The Antitrust Review of the Americas 2009

RPM Litigation in the Wake of Leegin

01 January 2009

Last year, in the landmark Leegin Creative Leather Products Inc v PSKS Inc decision,2 the United States Supreme Court reversed the almost century-old per se rule of Dr Miles Medical Co v John D Park & Sons Co3 against resale price maintenance (RPM). In Dr Miles and its progeny, the Supreme Court had established an elaborate legal framework under which manufacturers were not permitted to 'agree' with their distributors on resale prices but were permitted to enforce resale prices set 'unilaterally'.4 The distinction between 'agreements' and 'unilateral policies' remained ill-defined, however, leading most large manufacturers to avoid anything that could be characterised as RPM, unilateral or not. Commentators often complained that RPM was a textbook case of over-deterrence. The Leegin decision - in its adoption of a rule of reason approach to RPM, its endorsement of modern economic analysis (which sees RPM as largely benign), and its generally sceptical tone towards RPM claims - was seen by some as essentially bringing an end to RPM claims. Many commentators have argued that Leegin has rendered the RPM doctrine all but a dead letter. Consistent with this view, widespread anecdotal evidence suggests that Leegin has led to the growing adoption of RPM policies by manufacturers, which no longer fear that RPM policies will expose them to litigation and treble damage claims. The Wall Street Journal, for example, in a recent front-page article argued that Leegin has 'potentially alter[ed] the face of US discount retailing'5 by lifting the de facto ban on RPM policies. The article cites a plaintiff in a pending RPM case (BabyAge.com, discussed below) who claims, for example, that almost a quarter of his suppliers, '100 of his 465 suppliers', have adopted RPM policies. Despite this perhaps prevailing view, there is good reason to think that the RPM doctrine is not a dead letter. There may be continued, perhaps even increased, RPM litigation as more and more companies adopt such policies, regardless of the Supreme Court's scepticism of RPM claims. To take one prominent example, just months after the Leegin decision, plaintiffs brought a purported nationwide consumer class action in Tennessee against Leegin Creative Leather Products itself, making essentially the same allegations about the same company that the Supreme Court had all but rejected in Leegin. Although that case was recently dismissed on the pleadings, it points to plaintiffs' continuing willingness to litigate RPM cases and test the limits of Leegin. To be sure, Leegin will probably lead to a significant change in the kinds of claims that are brought and in the issues that are the focus of litigation. The progress of a few pending cases in the 14 months since the Leegin decision - including two cases involving the Leegin corporation itself - provides some insight into the strategies that parties will take in prosecuting and defending such claims and, in particular, how plaintiffs will attempt to avoid the strictures of Leegin. We believe plaintiffs will argue that the economic theories that buttress the Supreme Court's decision in Leegin - and thus the basis for a rule of reason standard in RPM cases - do not apply to RPM policies that originate at the retailer level. Plaintiffs will seek to characterise RPM policies as originating with retailers rather than manufacturers and then argue that the per se rule still applies in that context, or at least that RPM originating with retailers is subject to heightened scrutiny. In the end, the Leegin decision may simply shift the focus of litigation from whether an RPM practice is 'unilateral' or not, to the equally ephemeral factual question of whether the 'source' of an RPM practice was a manufacturer or its retailers. That may lead, once again, to the application of something close to a per se rule. Where plaintiffs cannot show that the policy originated with retailers, liability will be uncommon. But where plaintiffs can make such a showing, RPM practices may be treated as effectively per se illegal.

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