Legal News

States Push Back Against Supreme Court?s Leegin Decision

By Brian Harris

The Supreme Court?s decision two years ago in Leegin Creative Leather Prods. v. PSKS reversed nearly 100 years of precedent and held that resale price maintenance agreements ? in which manufacturers require resellers to maintain a certain minimum price at retail ? were not per se violations of Section 1 of the Sherman Act.  Instead, according to the court, such agreements had to be judged according to the Rule of Reason, which requires a court to weigh the pro- and anti-competitive effects of the conduct to determine if it is illegal.  Notably, among the pro-competitive effects that the court cited were the promotion of inter-brand competition, even at the expense of intra-brand price competition.  The decision promoted much debate and some handwringing among consumer groups, which thought that the decision was sure to lead to higher prices. 

Now, though, some states are starting to fight back.  On April 14, Maryland amended its state antitrust statute (Maryland Commercial Code § 11-204) to bar resale price maintenance agreements.  The new law will take effect Oct. 1, and it creates a private right of action for any retailer that is injured or faces a threat of injury.   Moreover, the new law applies not only to brick-and-mortar stores in Maryland but also to transactions in which consumers or retailers in Maryland buy products over the Internet.  Although Maryland?s new law is the first direct legislation responding to Leegin, it might not be the last.  In Leegin, about 36 other states ? including Pennsylvania ? joined Maryland in an amicus brief opposing the outcome, and several of those states might adopt similar Leegin-repealers.  In addition, the attorneys general for some states, including New York, Illinois and Michigan, have taken the position in court filings that Leegin does not apply under the state antitrust law for those states, even without a Leegin-repealer.  Moreover, Sen. Herb Kohl has introduced legislation in the Senate to repeal Leegin as a matter of federal antitrust law.  

All of this means that wholesalers and manufacturers cannot treat Leegin as too much of a safe harbor.  Instead, companies may find themselves in a somewhat anomalous situation, where the only real safe harbor is to follow decisions that pre-date Leegin, some of which the Supreme Court expressly overruled in Leegin.  Most notably, the only real safe harbor might be the Supreme Court?s 1919 decision United States v. Colgate & Co., which held while resellers should remain free to set their own prices, the antitrust laws permit a manufacturer to refuse to deal with resellers that will not adhere to the manufacturer?s minimum resale prices.  Colgate outlines an approach that is not illegal under Maryland?s new amendment and that likely will pass muster under other Leegin-repealers as well.  Thus, it might remain the controlling authority, even after the Supreme Court has moved away from it. 

Joshua D. Wolson is a member of the litigation department at Dilworth Paxson.  He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.  This posting is for informational purposes only and should not be construed or interpreted as legal advice on any matter.

Full post as published by The Legal Intelligencer Blog on May 19, 2009 (boomark / email).