Leegin and Resale Price Maintenance - A Model for Emulation or for Caution for the World?

Abstract:     
In a 5-4 antitrust decision in Leegin, the Supreme Court in 2007 overruled the nearly century-old precedent of Dr. Miles to end per se condemnation of minimum resale price maintenance (RPM) in favor of a rule of reason analysis. This decision places the United States at odds with the European Union, which treats RPM as a “hard-core” restraint that does not qualify for a block exemption from Art. 81 EC. Leegin seems to have generated discussion within the EU regarding the desirability of changing current EU competition law on RPM to approximate Leegin. In this short essay, I suggest that a move to emulate Leegin may be unwise since a critical look at Leegin calls into question the appropriateness of the majority’s decision. Moreover, despite Leegin, the debate in the U.S. over RPM has hardly abated.

In Leegin, the majority and dissent agreed that RPM is sometimes harmful and sometimes beneficial. Their major point of disagreement (besides stare decisis) was on the likelihood of its competitive benefits and harms, an issue on which, both sides agree, there is very little empirical evidence or theoretical consensus. After discussing some of the procompetitive and anticompetitive theories of RPM, this essay discusses the policy implications of a rule of reason analysis. Noting that a full-blown rule of reason test often effectively means per se legality in the U.S., at least in vertical restraint cases, it suggests that lower courts instead apply the more flexible “quick-look” rule of reason that is now frequently employed in horizontal restraint cases. However, this method of avoiding per se legality may not work for the EU if it removes RPM from its current “hard-core” restraint categorization. In that case, the practice would be automatically exempt from Art. 81 under the vertical distribution block exemption, if the producer’s market share is below 30%, which is usually the case for consumer goods – a point that is worth taking into account for policymakers.

Number of Pages in PDF File: 6

Keywords: antitrust, resale price maintenance, RPM, rule of reason, quick look, hard-core restraint

JEL Classification: K21, L42, L40

Accepted Paper Series