Businesses reviewing their price maintenance agreements (PMAs) for compliance with anti-trust law should do more than assess whether their agreements would be treated as “horizontal” or “vertical” by a reviewing court. (More on that subject is available here).

It is also important to keep in mind a few additional points when reviewing an existing or contemplated PMA. First, the Supreme Court has held that “the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result.” Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705, 18 (2007). Thus, to a point, courts generally consider brand-specific PMAs to be less of a threat than other types of agreements affecting products from multiple manufacturers: “[E]xcept when [resale price maintenance] spreads to cover the bulk of an industry’s output, depriving consumers of a meaningful choice between high-service and low-price outlets, most [resale price maintenance arrangements] are probably innocuous.” Id. at 2719 (citing F.M. Scherer & D. Ross, Industrial Market Structure and Economic Performance 558 (3d ed. 1990)). In addition, the fact that a manufacturer also may play a role at the same wholesale or retail level in the supply chain as the businesses with which it enters into PMAs likely does not mean that those agreements are subject to a potential per se reasonableness analysis often applied to horizontal agreements – where a manufacturer enters into a PMA with a reseller, that PMA likely will be reviewed under the rule of reason. See International Logistics Group, Ltd. v. Chrysler Corp., 884 F.2d 904, 906 (6th Cir. 1989). However, to the extent that a vertical PMA is implemented in order to support an illegal, horizontal agreement among resellers, that PMA, even though remaining subject to the rule of reason, nevertheless will be more likely to be found to be an unreasonable restraint on trade.

It is vital that businesses contemplating the implementation of a PMA consult with counsel before proceeding with any contemplated agreement. Sherman Act liability can be significant, not only in terms of monetary damages awarded at trial, but also in terms of less tangible damage to a business’ brand or reputation. A knowledgeable attorney will be able to let you know when a proposed PMA is likely to be within the scope of permissible agreements, when it is in need of revisions, either in terms of substance or implementation, and when it should be avoided altogether, under the circumstances.

Posted by Mariqus Alexander at 06/10/2009 11:46:48 AM