May

08

Posted by : Matthew Wild | On : May 8, 2012

On May 4, 2012, the Kansas Supreme Court held in O’Brien v. Leegin Creative Leather Products, Inc. that resale price maintenance is a per se offense of the Kansas antitrust law.  The Kansas statute differs meaningfully (with express prohibitions on agreements involving the pricing of goods) from the general language of § 1 of the Sherman Act (prohibiting only agreements in “restraint of trade”).  As noted in earlier Posts, the U.S. Supreme Court’s decision in, Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007), which held that resale price maintenance is subject to the rule of reason under §1 of the Sherman Act, has not been favorably received.  Congress has proposed legislative repeal; several state attorneys’ general have obtained consent decrees prohibiting such practices as per se offenses of their state antitrust laws; and Maryland repealed Leegin.  It remains to be seen how long Leegin survives.  Companies should remain cautious in imposing RPM programs because they may still face substantial liability under state law.

Author: Matthew S. Wild, Wild Law Group PLLC

Jan

19

Posted by : Matthew Wild | On : January 19, 2011

On January 11, 2011, Bioelements and the California Attorney General entered into a consent decree that enjoins Bioelements from entering into any agreements with retailers and distributors concerning what price they may charge for Bioelements’ products and to send notice to all retailers and distributors that any such polices are immediately rescinded.  The action was brought in California Superior Court under the Cartwright Act, which the California Attorney General has interpreted to provide per se treatment for resale price maintenance in contrast to Section 1 of the Sherman Act after Leegin.  See March 12, 2010 Post.  Notably, the injunction extends to all of Biolelements’ transactions even if they take place outside of California.  Bioelements also had to pay $51,000 in fines and expenses.  This action is a cautionary tale that companies cannot rely on Leegin that resale price maintenance will be subject to lenient rule of reason treatment.  A number of state attorneys general have brought resale price maintenance actions under their state laws and Maryland amended its antitrust law expressly to prohibit resale price maintenance.

Mar

12

Posted by : Matthew Wild | On : March 12, 2010

On February 23, 2010, the California Attorney General entered into a consent decree with Dermaquest, Inc., which prohibits Dermaquest from engaging in resale price maintenance.  Specifically, the order enjoins Dermaquest from requiring resellers to charge a specified price or to increase their prices.  The action was brought under the Cartwright Act and the Unfair Competition Law.  California now joins Illinois, New York and Michigan (see March 31, 2008 Post) in treating resale price maintenance as a per se offense in violation of its state antitrust law even though such conduct is subject to rule of reason review under section 1 of the Sherman Act after Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).  This case reinforces the dangers to a manufacture when it implements a resale price maintenance program under the belief that because such conduct might be permissible under the Sherman Act, there is no genuine exposure.  The California complaint and consent decree appear here:Dermaquest Complaint  and Dermaquest Judgment.

Oct

29

Posted by : Matthew Wild | On : October 29, 2009

In letters dated October 27, 2009 (State AG Letter re HR 3190; State AG Letter re S 148), 41 state attorneys general wrote to Congress asking them to overrule Leegin Creative Leather Product, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).  In Leegin, the Supreme Court held that resale price maintenance — the practice in which a manufacturer requires a retailer to sell its products at a certain price — was subject to the rule of reason.  In doing so, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons, Co., 220 U.S. 373 (1911), which held that resale maintenance is a per se violation of section 1 of the Sherman Act.  The state attorneys general urge passage of H.R. 3190, which provides that “[a]ny 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 section 1 of the Sherman Act.”  As reported in the May 23, 2008 Post, 35 state attorneys general wrote to Congress on May 8, 2008 asking that it enact nearly identical legislation (S. 2261).

Practitioners should know that resale price maintenance can still be a per se violation of state antitrust laws.  As reported in the May 4, 2009 Post, Maryland enacted such a law.  And as reported in the March 31, 2008 Post, the New York, Michigan and Illinois attorneys general brought an action against Herman Miller in which they alleged that Herman Miller’s resale price maintenance program was a per se violation of their state antitrust laws.  Herman Miller entered into a consent decree.

