Taking Up the Issue of Suggested Retail Prices
So you want to give customers a discount. Good for you! But the company stocking your store doesn't want you to cheapen their brand by slashing its price tag. Up until now, the law would be in your favor--you can sell the products in your store for any price you want, and your suppliers could only suggest a retail price. In fact, it's illegal for them to require you to set a minimum price for your products. But all that may change.
In Leegin Creative Leather Products v. PSKS Inc., the Supreme Court will reconsider a nearly century-old law that prohibits companies from requiring their retailers to charge a minimum price for their products. Here's what happened: A clothing store filed an antitrust action against a clothing manufacturer after the manufacturer refused to ship its goods to the store upon learning the store had sold its goods at prices below its "suggested retail price."
Although manufacturers can obviously choose who they want to do business with, their freedom is limited by antitrust law. Leegin involved a classic antitrust scheme: minimum price fixing. Since entities may be held civilly liable under the antitrust law to anyone they injure in connection with an antitrust scheme, a manufacturer who terminates a retailer for refusing to sell its goods at a minimum price faces civil liability.
Moreover, the store in Leegin was able to take advantage of the antitrust law's particular disdain for price fixing. Minimum price fixing is considered a per se violation--meaning once the violation's established, the court presumes it's harming competition, and it doesn't investigate further. So once the store established that the manufacturer's "suggested retail price" was a minimum price fixing scheme, it only needed to show it was injured due to the scheme. When it showed that its termination cost it $1.2 million, and because damages are trebled under antitrust law, the manufacturer was ordered to pay $3.6 million in damages.
So why is this case heading to the Supreme Court? The manufacturer is seeking to change the current law that makes minimum price fixing a per se antitrust violation. It argues that the store should have been required to demonstrate that the minimum pricing enforcement actually harmed competition. And it's ready to put forth evidence that, due to its limited market power, its fixed pricing system didn't harm competition.
If you're a retailer, you want the Supreme Court to uphold the rule that minimum price fixing is a per se violation. If the Supreme Court reverses the current law, your flexibility to set your own prices will likely be impaired and your suppliers might more readily refuse to do business with you if you sell their products below their minimum price.
Furthermore, you'd face increased costs when bringing legal action against a supplier. If either side must demonstrate harm to competition, an antitrust action against the manufacturer will probably require additional litigation and, therefore, increased time and expenses. Even worse, you're less likely to win your case if you need to prove harm to competition.
However, if you're a manufacturer, you should welcome a change to the rule--especially as a smaller company. A larger company, due to its size and influence, would likely be found liable for harming competition. But if you have a smaller company with limited or localized market power, a change would probably makes it less likely you'd be found liable for enforcing a minimum price requirement. Consequently, you could gain an opportunity to protect your brand and hold a tighter rein on retailers.
Regardless of the size of your company, a change to the rule may serve as a deterrent against retailers bringing an antitrust action against you since potential plaintiffs will likely face greater expenses and a decreased probability of success.
As of press time, it's unclear when the Supreme Court will decide Leegin, so you should continue to operate as though minimum price fixing is a per se antitrust violation until the Court reaches its decision. But whether you're a manufacturer or a retailer, it's definitely a case you should watch.
Damian Moos is an attorney with Bingham McCutchen in Costa Mesa, California. A graduate of the University of Southern California School of Law, his practice focuses on business and complex commercial litigation.