Why the New Evidence on Minimum Resale Price Maintenance Does Not Justify a Per Se or Quick Look Approach

Thomas Lambert, Michael Sykuta, Nov 13, 2013

The battle over the proper legal treatment of minimum resale price maintenance continues to rage in the United States. Despite the U.S. Supreme Court’s 2007 Leegin decision abrogating the rule of per se illegality for purposes of federal antitrust law, squabbles continue on two fronts.

First, states have split on whether minimum RPM will remain per se illegal under state antitrust law. At the time of this writing, nine states have indicated that they will retain the Dr. Miles rule of per se illegality under their state antitrust statutes, while most of the rest will bring state-level RPM standards in line with federal law.

Second, commentators have divided over what version of the rule of reason should apply to minimum RPM under federal law. Some commentators (including one of the authors here) have called for a full-blown rule of reason analysis under which the plaintiff would bear the burden of proving an actual anticompetitive effect or, at a minimum, the structural prerequisites to such an effect. Others have advocated approaches that would presume the unreasonableness of a challenged instance of RPM if: (i) consumer prices have risen, (ii) the RPM was dealer-initiated, or (iii) the RPM was imposed on homogeneous products that are not sold with “free-rideable” point-of-sale services. These latter approaches are essentially versions of the “quick look” rule of reason, under which an evaluating court effectively presumes that the challenged restraint is unreasonable but allows the defendant to rebut that presumption by proving an absence of anticompetitive effect or the existence of countervailing efficiencies.

In eschewing both a per se rule for states and a quick look approach under federal antitrust law, we proponents of a full-blown rule of reason for minimum RPM have relied on both theory and evidence. With respect to theory, we have emphasized that the prerequisites to potential anticompetitive harm from minimum RPM are rarely satisfied, while those necessary for the practice to achieve a pro-competitive result are often met. With respect to evidence, we have shown that the admittedly sparse empirical data on minimum RPM’s actual effects support the view that minimum RPM is more often than not output-enhancing. Accordingly, we maintain that minimum RPM should be presumptively legal, and a challenging plaintiff should bear the burden of proving an actual or likely anticompetitive effect.

In recent months, advocates of more restrictive per se or quick look approaches have pointed to new evidence to justify their preferred policies. In particular, they have cited an April 2013 study by Alexander MacKay & David Aron Smith comparing output and price levels in states retaining the per se rule with the levels prevailing in states likely to assess minimum RPM under the rule of reason. MacKay & Smith purport to demonstrate that, in the years since Leegin, price increases for household consumer goods have been larger, and output growth smaller, in rule of reason states than in states retaining the per se rule against minimum RPM. Such findings, the authors contend, support that view that RPM is more often anti- than pro-competitive.

We do not believe the evidence presented by MacKay & Smith undermines the case for a full-blown rule of reason for minimum RPM. In Part II, we briefly summarize the affirmative case for applying such a rule rather than the per se rule or some version of a quick look analysis. In Part III, we discuss some limitations of the MacKay & Smith study and explain why it cannot overcome the affirmative case for rule of reason analysis. Part IV concludes.

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