Sen. Kyl was Solid on Price Resale Maintenance Agreements

By April 15, 2010Briefly Legal, General

With Sen. Jon Kyl (R-AZ) scheduled to speak in just a bit at the NAM’s Manufacturing Summit, we offer belated thanks for his support for the rights of manufacturers who choose to contract with distributors in an effort to determine how their products are sold.

The Senate Judiciary Committee on March 18 reported out on a voice vote S. 148, the Discount Pricing Consumer Protection Act, legislation that would reverse the U.S. Supreme Court’s decision in Leegin Creative Products v. PKSK Inc. In that decision, the Court ruled that resale price maintenance agreements were not per se violations of federal antitrust laws.

Resale price maintenance agreements are relatively infrequent contractual agreements in which a manufacturer requires a distributor to maintain a certain price for a product, usually as part of a larger marketing plan that distinguishes the product through extras, whether it’s elaborate displays or training for the retailers. If a manufacturer is marketing his product’s cachet through quality and service, then it’s in both the manufacturer and retailer’s interest to support that strategy through price.

Yes, it’s possible that the agreements, taken to extreme, could create an anti-competitive situation that violates anti-trust laws. But it’s been demonstrated that they often do not. Indeed, there’s nothing stopping competitors from offering similar products at a different price.

As Sen. Kyl said in his prepared statement:

[Let’s] be clear about what the Supreme Court’s decision in Leegin did. It said that a vertical agreement between a manufacturer and its distributor to set a minimum resale price for a product should be evaluated under a “rule of reason” analysis.

What does this mean? It means that a court should look at the facts and circumstances of a case and decide whether the specific agreement in question is anti-competitive.

In so holding, the Leegin court overruled a prior case that said such agreements were per se illegal. But the Leegin court did not say that minimum resale price agreements were always legal—just that a court had to look at each case on the merits.

Rule of reason. On the merits. Good standards, and in fact, as a letter to Congress by the NAM argued, those standards also reflect recent developments in anti-trust law.

It’s easy to pound the table on this issue and simplify the issues to a slogan, “Consumers deserve a fair price.” Well, OK. So let’s have the rule of reason determine just what a fair price is — on the merits.

And again, thanks to Sen. Kyl for taking on this admittedly complicated issue.

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