Corporate & Securities Law

FTC Grants Petition To Permit Resale Price Maintenance

By Sheppard Mullin Richter Hampton, LLP

The willingness of federal enforcement agencies to lift resale price maintenance ("RPM") prohibitions in light of the Supreme Court's decision holding RPM was no longer per se illegal was demonstrated recently by the FTC.  In re Nine West Group, Inc., FTC Dkt. No. C-3937 (May 6, 2008).  Nine West is a shoe manufacturer.  In 2000, it entered into a Consent Order with the FTC which prohibited it from entering into agreements to fix, control, or maintain resale prices.  After the Supreme Court decision in Leegin Creative Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007), Nine West petitioned the FTC to modify the order to set aside the portion of the Order containing the RPM prohibition.  In a 4-0 decision issued May 6, the Commission granted the petition in substantial part but required Nine West to provide periodic reports on its use of RPM agreements so that the FTC can analyze the effect of such agreements on competition.

The Commission made it clear, however, that it was not modifying the RPM prohibition simply because the Leegin decision changed RPM from per se illegal to rule of reason.  Rather, it determined that the market in which Nine West operated was one in which the Leegin  decision indicated that RPM may be permissible.  Specifically, Nine West had a "modest" (apparently under 15%) market share, there was no evidence of a "dominant, inefficient" retailer in the market, and Nine West itself, rather than the retailers, is responsible for its desire to engage in RPM.  Taken together, said the FTC, "Nine West's use of resale price maintenance is not likely to harm consumers."  Order Granting Petition, p. 15.  It further noted that, even if the market had been one in which the Leegin factors indicated may be anticompetitive, Nine West could also meet its burden by demonstrating a justification, e.g., the restriction enhances output and promotes efficiency-enhancing practices.

Although it granted the petition, the Commission's opinion suggests that in the future it may apply the "inherently suspect" analysis from Polygram Holdings, Inc. v. Fed. Trade Comm'n., 416 F. 3d 29 (D.C. Cir. 2005) rather than a full rule of reason analysis to RPM.  The inherently suspect analysis is a truncated rule of reason inquiry which would focus mainly on the factors identified in Leegin such as market power or whether the source of the restraint is the retailers rather than the manufacturer.  Further, it should be noted that Nine West also signed agreements with a number of states at the same time as the initial FTC Order.  This decision does not affect those orders.  Given that the states opposed the Nine West petition to modify the federal decree, it is probably unlikely that they will agree to modify their own agreements to permit RPM.

Authored by:

Carlton A. Varner

(213) 617-4146

cvarner@sheppardmullin.com

Full post as published by Antitrust Blog Review on June 09, 2008 (boomark / email).