Resale Price Maintenance: Per Se Illegal, Or Best Considered Under A 'Rule Of Reason'?

Introduction

In the recent decision of

the Supreme Court of the United States, Leegin Creative Leather Products, Inc v

PSKS, Inc.,1 a majority of the Court overruled its decision in Dr

Miles,2 a case decided in 1911 which, for almost a century, had

established that agreements giving effect to minimum resale price maintenance

were per se illegal. Resale price maintenance, or "RPM" as it is

usually described, generally arises when a supplier either agrees with a

reseller, or induces a reseller, not to resell goods at less than specified

minimum prices.

The case is important as it

marks a move away from regarding RPM as prohibited regardless of its effect on

competition, and now requires vertical price restraints to be judged by a

"rule of reason" test involving an assessment of the actual effect of

the conduct.

The Leegin case is relevant

to New Zealand as section 37(1) of the Commerce Act 1986 provides that RPM is

illegal per se - similar to the position which existed in the United States under

Dr Miles. While Leegin's direct application may therefore be fettered by the

statutory prohibition in the Commerce Act, the decision is nevertheless welcome

for two main reasons: first, because it represents a positive development in

the understanding of the economic effect and underlying rationale for RPM at a

highly influential judicial level, and secondly, because as part of the current

review of Part V of the Commerce Act, the Ministry of Economic Development has

invited comment on whether the Act should be amended to allow for a clearance

process for restrictive trade practices, which would also apply to per se

offences such as RPM, effectively allowing RPM to be "cleared" if it

did not substantially lessen competition (similar to the approach under a

"rule of reason" analysis).

Vertical price

maintenance in Leegin

The facts of Leegin are

these: Leegin designed, manufactured and sold leather goods to retailers. In

1997 Leegin instituted a retail pricing and promotion policy to sell goods only

to speciality stores that offered customers "quality merchandise and a

superior service". As part of that policy, Leegin refused to sell to

retailers that discounted goods below Leegin's suggested resale prices. Their

reasoning was that discounting harmed Leegin's brand image and reputation. When

PSKS refused to cease discounting Leegin's products, Leegin refused to continue

supplying their products to the store.

In the District Court, PSKS

successfully...