April 28, 2009, 12:00 AM

Maryland prohibits manufacturers from setting minimum retail prices

The Maryland statute once again makes it illegal for a manufacturer to require a retailer to sell at or above a certain price. It`s a response to a Supreme Court decision two years ago that opened the door for more minimum price agreements.

Don Davis

Editor in Chief

 

Maryland this month enacted a law that bars manufacturers from requiring retailers to sell items at or above a certain price. That returns the law in that state to what it was before a controversial Supreme Court decision two years ago that opened the door for more minimum price agreements.

Internet retailers are divided on minimum-price mandates. Some say they undercut the advantage online merchants have in being able to sell at lower price because they don’t the cost of operating stores. Others say minimum pricing protects profit margins.

The Supreme Court opened the door for manufacturers to more aggressively set minimum prices in the June 2007 decision in a case known as Leegin that said minimum-price agreements should be judged on a case by case basis. Before that, they were automatically viewed as illegal.

Many manufacturers have been emboldened to set minimum prices in the wake of the Leegin decision, says Christopher S. Finnerty, a partner with the law firm of Nelson Mullins Riley & Scarborough LLP. Maryland is the first state to respond. “It’s the first state to take a swing at the Leegin decision,” Finnerty says. “There are other states that have antitrust laws contrary to Leegin, but this is the first one that’s passed a law in response to it.”

Finnerty says there are about a dozen states that have laws barring manufacturers from imposing minimum-price agreements, also referred to as resale price maintenance policies. There have not been many antitrust claims in state courts against price-maintenance agreements, but that it’s possible there could be more litigation now, at least in Maryland, Finnerty says. “It may also add some steam to the bill that’s in the Senate right now,” he adds.

That bill was reintroduced this year Sen. Herb Kohl, a Wisconsin Democrat, who introduced similar legislation in the previous session of Congress shortly after the Supreme Court handed down the Leegin decision. That bill never came to a vote in the last Congress. He reintroduced the bill this year. The Kohl bill but is not likely to move forward in 2009 because of the pressing economic issues facing Congress, but could have better prospects next year, says Michael Lindsay, an antitrust lawyer and partner in the law firm of Dorsey & Whitney LLP.

Minimum pricing is also under scrutiny from the Federal Trade Commission, could bring antitrust actions against price-setting agreements that it believed were anticompetitive. (While the Leegin decision says such agreements are not automatically illegal, they’re not automatically legal, either. Such an agreement would violate antitrust law if it can be shown to reduce competition.) The FTC has scheduled two hearings for next month on minimum-price agreements.

The FTC is likely to take a closer look at price-maintenance agreements under the current administration than it did under the previous one, Lindsay says. “You can look for antitrust enforcement that focuses more on the immediate consumer impact and less on economic theory,” he says.

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