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July 25, 2007 - Retail Pricing Decision by the U.S. Supreme Court.
Reprinted with permission of Hearth, Patio & Barbecue Association (HPBA)

THIS IS NOT MEANT TO BE LEGAL ADVICE AND CANNOT AND
SHOULD NOT REPLACE ADVICE RECEIVED FROM YOUR OWN COUNSEL.

On June 28, 2007 the United States Supreme Court decided the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc. In a 5-4 decision, the Court overruled a long-standing prohibition upon agreements between manufacturers and retailers, called vertical agreements, concerning the minimum price at which the manufacturer’s products could be sold at retail. The Court did not decide that these minimum resale price maintenance agreements are automatically lawful, but it did decide that each such agreement must be judged on its own merit. Those manufacturer-retailer (vertical) agreements that foster competition among competing brands of a product will most likely be deemed lawful, while those that facilitate price agreements among manufacturers or among retailers (horizontal agreements) will still be deemed to be unlawful violations of Section 1 of the Sherman Act.

Thus, to be lawful, a series of vertical agreements between a manufacturer and all of its retailers must be truly that, a series of separate agreements between a manufacturer and a retailer. Discussion or agreement among manufacturers of a particular product regarding whether to move to vertical minimum resale pricing agreements with retailers could convert what would otherwise be separate and independently arrived at lawful vertical agreements into an unlawful horizontal agreement among manufacturers. Similarly, discussion or agreement among retailers regarding, for example, whether to enter into a minimum resale price agreement with a particular manufacturer could convert what would be a lawful vertical agreement into an unlawful horizontal agreement among retailers.

From a practical standpoint, a manufacturer wishing to avoid the uncertainty of a case-by-case analysis of its vertical pricing policy under the antitrust laws may continue a unilateral minimum resale price policy. In this situation, a manufacturer announces its policy, i.e., that it will sell only to retailers which resell at or above the manufacturer’s suggested retail price. Because this is a unilateral manufacturer policy, there is no agreement between the manufacturer and its retailers. Should a retailer violate the policy, the manufacturer may not attempt to coerce compliance; rather, the manufacturer’s sole option is to terminate the retailer.

A note of caution: because violations of the Sherman Act can lead to civil lawsuits by private parties or the government, or even criminal prosecution by the government, all manufacturers and retailers must be very careful when addressing issues of resale price maintenance. HPBA is providing this analysis of the recent Supreme Court decision in order that HPBA members will be made aware of a substantial change in the law applicable to resale price agreements. HPBA expresses no opinion on this issue and does not intend for the matter to be addressed or discussed at HPBA events.

Reprinted with permission of Hearth, Patio and Barbeque Association (HPBA).