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Tuesday, August 25, 2009, 3:27 PM

House Acts To Restore Per Se Rule Against Resale Price Maintenance Overruling Recent Supreme Court Decision

On Tuesday, July 30, 2009, the House Judiciary Courts and Competition Policy Subcommittee approved the Discount Pricing Consumer Protection Act of 2009 (HR 3190). The bill would make all resale price maintenance agreements per se illegal under the Sherman Act, thus overruling the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS, Inc., 127 S.Ct. 2705 (2007).

In Leegin, the Supreme Court held that manufacturers may have very good, pro-competitive reasons for establishing minimum resale prices for their goods. For example, minimum resale prices encourage retailers to invest in advertising and promotion, prevent “free-riding” retailers from undermining the marketing efforts of others, and promote interbrand competition, which, the Supreme Court pointed out, is the purpose of the antitrust laws. Given the benefits of resale price maintenance, the Supreme Court held that such agreements are not per se illegal. Rather, such agreements are unlawful only if they constitute unreasonable restraints of trade under the Rule of Reason (a familiar test in antitrust law).

As a result of the Leegin decision, many manufacturers have changed their distribution policies, and some have adopted resale price maintenance agreements which allow them to more effectively market their products and compete against other brands.

The Discount Pricing Consumer Protection Act, however, would return antitrust law to the days when all such agreements were per se illegal, regardless of their procompetitive benefits. The bill provides: “Any agreement setting a price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate section 1 of the Sherman Act (15 U.S.C. 1).” Those twenty-eight words, if enacted into law, would overrule the Supreme Court’s decision in Leegin and the economic literature upon which the Leegin Court relied. Next the bill will be considered by the full Judiciary Committee, which is headed by Rep. John Conyers (D-MI). Although many bills die in committee, this bill is more likely to be considered because Rep. Conyers is a co-sponsor of the bill.

The Senate is considering its own version of the Discount Pricing Consumer Protection Act. S.B. 148. The Senate bill is sponsored by Senator Herb Kohl (D-WI) whose family founded the eponymous retail department store chain. The Senate bill is also likely to receive committee attention because Senator Kohl is the Chairman of the Antitrust, Competition Policy and Consumer Rights Subcommittee.

Constructive Termination Actionable Under New Jersey Franchise Practices Act

The New Jersey Appellate Division has ruled that constructive termination is actionable under the New Jersey Franchise Practices Act. See Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc., 975 A.2d 510 (N.J. App. 2009).

The Act prohibits a franchisor from "terminating" a francisee without "good cause" and also prohibits the franchisor from imposing "unreasonable standards of performance" on a franchisee. The court held that "termination" also includes the common-law concept of "constructive termination."

The court explained that "rather than directly and unambiguously terminating the plaintiff, [defendant] engaged in a course of conduct geared to forcing out the plaintiff." For example, the defendant expressed its desire to be rid of plaintiff, appointed a second dealer in plaintiff's territory, and gave the second dealer favorable terms and conditions, in the hopes that plaintiff's business would be destroyed. The court held that this constiuted a "constructive termination" of plaintiff's franchise without good cause. The court also held that plaintiff did not have to resign or actually be driven out of business before filing a claim under the NJFPA. It was enough that defendant attempted to constructively terminate plaintiff and that the scheme would have succeeded but for the plaintiff's lawsuit.
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