Maryland's Leegin Repealer
By Jason Hicks
On April 14, 2009, Maryland enacted a law designed to counter a recent United States Supreme Court decision that made it easier for manufacturers to require their retailers to charge a minimum price for their goods. Unlike the current federal law, the new Maryland law treats any agreement that establishes a minimum resale price for goods or services as a per se antitrust violation of the Maryland Antitrust Act (MD. COM'L LAW CODE ANN. 11-204(a).) This per se rule once was the rule everywhere because, for nearly 100 years, the federal Sherman Act was interpreted to prohibit minimum vertical price fixing, also known as resale price maintenance.
The universal per se approach changed, however, in June 2007 when the Supreme Court held in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that minimum vertical price fixing was not per se illegal but rather should be analyzed under the "rule of reason." The rule of reason is a multifaceted balancing test that analyzes whether an agreement constitutes an "unreasonable" restraint on trade. Generally speaking, under the rule of reason, a restraint is not "unreasonable" (and thus illegal under federal antitrust law) unless the parties to the agreement have "market power" which, again, generally speaking, is defined as something more than a 30% market share for a given market.
Given these generalities, it became a popular notion that the Leegin decision had opened the door for manufacturers to set a minimum resale price for their goods. More thoughtful lawyers, however, realized that resale price maintenance agreements were still risky because state antitrust laws could be more restrictive than federal antitrust laws and because legislatures could "overrule" the Leegin decision by passing special legislation outlawing minimum resale price maintenance. That is exactly what happened in Maryland.
The Maryland bill, which goes into effect October 1, 2009, amends the Maryland Antitrust Act to specifically state 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 or commerce" for purposes of the Maryland Antitrust Act. See Maryland Senate Bill 239 (repealing and reenacting, with amendments, MD. COM'L LAW CODE ANN., Section 11-204). The accompanying notes to the bill recognize that the Maryland Antitrust Act previously had been interpreted to be consistent with federal antitrust law. By enacting this bill, however, Maryland is departing from federal law, specifically the Supreme Court's decision in Leegin. Maryland's actions demonstrate why the conservative approach to Leegin is for manufacturers to continue avoiding any "agreements" as to the minimum resale price for their products.
Maryland's new law, however, does not prevent what is known as a Colgate policy. Colgate policies are named after a Supreme Court decision holding that the unilateral termination of a dealer that sold goods below a suggested resale price was not an "agreement" in restraint of trade. See United States v. Colgate, 250 U.S. 300, 307 (1919). The Court's opinion was based on the "contract, combination or conspiracy language in the Sherman Act. Unless there was an agreement between two parties then there was no "contract, combination or conspiracy" and, accordingly, there was no antitrust violation. With a Colgate policy, a manufacturer unilaterally announces suggested resale prices for its products; retailers remain free to sell those products at discounted prices; and, the manufacturer also remains free to unilaterally terminate any discounting retailers. Since there is no agreement between the two parties, Colgate policies were considered lawful under federal antitrust law even before the Supreme Court's decision in Leegin. Maryland's recent revisions to its state antitrust law should not affect Colgate policies because Maryland's Antitrust Law contains the same "contract, combination, or conspiracy" language as the Sherman Act. Therefore, Colgate policies should remain lawful in Maryland. Of course, there is a fine line between a lawful Colgate policy unilaterally announced by a manufacturer and an unlawful "agreement" as to the resale price of goods.
The universal per se approach changed, however, in June 2007 when the Supreme Court held in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that minimum vertical price fixing was not per se illegal but rather should be analyzed under the "rule of reason." The rule of reason is a multifaceted balancing test that analyzes whether an agreement constitutes an "unreasonable" restraint on trade. Generally speaking, under the rule of reason, a restraint is not "unreasonable" (and thus illegal under federal antitrust law) unless the parties to the agreement have "market power" which, again, generally speaking, is defined as something more than a 30% market share for a given market.
Given these generalities, it became a popular notion that the Leegin decision had opened the door for manufacturers to set a minimum resale price for their goods. More thoughtful lawyers, however, realized that resale price maintenance agreements were still risky because state antitrust laws could be more restrictive than federal antitrust laws and because legislatures could "overrule" the Leegin decision by passing special legislation outlawing minimum resale price maintenance. That is exactly what happened in Maryland.
The Maryland bill, which goes into effect October 1, 2009, amends the Maryland Antitrust Act to specifically state 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 or commerce" for purposes of the Maryland Antitrust Act. See Maryland Senate Bill 239 (repealing and reenacting, with amendments, MD. COM'L LAW CODE ANN., Section 11-204). The accompanying notes to the bill recognize that the Maryland Antitrust Act previously had been interpreted to be consistent with federal antitrust law. By enacting this bill, however, Maryland is departing from federal law, specifically the Supreme Court's decision in Leegin. Maryland's actions demonstrate why the conservative approach to Leegin is for manufacturers to continue avoiding any "agreements" as to the minimum resale price for their products.
Maryland's new law, however, does not prevent what is known as a Colgate policy. Colgate policies are named after a Supreme Court decision holding that the unilateral termination of a dealer that sold goods below a suggested resale price was not an "agreement" in restraint of trade. See United States v. Colgate, 250 U.S. 300, 307 (1919). The Court's opinion was based on the "contract, combination or conspiracy language in the Sherman Act. Unless there was an agreement between two parties then there was no "contract, combination or conspiracy" and, accordingly, there was no antitrust violation. With a Colgate policy, a manufacturer unilaterally announces suggested resale prices for its products; retailers remain free to sell those products at discounted prices; and, the manufacturer also remains free to unilaterally terminate any discounting retailers. Since there is no agreement between the two parties, Colgate policies were considered lawful under federal antitrust law even before the Supreme Court's decision in Leegin. Maryland's recent revisions to its state antitrust law should not affect Colgate policies because Maryland's Antitrust Law contains the same "contract, combination, or conspiracy" language as the Sherman Act. Therefore, Colgate policies should remain lawful in Maryland. Of course, there is a fine line between a lawful Colgate policy unilaterally announced by a manufacturer and an unlawful "agreement" as to the resale price of goods.
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