Resale Price Maintenance and Minimum Advertised Pricing: Structuring - PowerPoint PPT Presentation

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 .

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U.S. Antitrust Rules for Unilateral Price Policies and Minimum Advertised Price Policies Michael A. Lindsay D ORSEY & W HITNEY 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 lindsay.michael@dorsey.com 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