Thursday, July 10, 2008

Resale Price Fixing Claims Can Proceed Against Baby Products Retailer, Manufacturers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Philadelphia has refused to dismiss antitrust claims brought against Babies ‘R’ Us—the large retailer of baby and juvenile products—and baby products manufacturers by smaller retailers and consumers.

The complaining retailers and consumers alleged that Babies ‘R’ Us orchestrated resale price fixing conspiracies in an effort to ward off competition from the smaller competitors that had undercut its prices. The undercutting purportedly stopped when the manufacturers began to require the retailers to sell their goods at or above a certain price.

The court denied defendants’ motion to dismiss on May 19 and denied a motion for reconsideration on July 2.

Relevant Markets

At the outset, the court accepted the plaintiffs’ relevant product markets. The challenged conduct allegedly restrained competition in the markets for “high-end baby and juvenile strollers,” “high-end high chairs,” “high-end breast pumps,” “high-end baby bedding,” “high-end car seats,” and “high-end infant carriers,” among others.

The complaining retailers and consumers asserted facts about interchangeability and cross-elasticity of demand that explained why the proffered markets were not larger than they were allege to be, in the court’s view.

Concerted Action

Two interrelated types of concerted action were sufficiently alleged: (1) concerted action between Babies ‘R’ Us and each manufacturer, and (2) concerted action between each manufacturer and that manufacturer’s retailer dealers.

The plaintiffs asserted concerted action by claiming parallel conduct coupled with “plus factors” or circumstances that tended to negate the possibility that the defending retailer and each manufacturer acted independently. The complaints alleged: (1) that the parallel conduct at issue was against each manufacturer’s independent economic self-interest; (2) that Babies ‘R’ Us wielded sufficient influence over each manufacturer to create a duress situation; and (3) that Babies ‘R’ Us threatened to retaliate against each manufacturer if each manufacturer did not implement a minimum resale price maintenance (RPM) agreement with its retailers, and the manufacturers in turn acquiesced.

Competitive Injury

The plaintiffs also sufficiently alleged that the conspiracy could have harmed competition, according to the court. The alleged RPM scheme caused prices for the baby products to increase beyond competitive levels. In addition, the RPM policies purportedly blocked certain sales that otherwise would have been made, and in some cases caused sales to be made less rapidly than they otherwise would have, resulting in reduced overall output. Further, there was at least one allegation that quality had decreased in the form of a decrease in customer service.

Monopoly Claims

The court also refused to dismiss Sherman Act, Sec. 2 claims of monopolization, attempted monopolization, and conspiracy to monopolize against Babies ‘R’ Us. The complaining retailers and consumers sufficiently alleged that Babies ‘R’ Us maintained its monopoly power by procuring the anticompetitive RPM agreements with the manufacturers. The challenged conduct could also show a specific intent to monopolize for purposes of their attempted monopolization claim.

Motion for Reconsideration

One of the defending manufacturers moved for reconsideration of the earlier decision as to the issue of concerted action. The court rejected the manufacturer's argument that the court erred in applying the law with respect to the plaintiffs’ plus-factor allegations.

The case is BabyAge.Com, Inc. v. Toys ‘R’ Us, Inc., Civil Action Nos. 05-6792, 06-242. The May 19 decision and the July 2 decision will appear in CCH Trade Reguation Reports.

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