Conference on RPM - On December 4, a conference was held in Washington, D.C. on the topic of resale price maintenance ("RPM") by consumer advocates, regulators, and policy experts opposed to RPM.
Minimum RPM has emerged as a hot topic in the wake of the Supreme Court's 2007 ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc., which held that RPM is no longer illegal per se, but is evaluated under the rule of reason. This has allowed manufacturers to impose minimum resale prices on retailers, and has been very controversial.
Conference participants criticized Leegin's impact on consumers and retailers, and criticized the policy rationale for the decision:
Increased Consumer Prices - The American Antitrust Institute provided specific examples of popular toys and baby products whose prices for consumers increased in price by 20 to 40% in the wake of Leegin, available here.
FTC Commissioner Pamela Jones Harbour cited a 1975 Congressional analysis of RPM under state fair trade laws, which authorized states to authorize RPM within their borders. According to Commissioner Harbour, Congress found that RPM led to substantially higher consumer prices, an increase in sales by less efficient distributors and retailers, decreased entry opportunities, and decreased inter-brand and intra-brand competition, which led Congress to pass the Consumer Goods Pricing Act of 1975 that repealed the state fair trade laws.
Harm to Retailers - The losing party in the Leegin case, Phil Smith – an owner of Kay's Kloset, spoke at the conference, explaining that the Leegin ruling forced him out of business. Almost half of his Mr. Smith's sales were of Leegin products. When Mr. Smith refused to stop offering discounts on Leegin products, Leegin stopped supplying their products to him, and his sales dropped substantially, forcing him out of business. His statement is available here.
Representatives of BabyAge.com (previously discussed here) and eBay also spoke out against Leegin. RPM has had its greatest effect on internet retailers, who tend to discount more aggressively than brick and mortar stores, in part because they generally have a more efficient distribution model. They also argued that the internet offers small retailers an opportunity to compete more effectively with big box stores if they are able to discount aggressively. "In these tough economic times, consumers need retailers competing more than ever to offer them the best prices for their hard-earned money," said Jacob Weiss, President of BabyAge.com.
Little Evidence of Benefits – Proponents of RPM argue that brick and mortar retailers offer customer support and other benefits that internet retailers do not offer. They also argue that RPM promotes inter-brand competition.
Sony recently offered a new justification for resale price maintenance: that it eliminates consumer stress because consumers don't have to worry about whether they can get a better deal from a different retailer.
Conference panelists questioned these arguments, pointing to the lack of empirical evidence of the benefits of RPM to consumers. Further, while Leegin did not make RPM per se lawful, panelists pointed out that, given the uncertainty and costs associated with a rule of reason lawsuit, there are unlikely to be many challenges to RPM practices.
Proposed Legislation - Legislation co-sponsored by Senators Biden and Clinton would reinstate the per se prohibition on such price agreements, and conference participants spoke out in favor of the legislation. See Discount Consumer Protection Act, S. 2261. At least 35 state attorneys general support the legislation, and the Senate is expected to hold hearings on the issue in the upcoming term.
Conference materials and audio recordings are available here. Coverage of the conference by the Wall Street Journal is available here, and a web site on the issue has been set up at http://www.protectconsumerchoice.org/.
Related Posts: WSJ Examines Manufacturers' RPM Practices; FTC's Nine West Order Explores RPM Under Leegin; State RPM Laws and Leegin; Herman Miller Contends That Consent Decree Allows it to Continue Minimum RPM Policy; Developing Legally-Compliant Trade Promotion Management Programs.