Monday, December 06, 2010

Resale Price Fixing Claims Against Mattress Maker Lacked Support

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

Consumers failed to support their resale price fixing claims against Tempur-Pedic North America, Inc., the manufacturer of visco-elastic Tempur-Pedic foam mattresses, the U.S. Court of Appeals in Atlanta has ruled.

The consumers challenged the manufacturer's practice of setting the minimum retail prices the distributors could charge for its mattresses and adhering to those minimum prices in the sales it made through its website.

The appellate court explained that vertical resale price maintenance claims had to be evaluated using rule of reason analysis. Under rule of reason analysis, complaining consumers had to show either actual or potential harm to competition. Regardless of whether the consumers alleged actual or potential harm to competition, they had to identify the relevant market in which the harm occurred.

Relevant Market

The consumers' skimpy allegations of the relevant submarket limited to visco-elastic foam mattresses were legally insufficient to support vertical resale price maintenance claims, the court ruled. The consumers argued that, because their complaint was dismissed on a Federal Rule of Civil Procedure 12(b)(6) motion, they did not have the chance to add facts in discovery which would have established visco-elastic foam mattresses as a separate relevant
product submarket.

The consumers nevertheless had the obligation to indicate that they could provide evidence plausibly suggesting the definition of the alleged submarket, the court explained. The complaint alleges, without elaboration, that “[v]isco-elastic foam mattresses comprise a relevant product market, or submarket, separate and distinct from the market for mattresses generally, under the federal antitrust laws.”

This conclusory statement merely begged the question of what, exactly, made foam mattresses comprise this submarket. The complaint provided no factual allegations of the cross-elasticity of demand or other indications of price sensitivity that would indicate whether consumerstreated visco-elastic foam mattresses differently than they did mattresses
in general.

Even if the consumers had alleged a proper relevant market, they failed to adequately allege that the retail price maintenance agreements had anticompetitive effects.

Horizontal Price Fixing

The consumers' horizontal price fixing claims against Tempur-Pedic were also rejected. They argued that the mattress maker's dual-distribution system—under which its mattresses were sold both through its authorized distributors and directly to consumers through the manufacturer's own website—constituted a horizontal price fixing conspiracy.

The consumers did not, however, meet their burden to present allegations showing why an inference that the manufacturer and its distributors entered into a price fixing agreement was more plausible than an inference that the manufacturers and distributors set prices independently and happened to set the same price because it made economic sense to do so.

Potential costs to the manufacturer of fixing prices with its distributors would have outweighed any benefits that the manufacturer would have realized by doing so, particularly where independent economic activity would have yielded the same benefits with none of the costs.

The December 2 decision is Jacobs v. Tempur-Pedic International, Inc. It will appear at 2010-2 Trade Cases ¶77,250.

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