Many product manufacturers understandably want to be able to exercise some control over the prices at which their products are sold to consumers. For manufacturers that produce and sell all of their new merchandise internally, price control is a non-issue, because pricing decisions may be revised at little more than the flip of a switch. However, this is a comparatively rare scenario. Most manufacturers rely, at least in part, if not entirely, on a network of wholesalers and retailers to distribute new merchandise to end users. Historically, in this type of arrangement, many manufacturers have relied and continue to rely on price maintenance agreements (PMAs) with their channel partners to specify the minimum prices at which the partners may offer the manufacturer’s merchandise for sale. Often, the motives for requiring compliance with PMAs is entirely consistent with good business practices, in that such agreements can facilitate competition among authorized resellers while protecting a brand’s image against what may be a perceived stigma associated with “bargain” products. However, PMAs also can be vehicles for anticompetitive practices, and many manufacturers have faced civil liability under the Sherman Act for agreements that courts have found to be unreasonable restraints on trade. Knowledge of how to implement an effective, legal PMA, therefore, can be an important asset.

Pricing agreements come in two principal flavors: vertical – agreements between players at different levels of the supply chain – and horizontal – agreements between players at the same level of the chain. Horizontal agreements typically are more difficult to justify, because they often run the greatest risk of embodying the sort of anti-competitive “price fixing” schemes that the Sherman Act is designed to prohibit. Courts often consider such agreements to be per se unreasonable restraints on trade, “conclusively presumed to unreasonably restrain competition without elaborate inquiry as to the precise harm [they have] caused or the business excuse for [their] use.” Toledo Mack Sales & Service v. Mack Trucks, Inc., 530 F.3d 204, 221 (3rd Cir. 2008).

However, courts most often analyze PMAs and other vertical agreements pursuant to a more searching inquiry, often termed the “rule of reason.” Under this model, the judge or jury reviews all of the facts and circumstances of a case in deciding whether a pricing agreement should be prohibited, often looking to a number of prescribed factors, including: whether there existed an actual conspiracy or agreement among several defendants to set prices; whether a conspiracy or agreement produced adverse, anti-competitive effects within relevant product and geographic markets; whether the objects of or conduct supporting a conspiracy or agreement were illegal; whether a plaintiff was actually injured as a result of a conspiracy or agreement; whether the impetus for the agreement came from the lower levels of the supply chain (e.g., from the retailers or wholesalers, as opposed to the manufacturer); and whether the party insisting on the pricing agreement has significant market power (i.e., “the ability to raise prices above those that would prevail in a competitive market”). Id. at 226.