|Summer 2009 / Volume CVI No. 3|
Manufacturer’s “Suggested” Retail Price; Just a Suggestion?
Manufacturer’s frequently sell products with an MSRP attached: the “Manufacturer’s Suggested Retail Price.” While some manufacturers are satisfied to leave the price as a suggestion, others seek an agreement that prevents a retailer from selling its products below a minimum price. These are known as “vertical price agreements,” or “resale price maintenance agreements,” and have a long history in the realm of anti-trust law. Understanding the current state of the law is important for any jeweler considering a minimum-price agreement.
The MSRP and the Sherman Anti-Trust Act
For almost a century, the U.S. Supreme Court ruled that it was automatically illegal for manufacturers and retailers to enter into vertical price agreements. These were viewed with the same suspicion as “horizontal” price agreements between a group of retailers or a group of wholesales, and held to be in violation of the Sherman Anti-Trust Act. For that reason, manufacturers could only “suggest” retail prices, as in the “Manufacturer’s Suggested Retail Price.”
This changed in 2007 when the Supreme Court distinguished between vertical and horizontal price agreements. The Court decided that while an individual vertical agreement – between a manufacturer and a retailer – might be an illegal restraint on trade it was not necessarily so. Too much depended on the details of the particular agreement, and on its effect on competition, to justify an automatic Sherman Act violation. The 2007 case, Leegin, resulted in a new approach to resale price maintenance agreements: federal courts began examining these agreements on a case-by-case basis to assess their impact on competition. What all this means, practically speaking, is that proving that a resale price maintenance agreement is an illegal restraint on trade, in federal court, became much harder after the Leegin case.
The MSRP and State Courts
While Leegin drastically changed federal anti-trust law, it did not directly effect state law. In fact, many state attorneys general offices have indicated their intent to prosecute resale price maintenance agreements using state law. Several states, including California, Connecticut, Nevada, New Jersey and New York, appear to prohibit these agreements, regardless of the Leegin case. For that reason, parties doing business in these states will likely find that minimum-retail price agreements are automatic anti-trust violations – at least in state court.
Pending Federal Legislation to “Undo” Leegin
The Discount Pricing Consumer Protection Act, now pending in Congress, would re-impose the pre-Leegin rule that every vertical-price agreement is a restraint of trade. Thirty-five state attorneys general support the legislation on the grounds that consumers were better served by the pre-Leegin approach, which promoted lower retail prices. This legislation, numbered S. 148, can be followed at govtrack.us.
Resale Price Maintenance Agreements; Practical Considerations
Given the dynamic and inconsistent state of the law, entering into a resale price maintenance agreement carries substantial risks. While being sued in federal court is less likely after Leegin, since a plaintiff now has to prove the agreement resulted in restraint of trade, it is still possible. Suit could be brought either by a competitor, or by the Federal Trade Commission. Moreover, as noted above, many states were unaffected by Leegin as they have their own laws that specifically prohibit these agreements. State attorneys general have the power to enforce these laws.
JVC encourages jewelers to be very familiar with the anti-trust laws of their own states before considering a retail price maintenance agreement. Regardless of the particular state laws, jewelers should consider whether a particular agreement may run afoul of the Sherman Anti-Trust Act, even without an automatic finding of a restraint on trade.