By David L. Cahn and Jeffrey S. Fabian
Franchise & Business Law Group, Lutherville, MD
During the 2009 General Assembly session, Maryland amended its Antitrust Act to nullify the United States Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007), within Maryland. Leegin overruled the Supreme Court’s holding in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), and held that it is no longer per se unlawful for manufacturers and wholesalers to set minimum prices for resale of their products. Under Leegin, such vertical pricing restraints are now judged under the “rule of reason” standard. The 2009 amendment has re-instated the per se prohibition in Maryland.
The Leegin case involved a dispute between a high-end leather products manufacturer and one of its retail distributors. Leegin, the manufacturer, instituted a policy of refusing to sell its products to retailers who discounted below Leegin’s suggested retail prices, in exchange for limiting the number of retailers to whom it sold the products. When retailer PSKS lowered its prices below this threshold, Leegin cut off its supply to PSKS. The retailer filed suit alleging that Leegin’s actions violated U.S. antitrust law.
After the lower federal courts affirmed a substantial jury verdict in PSKS’s favor by applying the per se standard, the Supreme Court reversed and remanded the case for retrial under the new rule of reason analysis. Following Leegin, the lower courts must analyze whether a minimum pricing restraint amounts to “an unreasonable restraint on competition,” or whether it has “pro-competitive effects” that benefit the interests of consumers.
While the practical impact of the Dr. Miles decision had been tempered by the Court’s subsequent decision in United States v. Colgate & Co., 250 U.S. 300 (1919), the blanket holding in Leegin still represented a significant break with the Court’s existing doctrine. The Court held in Colgate that manufacturers could suggest resale prices to downstream distributors, and refuse to supply distributors who failed to adhere to the suggested prices. Leegin goes further by opening the door to absolute pricing restraints. The practical effect of this Supreme Court ruling was demonstrated when, on remand, the trial court granted Leegin Creative Leather Products’ motion to dismiss the case. PSKS, Inc. v. Leegin Creative Leather Products, Inc., 2009 WL 038561 (E.D. Tex. 2009).
The amendment to the Maryland Antitrust Act under SB 239 (2009) provides that “a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade.” Md. Code Ann., Commercial Law § 11 – 204(b) (2010).Thus, the amendment makes “resale price maintenance” per se unlawful once again in Maryland, and also extends the per se treatment to services provided under a common service mark. This application of the per se ban to pricing for services was not clearly established under the Supreme Court’s precedent prior to Leegin.
Moreover, the Maryland legislation calls into question the validity of the Colgate doctrine within this state. While the statute clearly refers to “establish[ing] a minimum price,” it is not beyond reason to view this language as pushing back against Colgate’s leniency for pricing “suggestions.” The “Discount Pricing Consumer Protection Act”, U.S. Senate Bill 148 and House Bill 3190, is proposed legislation pending before the U.S. Congress that would overturn the Leegin decision in the same manner as the Maryland amendment.
Both houses’ versions of the bill have been reported favorably by their examining Committees, and have been cleared for a vote on the floor. With passage likely, U.S. and Maryland antitrust law concerning restrictions on “resale price maintenance” may soon be in line once again.