Varney on RPM

Josh Wright —  4 March 2009

I just saw this very good piece in The Deal from Sean Gates and Tej

During her tenure at the FTC, Varney advocated greater enforcement against vertical restraints. In a speech before the American Bar Association in early 1995, she explained her thoughts on resale price maintenance cases: “Our enforcement agenda today is that resale price maintenance agreements are unlawful per se and the commission will enforce the law in this area.” This was a clear change from Reagan administration antitrust enforcement. Even though the Supreme Court had long held RPM to be per se unlawful, the Reagan administration enforcers did not challenge these types of restraints. In fact, they did not bring a single pure vertical restraint challenge.

True to her word, Varney joined in several important RPM challenges, including cases that expanded the scope of the per se rule in RPM cases. In a case against American Cyanamid, Varney joined the majority in inferring the existence of a per se illegal RPM agreement despite the fact that the defendants had never announced resale prices nor sought a commitment from distributors to sell at or above a certain price level. In a case against Reebok, Varney joined the Commission in condemning an RPM policy, enjoining Reebok from using “structured terminations” to effect RPM even though such terminations “falls into the ‘gray’ area of RPM jurisprudence.” Varney also joined in a number of other cases challenging vertical price fixing agreements.

The Bush administration, however, did not bring a single challenge to an RPM policy. Instead, the Bush administration urged the Supreme Court to overturn the per se rule against RPM, which the Court did in Leegin Creative Products v. PSKS Inc. Since then, there has been much speculation regarding when, under a rule of reason analysis, RPM is unlawful. Given her prior positions in this area, Varney’s antitrust division may lead the charge in testing the boundaries set in Leegin by bringing challenges to vertical price restraints.

If past is prologue, Varney’s appointment suggests that Obama is looking to make good on his campaign promise to pursue a more aggressive and active antitrust enforcement agenda.

Varney’s speeches are available here. And I’ve previously noted my disappointment about a recent statement from the future AAG that “there is no such thing as a false positive.” Here is a speech from 1996 on vertical restraints. It is difficult to know what to make of the speech in terms of predictive power since it was made during the Dr. Miles era. Though my own view is that P(Dr. Miles Return) = .53. But it will be interesting to watch. As readers of the TOTM know, my own view on RPM is that the theoretical and empirical evidence do not warrant an aggressive antitrust enforcement approach.

3 responses to Varney on RPM

  1. 
    european_scholar 27 March 2009 at 4:10 am

    Great job with the website! I am currently doing some research on whether the Leegin decision should have any impact on European Competition Law. It is the first time I am looking at RPM and I cannot say I’ve analysed all arguments in depth yet — so I hope you’ll forgive me for any inaccuracies. As I understand it, one of the basic pro-RPM arguments is that, absent collusion, RPM will encourage inter-brand competition which is why we should not be too concerned about intra-brand competition. But is that also true in cases where there is brand power? I find Steiner’s and Grime’s line of argument quite persuasive on that point and I am surprised that there wasn’t much discussion on this in Leegin. It would be great to have some of your thoughts on that matter.

  2. 

    Certainly its possible that agency RPM litigation will produce benefits in terms of shaping and clarifying the law in this area. But the possible benefits are mitigated by how useful it is to add meat to the rule of reason analysis of a practice that the empirical literature shows is overwhelmingly pro-competitive. As a resource allocation decision, I’m not sure there is a good rate of return for consumers here (not to mention that private litigation is likely to allow federal courts a shot at shaping the rules here, and the agencies have other methods of letting their positions on RPM be known).

  3. 
    antitrust guy 5 March 2009 at 2:13 pm

    If nothing else, it would be useful for the government, and ultimately a court, to explain/determine the factors relevant to when RPM is or is not legal under the rule of reason.