Wednesday, May 06, 2009

Resale Price Fixing Claims Fail After Remand from High Court

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A leather goods and accessories manufacturer did not engage in unlawful vertical price fixing by terminating a retailer for pricing the manufacturer’s goods below the suggested retail price, the federal district court in Marshall, Texas, has ruled.

The retailer’s suit, which initially succeeded at trial and ultimately led to a U.S. Supreme Court decision removing resale price maintenance from among the types of anticompetitive conduct subject to a per se illegality standard (Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2007-1 Trade Cases ¶75,753) was dismissed.

Relevant Markets

With vertical price fixing no longer deemed per se illegal, the retailer’s claims had to be assessed under the rule of reason, the court explained. However, the retailer failed to surmount the first obstacle in a rule of reason antitrust claim: alleging a valid relevant market.

Neither the “retail market for Brighton women’s accessories” (the manufacturer’s brand) nor the “wholesale sale of brand-name women’s accessories to independent retailers constituted a valid product market. A single brand, no matter how distinctive or unique, could not be its own market, and the retailer’s broader market definition suffered from its own shortcomings.

“Wholesale sale was inappropriate because it did not focus on how any agreement impacted consumers, and inclusion of “brand name in the product market definition was unsupported by any allegations explaining why brand names were important to product interchangeability in the case.

In addition, “women’s accessories grouped together products that were not interchangeable with each other, and “independent retailers improperly limited the relevant market to a subset of retailers without explaining why there was a lack of interchangeability between that subset and other retailers selling exactly the same products, according to the court.

Horizontal Restraint Pleadings

Attempts by the retailer to reattach the per se illegality standard to the claim by asserting a horizontal restraint were inadequate, the court also found. The retailer was barred from claiming that the manufacturer engaged in a per se illegal horizontal price fixing agreement based on the fact that it was also a distributor of its own products.

The retailer failed to raise the theory in the original trial in the case, even though nothing prevented it from doing so. In reversing the trial outcome on the vertical restraint claims, the U.S. Supreme Court had not specifically allowed the retailer to replead allegations it had previously abandoned.

Even if such a claim were permissible, restraints in dual distribution systems—including price fixing agreements—were still analyzed under the rule of reason, rather than held to the per se illegality standard.

“Hub and Spoke” Retailer Cartel

An alternative theory that the manufacturer engaged in per se illegal horizontal price fixing in furtherance of a “hub and spoke retailer cartel also failed as a matter of law, the court determined.

The complaining retailer contended that it would prove that there was a series of agreements between the manufacturer and independent retailers to fix prices of its goods; that the independent retailers formed a cartel with each other and with the manufacturer as a retailer to prevent discounting and price competition; that, in response to pressure from retailers involved in the cartel, the manufacturer enforced its price fixing agreements against discounters to stamp out price competition; and that retailers discussed and came to agreements as to the terms of the price fixing agreements and exceptions.

These allegations were insufficient to plead a hub and spoke conspiracy. No claim was made that retailers agreed to the alleged resale price maintenance among themselves. Without such an allegation, the complaining retailer was missing the requisite wheel in the classic hub and spoke arrangement, the court concluded.

The decision is PSKS, Inc. v. Leegin Creative Leather Products, Inc., 2009-1 Trade Cases ¶76,592.

No comments: