROF. CODE § 16720(e) – To “establish . the price of any article . between them . and others, so as directly or indirectly to preclude a free and unrestricted competition . .”) • CAL. BUS. & PROF. CODE § 16720(e) 17 California State Enforcement • California state AG filed a series of enforcement actions in early part of this decade, taking position that RPM agreements continue to be per se violations of state law • People v. DermaQuest (2010) – “Distributor may not resell Product in a price structure that yields a Product price at ultimate retail sale below Dermaquest's Suggested Retail Price (DSRP)” – Consent order for injunction, $70,000 in civil penalties, and $50,000 in costs • People v. BioElements (2011) – Consent order for injunction, $15,000 in civil penalties, and $36,000 in costs 18 California Private Litigation • Darush MD APC v. Revision LP – UPP policy, but coupled with multiple in-person and telephone efforts to secure compliance – Applies per se rule under Cartwright Act • No. 12-cv-10296, 2013 WL 1749539 (C.D. Cal. Apr. 10, 2013) • Alsheikh v. Superior Court – Applies per se rule under Cartwright Act • 2013 WL 5530508, at *3 (Cal. App. 2 Dist. Oct. 7,2013) • In re Online Travel Co. (OTC) Hotel Booking Antitrust Litig. – “lower courts have diverged” on whether RPM agreements are per se unlawful in California post-Leegin, “leaving the law in California unclear” • No. 3:12-cv-3515-B, 2014 U.S. Dist. LEXIS 152428, at *47 (N.D. Tex. Oct. 27, 2014) 19 Maryland • Any agreement “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 Md. Code Ann., Com. Law § 11-204(b) • In 2016, Maryland AG sued J&JVC for UPP that allegedly included terms negotiated with Costco – For UPP to be legal in MD, policy “must result from the purely unilateral decision of a manufacturer, without negotiation as to its terms, and must be enforced unilaterally” • No substantive rulings, and case settled in 2017 with J&JVC Assurance of Discontinuance and payment of $50,000 Complaint, State of Maryland v.
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