Monday, June 2, 2008

FTC’s Nine West Order Explores Resale Price Maintenance Under Leegin

FTC Order Allows Nine West's RPM - In an order that demonstrates manufacturers' increased ability to impose minimum resale prices on retailers after Leegin, the FTC last month unanimously granted a petition by women's shoe company Nine West to modify a prior order prohibiting it from engaging in resale price maintenance ("RPM").

Prior Order Had Prohibited RPM - In 2000, the FTC alleged that Nine West violated Section 5 of the FTC Act by negotiating RPM agreements with retail stores setting minimum prices for its shoes. Nine West and the FTC entered into a consent order prohibiting Nine West from engaging in any form of resale price maintenance. At the same time, Nine West entered into separate agreements with various states related to those states' antitrust laws.

Leegin - The Supreme Court's recent decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007), overturned the prior rule that RPM was per se illegal, a rule that had been articulated in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). The Court stated that RPM agreements may be pro-competitive if they promote inter-brand competition. Under the new standard, RPM agreements are analyzed on a case-by-case basis under the rule of reason, evaluating the competitive benefits and harms from RPM agreements.

Rule of Reason Analysis - The FTC analyzed whether the rule of reason analysis under Leegin should be a full-blown inquiry, a truncated inquiry as in FTC v. Indiana Federation of Dentists, or some other form of truncated inquiry. The FTC did not determine which type of inquiry applies to RPM, stating that "RPM agreements ordinarily might be seen by the Court as less intrinsically dangerous than horizontal price-setting arrangements, but not invariably so."

Leegin Factors - In its order, the FTC identified three relevant considerations from Leegin in determining whether RPM was likely to be anti-competitive: (1) whether retailers were the impetus for the adoption of RPM; (2) whether RPM was ubiquitous in the industry; and (3) whether the manufacturer or retailer was the dominant player in the market.

Application of Leegin - In its order, the FTC found that Nine West has "only a modest market share" and that the impetus for RPM is from Nine West itself. The FTC therefore found no likelihood of harm to consumers. The FTC further stated that if there were competitive concern, Nine West could meet its burden by showing pro-competitive effects of its RPM. While Nine West made a "conclusory assertion" of pro-competitive effects, the FTC found that Nine West had not made an adequate showing. The FTC therefore required Nine West to file periodic reports regarding its use of RPM and its effect on prices and output.

State Law Antitrust Implications - The FTC's order did not affect the settlement agreements that had previously been entered into between Nine West and various states. As discussed in more detail in a previous post, state law may or may not follow Leegin. Thus, state antitrust law remains an area of risk for manufacturers wishing to impose minimum prices.

Lessons from Nine West - While the FTC opinion reflects continued uncertainty about how Leegin should be applied, including what form of rule of reason analysis is appropriate, it also provides some guidance to manufacturers on factors the FTC deems important. Manufacturers should be especially cautious if it is likely that the FTC will find that retailers instigated the RPM, that RPM is ubiquitous in the industry, or that the manufacturer is the dominant supplier.

For retailers, the order provides a caution that they cannot be the impetus for the adoption of RPM.

Related Posts: State Resale Price Maintenance Laws and Leegin; Developing Legally-Compliant Trade Promotion Management Programs.


The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies

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