Oct

06

Posted by : Matthew Wild | On : October 6, 2008

The United States Court of Appeals for the Second Circuit recently held that Major League Baseball’s licensing of team logos was subject to rule of reason review under Section 1 of the Sherman Act.  The court affirmed summary judgment in favor of MLB because the appellant did not challenge the licensing program under that rule.  Major League Baseball Properties, Inc. v. Salvino, Inc., No. 06-1867 (2d Cir. Sept. 12, 2008) (attached MLB Properties v. Salvino).  The baseball clubs give (with a few exceptions) exclusive licensing rights to a single entity.  According to the MLB’s expert Frank Fisher (a world renowned economist), this system offers many efficiencies including allowing MLB licensing to compete better with other sports licensing; offering one-stop shopping to licensees; centralized management on matters such as quality control, intellectual property rights enforcement and negotiations and sales to licensees.  According to Fisher, these efficiencies should result in lower licensing fees.  The appellant had offered an expert report from economist Mr. Louis A. Guth, a Special Consultant for NERA, who disputed these efficiencies and asserted that the MLB licensing entity functioned as a cartel unresponsive to demand.  The Second Circuit affirmed the exclusion of Guth’s report under Daubert v. Merrell Dow because (unlike Fischer’s report) it was unsupported by evidentiary citations or empirical analysis.  The Second Circuit held that the rule of reason and not the per se rule or “quick look” analysis applied because the “arrangement might plausibly be thought to have a net precompetitive effect, or possibly no effect at all on competition.”  Through different reasoning, the Second Circuit in this case reached the same result as the Seventh Circuit did in a challenge to a nearly identical licensing program by the NFL.  See American Needle Inc. v. Nat’l Football League, No. 07-4006, 2008 WL 3822782 (7th Cir. Aug. 18, 2008) discussed in the Post of September 4, 2008.  In that case, the Seventh Circuit held that the NFL teams were incapable of conspiring with themselves under the Copperweld doctrine in these particular circumstances.  In this case, the Second Circuit did not address the Copperweld doctrine, but it did observe that the relevant market should include licenses for other professional sports.  Therefore, it would be unlikely for the MLB’s licensing activities to have an effect on competition.  This case should prove useful for practitioners for its discussion of when the per se rule, rule of reason or quick look analysis applies, the tests used under these analyses and the pitfalls of an inadequate expert report.

Jul

18

Posted by : Matthew Wild | On : July 18, 2008

The Tenth Circuit affirmed summary judgment dismissing a Complaint brought by an owner of a  windshield repair shop alleging State Farm’s policy that advises its insureds to replace (rather than repair) windshields with cracks longer than six inches violates Sections 1 and 2 of the Sherman Act and the Colorado Consumer Protection Act. Campfield v. State Farm Mutual Automobile Insurance Co., Nos. 06-1442, 06-1467, 06-1469, 2008 WL 2736656 (10th Cir. July 15, 2008). The Court rejected plaintiff’s Section 1 and 2 claims because he could not establish a relevant product market — a necessary element of both claims. The Court noted that plaintiff alleged State Farm’s misuse of its monopsony power over its insured and therefore the relevant market “is not the market of competing sellers but of competing buyers. This market is comprised of buyers who are seen by sellers as being reasonably good substitutes.” Id. at *4 (citation omitted). Plaintiff alleged a “State Farm insured repairable windshield market, in the geographic area of the United States of America.” Id. The Tenth Circuit rejected this market definition as underinclusive because plaintiff offered no basis why sellers would not view other buyers of repairable windshields as reasonable substitutes. The Tenth Circuit made clear that the rule of reason applied to the Section 1 claim notwithstanding plaintiff’s characterization of State Farm’s conduct as a group boycott. The restraint was vertical in nature and not the classic horizontal group boycott that triggers per se condemnation. The Tenth Circuit rejected the Consumer Protection Act claim because the recommendations to insureds to replace rather than repair windshields were not knowing and intentional concealment or misrepresentations as required under the Act. This opinion is useful for its discussion of limitations on pleading relevant markets as well as the relevant market inquiry in monopsony cases.

