As we discussed previously, the U.S. Supreme Court heard oral argument in March in the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc. dba Kay’s Kloset (“Leegin”). The Court issued its decision on the matter on June 28, 2007. Based on a razor thin five-to-four decision, the Court continued its new direction in liberalizing our antitrust law. The Court in Leegin overruled its 1911 decision in Dr. Miles Med. Co. v. John D. Park & Sons Co., holding that all agreements between manufacturers and resellers fixing a minimum price by which a distributor is allowed to resell the manufacturer’s product – that is, a minimum resale price maintenance agreement – are NOT per se unlawful (are NOT to be automatically considered an unreasonable restraint of trade under Section 1 of the Sherman Act). Instead, any such minimum resale price maintenance agreement is now to be scrutinized under a “rule of reason,” whereby any pro-competitive aspects of such agreements are to be weighed against their anti-competitive effects. The Court majority focused on whether minimum resale price maintenance met the Court’s more recent test for per se prohibitions: specifically, whether the restraint always or almost always would have the effect of restricting competition and diminishing output. In examining minimum resale pricing agreements, the court pointed to two redeeming qualities that could lead to a conclusion that the pro-competitive factors of such agreements would outweigh the negative implications: (i) a minimum price would provide an assist to retailers in providing services that enhance interbrand competition; and (ii) a minimum price could lead to new companies and brands entering the marketplace.

The Court offered scant direction to trial courts in applying the reasonableness rule in future cases involving minimum price maintenance agreements. In fact, the Court invited further development of rule-of-reason analyses to help establish future litigation strategy. If your company is involved or may become involved in any such agreements on a moving forward basis, you should first anticipate a period of adjustment arising out of the Leegin decision. And, complicating the analysis further is the fact that many states have enacted laws making such minimum price maintenance agreements per se unlawful. There is no guarantee that these states will shy away from enforcing their own laws, even with the Leegin decision now in effect. Confer with your counsel prior to implementing or agreeing to any such agreement.