Antitrust Alert: California Challenges Minimum Resale Price Maintenance as Per Se Illegal
In the 2007 Leegin Creative Leather v. PSKS case, the Supreme Court held that, under the federal antitrust laws, minimum vertical resale price fixing agreements are no longer per se illegal, but governed by the rule of reason, like maximum resale price fixing. Antitrust observers were quick to point out that over 30 states had laws that would continue to treat these kinds of agreements as per se illegal. A February 2010 settlement by the California Attorney General's office, California v. DermaQuest, is a recent reminder that state attorneys general have in fact continued to view vertical price fixing or "resale price maintenance" agreements as appropriate enforcement targets.
The California AG claimed that DermaQuest, Inc., a seller of beauty-care products, had entered into per se illegal vertical price fixing agreements with its distributors, in violation of California's antitrust law, the Cartwright Act, codified in Section 16720 of California's Business and Professions Code, and California's Unfair Competition Law, codified in Section 17200 of the California Business and Professions Code. Under the terms of the proposed settlement, DermaQuest has agreed not to enter into such agreements in the future and to pay civil penalties and legal costs. The parties entered into the settlement a few weeks after the State Attorney General filed a complaint in the State Superior Court for Alameda County.
In its complaint, the California AG alleged that DermaQuest had entered into a number of contracts providing alternatively that distributors "may not resell Product in a price structure that yields a Product price at ultimate retail sale below DermaQuest's Suggested Retail Price" or that the "reseller may not resell Product in a price structure that yields a Product price at resale below DermaQuest's Suggested Retail Price."
The parties now have entered into a settlement agreement resolving the California AG's concerns. The settlement not only enjoins DermaQuest from entering into any resale agreements that set the minimum resale price of its products, but also prohibits a broad range of agreements that could increase or otherwise fix the resale price of the company's products. DermaQuest has agreed to inform all of its existing distributors that the company is disavowing all provisions of its resale agreements that purportedly obligate distributors to maintain certain resale prices. Finally, DermaQuest has agreed to pay $70,000 in civil penalties and $50,000 in legal costs.
California v. DermaQuest illustrates that state attorneys general are actively investigating and taking action against companies that make minimum resale price agreements with their distributors, notwithstanding the Supreme Court's holding in Leegin. California is just one of several dozen states whose laws still treat these kinds of agreements as per se antitrust violations. As a result, companies are well advised to consider the prevailing minimum resale price laws in the states where they are selling their products before entering into such agreements.
A copy of the complaint and proposed final settlement are attached.
For more information, please contact:
Jeffrey A. LeVee
Silicon Valley / Los Angeles
(+1.650.687.4166 / +22.214.171.12472)
Margaret A. Ward (Peggy)
Silicon Valley / Washington, D.C.
(+1.650.739.3976 / +1.202.879.3488)
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