Jun

21

Posted by : Matthew Wild | On : June 21, 2008

On June 9, 2008, the Sixth Circuit rejected a coach’s challenge to the NCAA’s disciplinary rules because he did not allege that the disciplinary rules implicated commercial activity or that he suffered antitrust injury. Bassett v. Nat’l Collegiate Athletic Ass’n, No. 06-5795, 2008 WL 2329755 (6th Cir. June 9, 2008). The Sixth Circuit held that to state a claim under Section 1 of the Sherman Act, “there must be a commercial activity implicated.” Id. at *5. The court further held that “the appropriate inquiry is whether the rule itself is commercial, not whether the entity promulgating the rule is commercial.” Id. (citations omitted). The court then rejected the challenge because the enforcement of disciplinary rules is not a commercial activity. The court also held that plaintiff did not allege antitrust injury. To satisfy this element, the plaintiff had to allege an “anticompetitive effect on the coaching market.” Id. at *7. The coach’s exclusion based on enforcement of the disciplinary rules was insufficient to establish an antitrust injury. It should be noted that the decision contains good dicta explaining when the rule of reason as opposed the per se analysis applies and the nature of the rule of reason analysis.

May

23

Posted by : Matthew Wild | On : May 23, 2008

The state attorneys general continue to be hostile to the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007), which overruled Dr. Miles Medical Co. v. John D. Parke & Sons. Co., 220 U.S. 373 (1911), and made resale price maintenance subject to the rule of reason under Section 1 of the Sherman Act. 35 state attorneys general have written to Congress asking that it pass S. 2261 which would make resale price maintenance a per se violation of Section 1.  State Attorney General Letter; S. 2261.  The March 31, 2008 post reported that the New York, Michigan and Illinois attorneys general obtained a consent decree under state law against Herman Miller for its resale price maintenance scheme. The May 8,2008 post reported that although the FTC modified Nine West’s consent decree that had prohibited resale price maintenance, the FTC reminded Nine West that it was still subject to state restrictions. This most recent letter further confirms that counselors must be cognizant of state law when they advise clients about the legality of resale price maintenance. It would be prudent for clients to act unilaterally and follow the Colgate doctrine rather than rely on Leegin.

May

16

Posted by : Matthew Wild | On : May 16, 2008

On May 14, 2008, the Fifth Circuit rejected North Texas Specialty Physicians’ petition for review of an order that found certain of its activities constituted price-fixing and therefore violated Section 1 of the Sherman Act and Section 5 of the FTC Act. North Texas Specialty Physicians v. FTC, No. 06-60023, 2008 WL 2043040 (5th Cir. May 14, 2008). The Fifth Circuit found that the agreement among the physicians met the commerce requirement because if successful, “the advantages of competition have been adversely affected for out-of-state employers and payors.” The court affirmed the FTC’s use of the “quick look” and the FTC’s holding that the fee setting provisions were unrelated to any of the organization’s procompetitive efficiencies. The court modified one provision in the FTC’s remedial order, however, that prohibited the NTSP from entering into an agreement with its members where they “deal[t with, refuse[d] to deal, or threaten[ed] to refuse to deal with any payor.” As the court observed, “it is difficult to see how the NTSP can both deal and refuse to deal with any payor.” The rest of the order was affirmed.

May

08

Posted by : Matthew Wild | On : May 8, 2008

On May 6, 2008, the FTC granted Nine West’s petition to modify its consent decree to allow Nine West to engage in resale price maintenance with its dealers. In 2000, Nine West — a footwear manufacturer — had entered into a consent decree with the FTC and several state attorneys general to resolve allegations that it fixed the prices at which its retailers may sell its shoes. Because of the Supreme Court’s recent decision in Leegin Creative Leather Products v. PSKS, 127 S.Ct. 2705 (2007), which allowed such agreements to be treated under the rule of reason rather than subject to per se condemnation, the FTC allowed Nine West to engage in resale price maintenance but did not rule that such conduct would be necessarily lawful. Rather, the consent decree requires to Nine West to provide periodic reports to the FTC of prices and output during periods when it has engaged in resale price maintenance. As a practical matter, modification of the consent decree may be bring little comfort as some state attorneys general have taken the position that resale price maintenance is still a per se violation of their antitrust statutes. Herman Miller (discussed in the March 31, 2008 post) is an example of such an application of the state antitrust antitrust laws.  Attached is the FTC’s order in Nine WestNine West (Order)