Sunday, March 30, 2008

Herman Miller Contends That Consent Decree Allows it to Continue Minimum Resale Pricing Policy

State AG Investigation - New York's Attorney General launched an investigation of Herman Miller Inc.'s pricing policies in 2003, and the investigation was joined by Illinois and Michigan.

The chair manufacturer's policies prohibit retailers from advertising or otherwise disclosing to consumers a price of less than $949 for its popular Aeron chair. If retailers advertised a price below $949, the company would deny shipments to the retailer.

Complaint Filed - The state AGs filed a complaint, New York v. Herman Miller Inc., No. 08cv02977 (S.D.N.Y. Mar. 21, 2008), alleging that the minimum pricing constituted anti-competitive conduct that harmed consumers, denying them the benefits of unrestrained price competition and access to price information in violation of federal and state antitrust laws.

Consent Decree - Driven in part by the Leegin Creative Leather Products v. PSKS, Inc. decision by the Supreme Court, the states agreed to settle the lawsuit in a consent decree entered on March 25, 2008. Under the terms of the agreement, Herman Miller agreed to pay the states $750,000, and agreed to certain restrictions on its pricing policies. The consent decree prevents Herman Miller from, inter alia:

  • Fixing, maintain, or stabilizing prices or facilitating an agreement to do so;
  • Communicating resale prices of one dealer to another dealer;
  • Cutting supplies to a retailer in order to coerce the retailer to agree or commit to comply with the suggested retail price, except that it may cut supplies for "lawful business reasons";
  • Attempting to coerce retailers to comply with the MSRP policy by threatening to cut supplies, or by cutting supplies and offering to restore them within less than one year; and
  • Conditioning the receipt of cooperative advertising or other promotional funds on compliance with the MSRP policy.

Herman Miller is also required to notify retailers that they are "always free . . . to advertise and sell Herman Miller for the Home products at whatever price you wish."

Herman Miller's Interpretation - A key provision of the settlement is the exception that Herman Miller may cut supplies to retailers who fail to stick to the $949 minimum price if it does so for "lawful business reasons." A Herman Miller spokesman stated that "[i]t remains our contention that the law says we can have a minimum advertised pricing policy and that we can enforce that unilaterally." He also stated that, under the terms of the decree, the company can "state and enforce our policy, but we cannot have communication to get [retailers] to abide by the policy. After [2010], we can go back to operating just as we have been."

Consistency with Leegin - Herman Miller's interpretation of the law may be correct under Leegin, which found that resale maintenance is not per se unlawful, but is subject to a rule of reason analysis that permits resale price maintenance if there is a legitimate business justification for the strategy. In Leegin, a leather-products manufacturer refused to sell to retailers who sold products below suggested minimum prices. The court recognized several potential justifications for resale price maintenance, such as facilitating interbrand competition, encouraging investment in services and promotional efforts, facilitating market entry for new firms, and providing consumers more options between low-price, low-service brands and high-price, high-service brands. As the Leegin court mentioned, the question of resale price maintenance has arisen in recent years when brick-and-mortar stores have faced competition by low-priced internet retailers, who lack a showroom and offer more limited customer service.

The Herman Miller settlement appears to be consistent with the Colgate doctrine, under which manufacturers can unilaterally announce that it will refuse to make sales to retailers who sell below a certain price. See U.S. v. Colgate & Co., 250 U.S. 300 (1919). The Colgate doctrine recognizes that a unilateral policy is not a price-fixing agreement. If Herman Miller resumed communications with retailers seeking agreement to comply with the policy, however, the doctrine would not apply.

While Herman Miller agreed to pay a significant fine, its continuing assertion that its policies are lawful may be correct under Leegin. But Herman Miller had a strong incentive to settle in the face of uncertainty regarding what types of resale price maintenance agreements will pass muster under Leegin, and in the face of the State AGs' continued enforcement efforts. The State AGs' inclusion of the "lawful business reasons" exception in the consent decree, however, suggests that the State Attorneys Generals recognized that certain aspects of Herman Miller's policies may be permitted under Leegin.

In sum, the decree demonstrates that, even after Leegin, government agencies are not willing to drop all enforcement efforts directed at resale price maintenance agreements, though the contours of the Leegin doctrine remain unclear.

Related Post: State Resale Price Maintenance Laws and Leegin


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