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Erich M. Fabricius
In Leegin Creative Leather Products, Inc v. PSKS, Inc., the Supreme Court announced a shift in the law of minimum resale price maintenance by overruling the longstanding per se prohibition of these policies. The new rule of reason standard is more permissive of these minimum resale price maintenance agreements and as a result their use is likely to increase. Increased use of minimum resale price maintenance would harm online discounters competing for customers primarily on the basis of price. Nevertheless, it remains to be seen how many manufacturers will actually implement these policies, as there are both practical and economic disincentives to implementation.
Cite as 9 N.C. J.L. & Tech. 87 (2007) |
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I. Introduction
Online retailing is a fast growing sector of the United States economy, with online retail sales growing an average of 27.3% per year from 2000 to 2005, compared to 4.3% per year for the overall retail industry.
A number of factors drive e-commerce, such as convenience and information availability,
but a highly efficient pricing market that often delivers lower prices than traditional stores is a particular strength of e-commerce.
Online stores have been able to compete vigorously amongst themselves based on price,
aided by legal rules prohibiting restrictions on their ability to set prices freely.
Since online retailing began, minimum resale price maintenance agreements prohibiting retailers from selling a product below a given price have been considered illegal per se under Dr. Miles Medical Co. v. John D. Park & Sons, Co.
Under this per se approach, no circumstances exist that would justify these types of agreements.
While certain tactics gave suppliers limited control over retail prices,
the legal risk associated with those tactics prevented widespread use.
The absence of minimum resale price maintenance has aided the growth of discount retailing in the last twenty-five years.
In Leegin Creative Leather Products, Inc. v. PSKS, Inc.,
the Supreme Court held that minimum resale price maintenance agreements should be evaluated for anticompetitive effects under a rule of reason standard instead of the prior standard of per seillegality.
The rule of reason standard is more permissive than its predecessor, and the Leegin Court makes it clear that circumstances can exist that would justify use of minimum resale price maintenance agreements.
The Court's acceptance of these agreements could result in discount online retailers losing their essential ability to compete based on price.
Yet, even though online retailers will more likely be impacted by resale price maintenance agreements under the new standard, there is no reason to conclude these agreements will become widespread in the marketplace.
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