Colored Stones
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Must retailers heed manufacturer's 'suggested' retail prices?
By Suzan R. Flamm, Esq.
September 03, 2009
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| Suzan R. Flamm, Esq. is assistant general counsel of the Jewelers Vigilance Committee (JVCLegal.org), which provides general educational resources and jeweler-specific advice. |
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The Jewelers Vigilance Committee (JVC) recently became aware of a stalemate between a jewelry manufacturer and a retailer involving the manufacturer's suggested retail prices, or MSRPs.
The retailer, after finding it difficult to sell the manufacturer's high-end products because of the accompanying high prices, decided to no longer carry the line and to discount those pieces still in its inventory to attract buyers and make room for different styles.
The manufacturer objected to the discounts and demanded that the retailer sell the jewelry at the MSRPs.
From the manufacturer's viewpoint, the discounted prices cheapened its luxury brand. But the retailer felt that since it had already paid the manufacturer for the jewelry, the store should be able to set prices that met its own needs.
The legal question: Had the parties agreed to a minimum retail price and, if so, was that agreement enforceable--or did it amount to an illegal restraint on trade?
A pivotal lawsuit
For almost a century, the U.S. Supreme Court ruled that it was automatically illegal for manufacturers and retailers to enter into binding price agreements, known as "vertical price agreements" or "resale price maintenance agreements."
These were viewed with the same suspicion as "horizontal" price agreements--in which a group of retailers or wholesalers get together and set prices--and as such, were held to be in violation of the Sherman Antitrust Act. Therefore, manufacturers could only "suggest" retail prices or MSRPs.
This changed in 2007, when the Supreme Court heard a case against the manufacturer Leegin Creative Leather Products by a retailer, Kay's Kloset.
The high court ruling distinguished between vertical and horizontal price agreements, and decided that an individual vertical agreement--between a manufacturer and a retailer--might not necessarily be an illegal restraint on trade. The question of whether or not the agreement violated the Sherman Act depended heavily on the agreement's particular details and its overall effect on competition.
In short, the high court's ruling in the Leegin case prompted federal courts to change course and examine each vertical or resale price maintenance agreement lawsuit on a case-by-case basis. Proving a resale price maintenance agreement is an illegal restraint on trade, in federal court, is currently much more difficult.
State courts and federal resistance
While the Leegin case drastically changed federal antitrust law, it did not directly affect state law.
In fact, many state attorneys general offices have indicated their intent to prosecute resale price maintenance agreements using state law. Many states, including California, Connecticut, Nevada, New Jersey and New York, appear to prohibit these agreements, regardless of the Leegin case, so companies in those states will likely find that minimum retail price agreements are automatic antitrust violations, at least in state court.
The Discount Pricing Consumer Protection Act, now pending before the U.S. Congress, would re-impose the pre-Leegin, century-old understanding that every vertical-price agreement is a restraint of trade.
Thus far, 35 state attorneys general support the legislation on the grounds that consumers were better served by the pre-Leegin approach, which promoted lower retail prices. [This legislation, numbered S. 148, can be followed online, at GovTrack.us.]
Given the dynamic and inconsistent state of the law, entering into a resale price maintenance agreement carries substantial risks. Being sued in federal court is less likely after Leegin, since a plaintiff now has to prove the agreement resulted in restraint of trade, but it is still possible. The suit could be brought either by a competitor, or by the Federal Trade Commission.
Moreover, as noted above, many states were unaffected by the Supreme Court decision as they have their own laws that specifically prohibit these agreements. State attorneys general have the power to enforce these laws.
Conclusion of the dispute
The retailer in the case brought to the JVC had never agreed to sell the manufacturer's goods at a minimum price, and absent any understanding on the matter, the manufacturer could not insist that certain price levels be maintained.
Had there been a price agreement, of course, it is unclear whether or not it would have been legally enforceable. In a New York state court, for example, it would not be, but in federal court, it might be.
As a preliminary matter, the JVC encourages parties to discuss the terms that govern their business transactions and to enter into written agreements to prevent different understandings as to important conditions, such as a price minimum.
In addition, the JVC encourages jewelers to be very familiar with their own state's antitrust laws before considering a retail price maintenance agreement. Regardless of the particular state laws, jewelers should also consider whether or not a price agreement might run afoul of the Sherman Antitrust Act, even without an automatic finding of a restraint on trade.
To comply with laws relating to retail price maintenance agreements, jewelers should maintain up-to-date information on all applicable regulations and make sure that employees are trained in the relevant law.
The advice is strictly the opinion of the JVC. Visit JVCLegal.org for important legal compliance information pertaining to the manufacture, sale and marketing of fine jewelry and to find out how to comply with laws relating to secondhand purchases and compliance with the Patriot Act.
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