Maryland Daily Record Article About Leegin Repealer

The Maryland Daily Record published this article about resale price maintenance under Maryland's recently revised Antitrust Laws. The article was written by David Hamilton and Jason Hicks, antitrust and business litigation attorneys at Womble Carlyle. Hamilton and Hicks conclude that Maryland's new law raises the stakes for national manufacturers whose products are sold in Maryland:

Understanding and complying with federal antitrust laws is no longer enough. Beginning Oct. 1, national manufacturers and suppliers will also have to evaluate their policies under Maryland’s more strict standards. Failure to do so may result in the automatic imposition of a treble damages award under Maryland law.

Follow these links for more information about the Supreme Court's approach to price fixing, how businesses can protect themselves with a Colgate policy, Maryland's "Leegin Repealer," and how Congress may overrule Leegin and reinstate the per se rule with respect to federal antitrust law.

Feds Freeze Accounts of On-Line Poker Players

The Wall Street Journal reports that the US Attorney for the Southern District of New York has frozen or seized $34 million in bank accounts belonging to 27,000 on-line poker players. The accounts are managed by Allied Systems, Inc. and Account Services, which handle transactions for several popular online poker sites. In 2006, Congress passed a law making it illegal for banks to process payments for unlawful Internet gambling. These gambling web sites were already considered illegal by the U.S. government, but it was hard to prevent the off shore sites from operating without going after the credit card companies and banks that handled the transactions. Others, however, say that the law is unclear with respect to on-line poker. Some argue that poker is a game of skill, not a game of chance, and therefore legal under the traditional three-pronged definition of gambling (i.e., 1. consideration, 2. chance, 3. prize). Last year, House Representative Barney Frank introduced a bill that would legalize and regulate Internet gambling.

Google Investigation Reflects Increased Antitrust Enforcement By Government Regulators

The Wall Street Journal and New York Times have reported that the Justice Department has set formal demands, known as civil investigative demands or CIDs, to Google and book publishers regarding a deal that would allow Google to post millions of books online. Google has been scanning out-of-print books since 2004 and was sued for copyright infringement by the Authors Guild and the Association of American Publishers. Google settled the lawsuit last year, and part of the settlement agreement allowed Google to use the out-of-print books in exchange for payments to publishers and authors. Critics claim that the deal gives Google broad copyright immunity and prevents competitors from entering the market for digital titles. Others applaud the deal because it will expand digital access to books. The Justice Department CIDs reflect a broader interest by government regulators into antitrust law, especially in the technology industry. Google and other tech companies are the subject of other government investigations including:

• Whether tech companies agreed not to poach each other's workers;
• The overlap of directors on Apple's and Google's boards; and
• The sufficiency of standards on behavioral advertising.

The Wall Street Journal reports that "People close to Google say the company considers the investigations part of a broader push by new antitrust regulators to step up scrutiny of the technology industry after a lull during the Bush administration." This increase in antitrust scrutiny may not be limited to Google or the technology industry. There are signs that antitrust regulators, as well as state and federal lawmakers, are taking an increased interest in antitrust enforcement in a variety of industries. This increase in antitrust enforcement comes on the heels of a variety of decisions that have limited remedies for private plaintiffs under federal antitrust law.

Fourth Circuit Says Leegin Did Not Implicity Overrule Colgate

On March 24, 2009, the Fourth Circuit issued a ruling in Valuepest.com v. Bayer Corp, Case No. 07-1760 ("Valuepest"), in which the Court affirmed the District Court's grant of summary judgment to defendants. Plaintiffs, who provide pest control services to individual customers, brought a price fixing claim under Section 1 of the Sherman Act against a manufacturer of pesticies for allegedly illegally conspiring with its distributors to set a minimum resale price for certain pesticide products. Defendant argued that its policy did not involve concerted action under Section 1 of the Sherman Act because its distributors were bona fide agents, and thus there was no "agreement" between two separate parties. The principal-agency defense was recognized by the United States Supreme Court in United States v. General Electric Co., 272 U.S. 476 (1926).

The Valuepest court noted that principal-agency relationships do not fall within the purview of Section 1 for the same reasons that "Colgate" policies do not involve concerted action. "Unilateral action by a manufacturer does not suffice to implicate s 1; a manufacturer can, for example, refuse to sell retailers who resell its products for less than the manufacturer's preferred price. See United States v. Colgate & Co., 250 U.S. 300 (1919).

The plaintiffs in Valuepest argued that the Supreme Court's 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Ins., 127 S. Ct. 2705 (2007) implicitly overruled the principal-agent defense in General Electric. In Leegin, the Supreme Court held that minimum resale price agreements were no longer per se illegal and were instead governed by the rule of reason. The Valuepest plaintiffs further argued that Leegin required a "generalized inquiry into market power and procompetitive beneifts even where a genuine agency relationship exists" and thus there is no agreement. The Fourth Circuit, however, rejected this argument, stating:

Plaintiffs' argument conflates the distinction between the two elements required to prove liabiltiy under s 1. General Electric concerned the first necessary element of s 1 liabiltiy--the existence of an agreement. Where a manufacturer sells its products through its genuine agents, there is no 'contract combination,' or 'conspiracy,' and thus no basis for antitrust liabiltiy. 15 U.S.C. s 1. At issue in Leegin was an entirely different question regarding the second element of s 1 liabilty that applies when an agreement has been proven: should that agreement be considered per se unlawful or should it be analyzed under the rule of reason? The two cases dealt with separate and distinct issues, and thus no part of Leegin's reasoning casts the slightest bit of doubt on the underpinnings of the rule of General Electric.

The same thing can be said for Colgate. Like the principal-agency relationships under General Electric, Colgate policies do not violate section 1 of the Sherman Act because when a manufacturer unilaterally terminates a discounting retailer there is no "contract, combination" or "conspiracy" between the two parties. The reasoning behind the Valuepest decision confirms that Leegin did not implicitly overrule Colgate.

The importance of Colgate and General Electric has resurfaced because several states have indicated that they still consider RPM to be per se illegal. In fact, Maryland recently amended its state antitrust laws to make it clear that RPM agreements were per se illegal in Maryland. And Congress is considering similar legislation with respect to the Sherman Act. (See here and here). These efforts to "overrule" Leegin should not affect Colgate policies because such policies are not "agreements" to begin with. Therefore, you never get to the question of whether the agreement should be considered per se unlawful or analyzed under the rule of reason.

The Fourth Circuit's decision in Valuepest was not surprising. But it is a nice reminder that the classic defenses to vertical price fixing are still available in the post-Leegin world.