The Office of the Maryland Attorney General recently announced that the state is actively investigating resale price maintenance (RPM) violations under Maryland’s state antitrust law. Maryland’s investigations are notable as it is the only US state with a state law that explicitly condemns minimum RPM agreements as per se unlawful.
The subject(s), status, and extent of the investigations are presently unknown, but suppliers and retailers that do business in Maryland’s stream of commerce should ensure that any vertical pricing arrangements satisfy Maryland’s strict antitrust rules.
BACKGROUND
RPM refers to agreements between or among manufacturers, distributors, and/or retailers regarding the price at which a product is sold. Also known as vertical price fixing, RPM may include price floors (minimum RPM) or price ceilings (maximum RPM).
Minimum RPM was per se illegal under Section 1 of the Sherman Act for nearly a century until the US Supreme Court’s landmark 2007 decision in Leegin Creative Leather Products Inc. v. PSKS Inc., which held that, under federal antitrust law, all vertical price restraints should be judged under the rule of reason. [1]
In 2009, Maryland became the first (and thus far only) state to adopt legislation expressly overturning Leegin and making minimum RPM per se illegal under the state’s antitrust laws. [2] Nearly all other states to address the issue have followed Leegin, with the notable exception of California. Lower federal and state courts applying California law have taken differing approaches interpreting the Cartwright Act (California’s state antitrust law), thereby leaving the state of California RPM law uncertain. [3]
Since the passage of Maryland’s so-called “Leegin repealer” statute, Maryland’s attorney general has rarely pursued minimum RPM claims. [4] However, in a November 17, 2023 panel organized by the American Bar Association titled “Resale Price Maintenance & the Digital Age,” Chief of the Maryland Attorney General’s Antitrust Division Schonette J. Walker disclosed that Maryland presently has active investigations regarding RPM: “Maryland has ongoing [resale price maintenance] investigations currently. So we'll see what that yields.” [5] She cautioned, however, that “as enforcers, we have a duty to make sure that we’re not bringing frivolous cases” and that enforcers should emphasize substance over form. [6]
UNILATERAL PRICING STRATEGIES
Many manufacturers, particularly of high-end and luxury goods, recognize that targeting particular price points in a market may enhance brand reputation and value, promote consistency across distribution channels, and avoid turning brick-and-mortar stores into showrooms for online retailers, among other pro-competitive benefits.
To achieve these benefits to competition and given the draconian per se treatment under Maryland law (and the uncertainty of California’s law on RPM agreements), manufacturers and distributors that operate on a nationwide basis often rely on unilateral strategies, including minimum advertised price (MAP) policies, to avoid entering into bilateral agreements with retailers regarding prices—while at the same time achieving similar benefits to the brand and competition.
A challenge that businesses consistently face, however, is that what may begin on paper as a unilateral pricing strategy may end up in practice appearing like a bilateral pricing agreement if those charged with implementing the strategy are not adequately trained in antitrust fundamentals.
In light of Maryland’s increased scrutiny on RPM with an emphasis of substance over form, manufacturers and distributors should examine with antitrust counsel whether their pricing policies on paper—and in practice—are in compliance with state and federal law, particularly policies and practices as they apply to Maryland and California retailers (including online retailers that may sell into those jurisdictions).
[1] 551 U.S. 877, 907 (2007) (overruling Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373, 394 (1911)). In 1997, the US Supreme Court overruled a 29-year-old precedent treating maximum RPM agreements as per se illegal. See State Oil Co. v. Khan, 522 U.S. 3, 22 (1997) (overruling Albrecht v. Herald Co., 390 U.S. 145 (1968)).
[2] See MD. Commercial Law Code Ann. § 11-204(b) (“a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce”).
[3] See Alsheikh v. Superior Ct., No. B249822, 2013 WL 5530508, at *3 (Cal. Ct. App. Oct. 7, 2013); Alan Darush MD APC v. Revision LP, No. CV 12-10296 GAF AGRX, 2013 WL 1749539, at *6 (C.D. Cal. Apr. 10, 2013); Kaewsawang v. Sara Lee Fresh, Inc., No. BC360109, 2013 WL 3214439, at *5 (Cal. Super. May 06, 2013); and In re Online Travel Co. (OTC) Hotel Booking Antitrust Litig., No. 3:12-CV-3515-B, 2014 WL 5460450, at *10 (N.D. Tex. Oct. 27, 2014).
[4] See, e.g., Maryland v. Johnson & Johnson, No. 02-C-16-002271 (Cir. Ct. Baltimore Cty. Feb. 29, 2016); see also Attorney General Frosh Announces Settlement of Price-Fixing Lawsuit Against Johnson & Johnson Vision Care, Inc. (Mar. 30, 2017).
[5] Chris May, MLex, Maryland AG Investigating Potential Resale Price Maintenance Violations, Official Says (Nov. 17, 2023).
[6] Id.
[View source.]
