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Class of Purchasers of Leather Products Cannot Show Horizontal Conspiracy, So Rule of Reason Applies
Posted in Antitrust

The United States District Court for the Eastern District of Tennessee has determined that a class of purchasers of retail products manufactured and distributed by Leegin Creative Leather Products, Inc. failed to state claims against Leegin for violations of Sherman Act § 1 and the Tennessee Trade Practices Act, or for common law unjust enrichment.  Spahr v. Leegin Creative Leather Products, Inc., No. 2:07-cv-00187 (E.D. Tenn. August 20, 2008). As  was the subject of a June 2007 decision of the United States Supreme Court, Leegin, the manufacturer of Brighton® women’s accessories, instituted a minimum resale price maintenance policy through which it required retailers to follow Leegin’s suggested prices. The plaintiffs in this Tennessee case, representing a class of retail purchasers, alleged that Leegin’s pricing policy constituted minimum vertical price fixing and that Leegin conspired with other Brighton® distributors to maintain supracompetitive prices for Leegin’s products. The plaintiffs filed their complaint one month after the Supreme Court’s landmark decision overturned Dr. Miles by ruling that minimum resale price maintenance is not per se unlawful under federal law and must be analyzed under the Rule of Reason. (That case had been filed by a dealer in Texas and had gone up through the Fifth Circuit.)

The district court in Tennessee dismissed the class plaintiffs’ federal and state antitrust claims on several grounds. First, relying on the Supreme Court’s recent decision, the court rejected the theory that a horizontal cartel existed between Leegin and its independent distributors such that the per se rule should apply just because Leegin was also a distributor of its own Brighton® brand goods. The court held that because Leegin operated in a “dual distribution” situation, application of per se analysis “would be inappropriate as a matter of law.” Second, the court found the plaintiffs’ definition of the relevant market (“the market for the manufacture, distribution and/or sale of Brighton-brand products”) facially implausible. The court held that it is “just as obvious that other product lines of women’s accessories made by other manufacturers are reasonably interchangeable substitutes for Brighton brands.” Finally, the court held that the plaintiffs failed to establish anticompetitive effects of Leegin’s resale pricing policy because higher prices alone, absent a further showing of anticompetitive conduct, are insufficient evidence of anticompetitive effect in the resale price maintenance context.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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