Most recently, the U.S. District Court of the Central District of California denied a retailer’s motion to dismiss vertical price fixing claims filed under the state’s Cartwright Act and Unfair Competition Law. California law mandates that all vertical agreements setting resale prices be treated as automatically or per se illegal. The retailer, Alan Darush, MD, APC (Darush), alleges that one of its principal suppliers of skin care products, Revision, L.P. (Revision), coerced compliance with its minimum suggested retail price program (MSRP Program) and agreed with one or more of its other retailers – Darush’s competitors – to pressure and terminate those retailers in violation of Revision’s MSRP Program.
Darush claims that Revision was well aware that retailers often were not adhering to the MSRP Program and that he only priced below the MSRP in order to remain competitive. Darush’s complaint alleges that Revision repeatedly coerced Darush and threatened termination unless he complied with Revision’s MSRP Program.
The complaint also cites to Revision testimony and documents from an unrelated trademark case, which appear to present a problem under California law. For example, Darush quoted e-mails between one of its competitors, Lovely Skin, and Revision, where the two discuss non-compliant retailers and how Revision is dealing with those retailers. In fact, in one e-mail Revision describes an earlier conversation with Lovely Skin, where they discussed "the low ... prices on the web and the fact that [Lovely Skin] would like to charge more" and Revision gives the assurance that it has "uncovered some of the biggest sites and ha[s] either shut them down or ... given warning to comply with [Revision’s] policy." In another set of e-mails, Revision notes that it "either had [its retailers] raise their price or discontinued shipping products to them altogether" and then goes on to "ask that [Lovely Skin] raise [its] price." In a third e-mail string, Lovely Skin asks Revision for a list of the terminated retailers "so we aren’t wasting our time keeping an eye on them" and Revision responds with a list of compliant Web sites and a list of Web sites terminated for MSRP Program violations. Revision also notifies Lovely Skin that it has "asked" a number of sites "to comply with [its] policies."
There remain a number of states that prohibit all resale price agreements, California among them. After reviewing Darush’s averments, the court noted that under California law "[i]f a seller does no more than announce a policy designed to restrain trade, and declines to sell to those who fail to adhere to the policy, no illegal combination is established." Based on the e-mails and testimony, the court concluded that Darush "provides sufficient factual support to make plausible an agreement between Revision and Lovely Skin to vertically fix prices and eliminate retailers selling at a discount." Accordingly, the court denied the motion to dismiss.
The Revision case is a good example of the challenges presented by policies aimed at restricting resale prices, particularly in those states where such policies, if they cross the line into an "agreement," are automatically illegal. It is logical and reasonable for retailers to want information about whether other retailers are complying with a resale policy. That information could be sought for an improper purpose, but could also be sought merely for the purpose of deciding independently whether the retailers will comply. Similarly, it is understandable that a manufacturer wants its retailers to know that its policy is succeeding and the benefits of that success and the value of the policy.
Collecting and providing information does not mean the parties have reached an agreement. That being said, a manufacturer should attempt to avoid discussing specific resellers with the competitors of those resellers. The safest course for the manufacturer is to advise all resellers that it alone will be responsible for identifying non-compliant resellers and that it does not want resellers reporting violations of the policy by other resellers. Even if resellers are permitted to report violations, the safest course is for the manufacturer not to respond with information regarding the specific purported policy violators.
Most importantly, a manufacturer should not "ask" its resellers to raise their prices. Once the question is asked and the resellers raise their prices or start to comply with the policy, a court might infer that the manufacturer and reseller reached an "agreement." Resale and advertised pricing policies or restrictions are not automatically legal under federal law and remain automatically illegal in some states and in many countries outside of the United States. A carefully drafted and properly enforced program can result in significant value and procompetitive benefits. Well-trained employees and knowledgeable counsel are essential to any successful resale price restrictions.
