Cosmetics Firm Resolves California Resale Price Fixing Suit

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

A company that markets cosmetics and skin care products has agreed to settle a civil suit brought by the State of California, alleging that it engaged in vertical price fixing in per se violation of the California Cartwright Act and the California Unfair Competition Law.

The state alleged that the northern California-based company entered into distribution agreements with resale price maintenance components, including prohibitions on pricing below suggested retail prices.

Under the terms of a final judgment approved by a California trial court, the cosmetics company was prohibited from entering into agreements to fix resale prices.

In addition, the company was required to pay a $70,000 civil penalty under the Unfair Competition Law and $50,000 to cover investigation costs and expenses.

Further details regarding The People of the State of California v. DermaQuest, Inc. will appear at 2010-1 Trade Cases ¶76,922.

State v. Federal Antitrust Law

The case is a reminder that resale pricing practices can run afoul of state antitrust laws, even if such conduct is no longer considered per se illegal under federal antitrust law.

In 2007, the U.S. Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2007-1 Trade Cases ¶75,753, reversed a 96-year-old precedent applying the per se rule to vertical price fixing.

And California is not the only state to challenge vertical price fixing. Following the Supreme Court’s decision in Leegin, furniture maker Herman Miller, Inc. entered into a consent decree resolving a multi-state complaint, alleging resale price fixing in violation of federal and state antitrust law.

Herman Miller was prohibited from agreeing with dealers to fix the resale price at which its furniture was advertised or sold to end-user consumers and from terminating a dealer or discriminating against a dealer to secure a commitment from the dealer to adhere to the manufacturer's suggested resale prices. The manufacturer was also required to pay a monetary payment of $750,000 under the consent decree.

The consent decree settled charges brought by the States of Illinois, Michigan, and New York that the manufacturer violated federal and state antitrust laws by entering into agreements with dealers to fix the prices at which its furniture was offered to consumers.

The case is State of New York, et al. v. Herman Miller, Inc., No. 08-civ-02977 , 2008-2 Trade Cases ¶76,454.