Suppliers should review their minimum resale price programs for their resellers in the United States following the passage of a new law in the State of Maryland prohibiting agreements that establish minimum resale prices for goods or services sold by retailers, wholesalers or distributors. The State of Maryland passed this law, which takes effect on October 1, 2009, in response to the Supreme Court of the United States’ landmark ruling two years ago in Leegin Creative Leather Products, Inc. v. PSKS, Inc. that minimum resale price maintenance (MRPM) programs are no longer illegal per se under federal antitrust law but are to be evaluated under the Rule of Reason by weighing their anticompetitive harm against their pro-competitive benefits.
The Amendment to the Maryland Antitrust Act
On April 14, 2009, Maryland Governor Martin O’Malley signed into law an amendment to the Maryland Antitrust Act that forbids any “contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service.” The amendment makes MRPM agreements illegal regardless of their effect on competition or whether the seller has a high or low market share.
Maryland has thus rejected the Supreme Court’s holding in Leegin and made clear that it will apply the per se illegality standard to MRPM agreements under its state antitrust law. This outcome is not surprising in light of the fact that Maryland was one of the 37 states to formally oppose the outcome in the Leegin case.
The newly amended Maryland antitrust law has several consequences for suppliers and how they distribute their goods or services. Suppliers should review their MRPM policies to ensure that they account for this latest development.
First, suppliers, if they sell goods or services in Maryland, should ensure that any MRPM programs they have in place do not require their resellers to agree to any minimum resale prices. Suppliers should make clear that resellers remain free to set their own resale prices.
Second, suppliers that sell goods or services in Maryland and that want to influence the minimum resale prices for their goods and services can fall back to “Colgate” policies, so named for the Supreme Court case United States v. Colgate & Co., 250 U.S. 200 (1919). In contrast to MRPM agreements, a Colgate policy is one where a supplier announces that it will deal only with resellers that observe the supplier’s unilaterally set minimum resale prices. While resellers remain free to set their own resale prices, a supplier can refuse to deal with a reseller that does not observe the supplier’s unilaterally-set minimum resale prices. The legality of this practice was established in the Colgate case (long before the Leegin decision), and such policies have been consistently upheld. The new Maryland law condemns MRPM agreements (the existence of which is lacking in a properly-administered Colgate policy) so suppliers that will sell goods or services in Maryland after the new law goes into effect can still lawfully state that they will do business only with resellers who observe minimum resale prices unilaterally announced by the seller. A supplier will have to take care, of course, to ensure that any unilaterally announced minimum resale prices do not become construed as agreements through, for example, careless implementation and/or enforcement of its Colgate policy.
Third, Maryland’s amendment to its antitrust law to forbid MRPM agreements is not occurring in a vacuum. Specifically, the U.S. Congress is considering the Discount Pricing Consumer Protection Act (S.148) that would repeal the Leegin decision and make MRPM agreements per se illegal under federal antitrust law once more. Likewise, the Federal Trade Commission is holding a series of workshops in May 2009 examining the effects of MRPM, including how to analyze MRPM agreements under a Rule of Reason analysis. Finally, other states that opposed the Leegin decision may enact legislation similar to Maryland’s or prosecute MRPM programs under their state antitrust laws. Indeed, the states of New York, Illinois and Michigan signaled their hostility to MRPM programs in 2008 when they settled their case against office furniture supplier Herman Miller’s suggested retail price policy. For more information, see McDermott’s On the Subject “Resale Price Maintenance Programs Still at Risk,” published April 28, 2008. Collectively, these developments mean that, Leegin notwithstanding, national suppliers face a potential patchwork of conflicting treatment of MRPM agreements.
Maryland’s amendment of its antitrust law to forbid MRPM agreements underscores the continuing hostility to such agreements, and Maryland’s amended antitrust law is unlikely to be the last state or federal attack on the Leegin decision. In this environment, suppliers considering implementing MRPM agreements in reliance on the Supreme Court’s decision in Leegin may be doing so at their peril.