Veronica Kayne Haynes and Boone, LLP Washington, DC veronica.kayne@haynesboone

2. National Alcoholic Beverage Control AssociationMarch 11, 2008RESALE PRICE MAINTENANCEAFTER LEEGIN: AS CLEAR AS MUD Veronica Kayne Haynes and Boone, LLP Washington, DC veronica.kayne@haynesboone.com

3. Resale Price Maintenance Defined (1) • Maximum RPM: a supplier sets the maximum price that resellers can charge their customers • Minimum RPM: a supplier sets the minimum price that resellers can charge their customers

4. Resale Price Maintenance Defined (2) • Supplier: manufacturer, wholesaler, franchisor, intellectual property licensor. • Reseller: wholesaler, franchisee, retailer, manufacturer of item made under an IP license • “Supplier” and “Reseller” are in a vertical relationship in the supply chain

5. Resale Price Maintenance: What It Is, and What It Isn’t (3) • What It Is: the price to be charged by one buyer to another further down the supply chain: Manufacturer tells wholesaler what to charge retailer; franchisor tells franchisee what to tell consumer • What It Isn’t: post-and-hold; below-cost prohibition; predatory pricing prohibition.

6. The World Before Leegin • 1911: Dr. Miles decision – resale price maintenance agreements are per se illegal. • 1997: State Oil v. Kahn decision: maximum resale price maintenance agreements should be judged under the rule of reason

7. How Leegin Changes The Law • All forms of resale price maintenance, maximum and minimum, should be judged under the rule of reason.

8. Why Change the Law? • Rule of reason is the “norm”; per se treatment the exception. • Dr. Miles was based on “formalistic line-drawing,” not economic inquiry. • Modern economics offers many procompetitive justifications for RPM. • There is no basis for blanket condemnation of potentially procompetitive practice.

9. Other Legal Regimes Affect RPM • State regulation – “franchise” or “open” or “control” state • State antitrust law • Other state laws • Potential federal legislation

10. What Would a Rule of Reason Analysis Look Like? • In general: • product market definition • geographic market definition • anticompetitive effects not offset by procompetitive benefits

11. Anticompetitive Effects • Higher prices and reduced output • Anticompetitive effects more likely if: • defendant supplier has market power • retailers pushed for RPM • many suppliers have adopted RPM

12. Procompetitive Benefits • Decreased quality-adjusted price and increased output • Procompetitive benefits could be the result of many activities, such as • increased point-of-sale service • increased advertising • improved shopping experience – store amenities and location

13. Adopting an RPM Policy • What is the procompetitive objective? • Is the policy narrowly designed to achieve the goal? • What do existing company documents say? • Does the supplier/retailer have market power? • Do competitors have RPM policies? • Should the effect of the policy be examined periodically?

14. Leegin Provides Comfort on Other Practices • Colgate-style unilateral price policies are still lawful; if a Colgate policy were found to have crossed the line into agreement, it would be judged under the rule of reason. • Leegin reinforces that advertising restrictions are subject to the rule of reason.

15. Conclusion • Rule of reason treatment creates opportunity and uncertainty. • Before opting for RPM policy, consider whether options will serve the purpose and whether other legal regimes affect the decision.

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