Cosmetics Company Settles California Vertical Price Fixing Charges

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

Cosmetics company Bioelements, Inc. has agreed to settle a complaint brought by the State of California, alleging that the company engaged in vertical price fixing in per se violation of the California Cartwright Act.

The state alleged that Bioelements had entered into dozens of contracts with other companies that required them to sell Bioelements’ products online for at least as much as the retail prices prescribed by Bioelements.

Under a consent decree signed by a state court judge on January 12, Bioelements agreed to refrain from fixing resale prices for its merchandise, to inform distributors and retailers that it will not enforce the challenged contracts, and to pay a total of $51,000 in civil penalties and attorney fees.

State Ban of Vertical Price Fixing

In a January 14 statement, the California Attorney General’s office said that the settlement “is one of the first applications of California’s strict, pro-consumer antitrust law banning vertical price-fixing in the wake of a controversial 2007 U.S. Supreme Court decision that weakened federal law in this area.”

In 2007, the U.S. Supreme Court in Leegin Creative Leather Products v. PSKS, Inc. (2007-1 Trade Cases ¶75,753) overruled the long-standing per se prohibition on resale price maintenance under the Sherman Act and held that resale price maintenance was instead subject to a more lenient standard, the rule of reason.

Previous Settlement

Bioelements is not the first cosmetics company to face vertical price fixing allegations from the State of California in recent years. Last February, DermaQuest, Inc. agreed under the terms of a consent decree to settle charges that it entered into distribution agreements with distributors and retailers containing resale price maintenance components, including prohibitions on pricing below suggested retail prices (2010-1 Trade Cases ¶76,922).

Bioelement is an Illinois corporation with its physical headquarters in Colorado. The company’s founder and president is domiciled in California. In its complaint, California also alleged that the company regularly sells and delivers cosmetics in the state. The complaint points to dozens of contracts between Bioelements and third party sellers.

Further information regarding the settlement appears here on the California Attorney General’s website.

The final judgment in People of the State of California v. Bioelements, Inc., Case No. 10011659, will appear at 2011-1 Trade Cases ¶77,306.