The U.S. Supreme Court has made it easier for manufacturers to set minimum resale prices by overturning the per se" illegality of minimum resale price agreements.   ; Instead, the Supreme Court ruled that challenges to minimum resale prices will be judged on a case-by-case basis by the "rule of reason," a more flexible legal doctrine that requires the challenger to prove price-setting was anticompetitive and did economic harm.   ; "Per se" was a much stricter enforcement that assumed that minimum price setting agreements were on their face illegal, regardless of circumstances. By changing the judgment from "per se" to "rule of reason," the Supreme Court has made it more difficult for challengers of the law to win and less risky for manufacturers to set minimum prices, says Gene Zelek, leader of the antitrust and trade regulation practice at Freeborn & Peters LLP, Chicago, IL.   ; The "rule of reason" has also governed practices such as supplier-defined reseller territories, confining reseller sales to particular locations or allocating reseller customers, Zelek says. It is also the same test that the Court determined 10 years ago applies to maximum resale price setting by agreement.   ; "Although it was possible even before this decision to set minimum or exact resale prices by unilateral policy, the press attention generated by this case likely will spark substantially more interest in resale price programs," Zelek says.
George Keeley, an attorney with Keeley, Kuenn & Reid, Chicago, IL, who wrote an advisory on the subject for the National Association of Wholesaler-Distributors, says that the ruling does not mean manufacturers have an unfettered right to push minimum prices down to a distributor or retailer. "It should be emphasized that the Court's decision still leaves minimum resale price restraints open to antitrust challenges," he says.
The Court, in the Leegin case, said that some "vertical price restraints" may have clear anticompetitive effects making them illegal under the "rule of reason" standard. A group of resellers, for example, could fix prices and compel a manufacturer to enforce the illegal arrangement by going along with the price-setting, according to NAW's advisory on the subject.
Or a manufacturer with market power may set prices to influence key resellers to not sell the products of a smaller rival or new market player.
"This conduct could facilitate a manufacturer price fixing cartel," the NAW advisory reads. "If a manufacturer adopts the resale price maintenance policy, without influence from its customers, the restraint is less likely to promote anticompetitive conduct at the resale level."
In explaining its decision, the Court said that minimum resale price maintenance can stimulate competition among manufacturers selling different brands of the same type of product by reducing intrabrand competition among resellers offering the same brand.   ; "A single manufacturer's use of vertical price restraints tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in tangible or intangible services or promotional efforts that aid the manufacturer's position as against rival manufacturers," Justice Anthony Kennedy wrote for the court.   ; "Resale price maintenance also has the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high service brands; and brands that fall in between."   ; History of the Case The Court was ruling in a case between a manufacturer of leather goods, Leegin Creative Leather Products Inc., and retailer Kay's Closet, owned by PSKS Inc. in Texas. Leegin designs, manufactures and distributes leather