The Franchise Memorandum

The United States Supreme Court in its 2007 Leegin decision ruled that resale price controls by manufacturers and others would be judged under the more lenient standard of the rule of reason, at least under federal antitrust law. Since then, other than in the post-remand developments in Leegin itself, most of the legal activity has been at the state level. Two states recently reached different results in their enforcement efforts, however, and the Supreme Court refused to grant further review of the final judgment in Leegin.

First, on January 11, California entered into a consent decree with a cosmetics manufacturer that had been prohibiting discounting by Internet dealers. California v. Bioelements, Inc., No. 10011659 (Cal. Sup. Ct. Jan. 11, 2011). Although the manufacturer was required to stop controlling Internet discounts, this result was achieved by settlement rather than a court decision, so its weight can be questioned. Then, three days later, New York lost its court case against a mattress manufacturer that it had accused of illegally prohibiting certain discounting practices. New York v. Tempur-Pedic Int’l, Inc., No. 400837/10 (N.Y. Sup. Ct. Jan. 14, 2011). The court held that a state statute making resale price contracts “unenforceable” does not make them illegal.

On February 22, the Supreme Court denied certiorari on the plaintiff retailer’s appeal from the final judgment in Leegin after remand. In the end, the ultimate decision of the district court to dismiss the retailer’s claims for lack of a showing of a viable relevant market prevailed, and the rule of reason stands as a hurdle for plaintiffs’ challenges to resale price controls under federal antitrust law.