Teaching RPM After Leegin

Thom Lambert —  11 January 2008

Back in the olden days (i.e., before this past summer), a manufacturer automatically violated the antitrust laws — no ifs, ands, or buts — if he agreed with a retailer that the latter would charge at least a minimum price for the manufacturer’s products. For reasons we elaborated ad nauseum (click and scroll down), that per se rule against minimum resale price maintenance was a bad one. Perhaps realizing as much, the Supreme Court formulated a number of doctrines limiting the rule’s reach. First, the rule applied only to price agreements; agreements that retailers would adhere to non-price restraints (geographic limitations, etc.), were governed by the rule of reason. In addition, the rule applied only to agreements about minimum prices; if a manufacturer unilaterally refused to deal with a retailer that discounted (but didn’t attempt to cajole retailers into avoiding discounts), the rule was not violated. Finally, terminated dealers who sued claiming that they were terminated as part of an illegal RPM agreement had to make heightened showings to avoid summary judgment: they had to produce evidence that tended to establish an agreement (rather than unilateral manufacturer action) and that the agreement was one concerning minimum prices (rather than one concerning non-price restraints).

All this complexity meant that teaching the law of RPM took a long time. One had to cover (1) the per se rule of Dr. Miles, (2) the policy critique of that rule (i.e., why RPM might be anticompetitive, why it may be procompetitive, and what should be the legal ramifications of this “mixed bag”), (3) the differing rule for vertical non-price restraints (Sylvania), (4) the exception for unilaterally imposed resale pricing policies (Colgate), and (5) the procedural implications of the Sylvania and Colgate exceptions (Monsanto, which seeks to preserve the Colgate safe harbor, and Business Electronics, which seeks to preserve the Sylvania safe harbor).

This past summer, the Supreme Court’s Leegin decision overruled Dr. Miles and held that the rule of reason would govern both non-price and price vertical restraints. At the time of the decision, I assumed RPM would become much easier to teach — no need to go through all the cases where the Supreme Court tried to limit the reach of the unfortunate per se rule.

Some others have similarly assumed that Leegin essentially overrides some of the limiting decisions. In a roundtable discussion published in the latest issue of Antitrust Magazine, Articles Editor (and Howard University law prof) Andrew Gavil posed the question squarely:

Under Dr. Miles, a lot of other doctrines regarding proof of RPM agreements arose. I’m thinking of Colgate, Parke Davis, Business Electronics, and Monsanto. How much of those decisions survive the decision in Leegin?

Gavil then went on to suggest that the answer is, not much: “There is an argument based on comments made by the [Leegin] majority that both Monsanto and Business Electronics have been effectively overruled.”

Ronald Stern, Vice-President and Senior Competition Counsel for General Electric, disagreed:

I would certainly assume that the existing decisions regarding proof of an agreement have not been changed by Leegin. Firms may elect to follow the Colgate approach even after Leegin in view of the state law risks that we have discussed. That should not be more difficult just because Dr. Miles has been overruled.

Stern is surely right. As this very useful article (also from the current issue of Antitrust) shows, rules against RPM are alive and well under state laws. Thus, manufacturers may want to avoid inference of a vertical price agreement even if that agreement would at the federal level be judged (and pass muster) under the rule of reason. Accordingly, RPM defendants in a post-Leegin world are likely to take a two-pronged tack: (1) argue that there’s no vertical price agreement (relying on Colgate, Monsanto, and Business Electronics), and (2) argue that any such agreement passes muster under the rule of reason.

So it looks like we antitrust profs aren’t going to be able to cut anything from our syllabi. Going back to my list of RPM topics, we’ll still have to teach: (1) the rule for evaluating RPM under federal law (it’s now Leegin‘s rule of reason, not Dr. Miles‘s per se rule); (2) the policy arguments about RPM (understanding how RPM could be pro- or anti-competitive is essential for conducting a rule of reason analysis); (3) the Sylvania exception for non-price restraints (important for state law, where the price and non-price vertical restraints are treated differently); (4) the Colgate exception for unilateral pricing policies (an exception many manufacturers will likely invoke to avoid rule of reason litigation and litigation under state RPM laws); and (5) the Monsanto and Business Electronics standards for proving a vertical price agreement (again, likely to be invoked by RPM defendants).

Sigh… so much to cover. Where to cut?

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

2 responses to Teaching RPM After Leegin

  1. 

    Thom & Josh — I went through the same calculus last semester, and ended up keeping everything in. To get back an extra lecture or two, I had the students start with Leegin on the second day of class, substituting it for the several overview cases with which Goetz/McChesney begin their text (last year, my students didn’t benefit much from the overview cases, and Leegin proved a surprisingly good platform for early discussions about virtually all of the big issues in antitrust). We revisited Leegin later in the semester.

    We did discuss the continuing importance of the “inference of agreement” cases both in the RPM context and elsewhere, and also talked about Colgate as a safe harbor of sorts, even post-Leegin (Goetz & McChesney supplement their text with excerpts from the Ping amicus brief in Leegin, which is absolutely fantastic).

  2. 

    Great post Thom. I was looking forward to cutting some material in this area, but you’ve convinced me to give it some more thought. I certainly agree that Leegin doesn’t reduce the importance of Sylvania, Colgate, or Monsanto/ Business Elecs in this setting. But I’m still clinging to the hope that I can combine (1) and (2) into one lecture. I think the structure of the Leegin opinion at least offers some hope in this regard.