The Shifting Sands of Resale Price Maintenance in 2012

Also published at website of Compton Antitrust Law Office, http://comptonantitrust.com/?p=350

On July 26th Bill Baer testified before the Senate Judiciary Committee, which was considering his nomination to become the DOJs chief antitrust enforcer. Bill is highly respected and well qualified to be Assistant Attorney General for Antitrust, so the hearings went well. But in otherwise unremarkable remarks, he staked out a position on resale price maintenance (RPM) that sent tremors through the global antitrust establishment. In a nutshell, Mr. Baer as future AAG signaled support for Congressional repeal of the Supreme Courts 2007 Leegin decision. In Leegin, the Court overturned the 100 year-old precedent of Dr. Miles, under which RPM had always been deemed per se illegal. After Leegin, RPM was to be assessed under the much more lenient rule of reason balancing test. Reasonable lawyers and business people differed in 2007 about whether RPM should remain per se illegal, as invariably leading to higher consumer prices. In fact, that debate was in full cry long before 2007. But the Supreme Court has now spoken, and five years on is no time to reverse course once again. The problem posed by Bill Baers comments has to do with maintaining some semblance of antitrust status quo that is sufficient for business (and the lower courts) to rely upon. RPM policy is important to the choices businesses make in structuring their go-to-market distribution and pricing schemes. Frequent wrenching changes to the law of RPM can be far more damaging than staying with one approacheven if one believes it to be the wrong one. Ironically, nominee Baer criticized Leegin because it created a dichotomy between federal and state law on the legality of RPM agreements between suppliers and their resellers. That was a fair point in 2007. Since (and despite) Leegin, states like California and New York have prosecuted RPM cases under state laws, many of which profess adherence to the per se rule. Maryland has enacted a Leegin repealer statute for commerce within its borders. And Congress has grumbled about Leegin, initiating several efforts to overturn the case at the federal level.

But the U.S. high court spoke in 2007, with years of study and debate behind it. Federal courts have been living with the rule of reason in RPM cases for five years now. The many states that follow federal precedents in applying their little Sherman Act statutes must also comport with Leegins rule of reason approach to RPM. Other states will, over time, no doubt fall in line as well. After all, the weight of economic literature heavily criticized per se treatment for RPM; indeed, decreasing reliance on the per se rule had been an inexorable trend in U.S. antitrust law for at least a decade before Leegin. As pointed out in an excellent article by Professor Andy Gavil, a number of cases before Leegin had created exceptions to per se liability for conduct that achieved the same results as RPM. Consequently, if Congress repealed Leegin, it is not at all certain how its literal ban on RPM would affect the elaborate collection of law that moderated and qualified the rule of Dr. Miles over nearly a century. [A. Gavil, Resale Price Maintenance in the Post-Leegin World, The CPI Antitrust Journal (June 2010), p. 7, available at https://www.competitionpolicyinternational.com/resale-price-maintenancein-the-post-leegin-world-a-comparative-look-at-recent-developments-inthe-united-states-and-european-union/] Perhaps more importantly, our antitrust neighbors have begun turning their regimes away from hard core treatment of RPMno doubt in part due to the new teaching of our Supreme Court. The EUs June 1, 2010 Guidelines on Vertical Restraints, for example, formally retain the hard core label for RPM, but take pains to acknowledge the potential efficiency gains that can flow from RPM and other vertical restraints. Canadas bow to the changed U.S. law on RPM was even more dramatic. Before March 2009 amendments to the Competition Act, price maintenance was a criminal offense in Canada; even MAP (minimum advertised price) programs so common in the U.S. were prohibited. The post-Leegin amendments in Canada removed criminal prohibitions of RPM replacing them with a civilly enforceable provision keyed on whether the RPM has an adverse effect on competition in a market. A fly on the wall of antitrust enforcers in the EU and Canada, after Bill Baers remarks, might well have heard loud groans: Here we go again! First the Yanks jettison 100 years of tradition (admittedly unhampered by progress), and now after weve pledged obeisance by amending our laws and guidelines, their DOJ threatens to help Congress reverse course again! My personal hope is that future AAG Baers comments were also more

personal than predictive of the DOJs future RPM policy. U-turns in antitrust law, on any of its roads, may be exciting for lawyers, but they are invariably bad for business. These shifting sands in RPM should be given time to settle.