The Franchise Memorandum

Last month saw two state appellate courts issue similar but not identical opinions regarding the treatment of vertical resale price (RPM) agreements. The decisions reflect the continued lack of consistency regarding the treatment of RPM under federal antitrust law and under various state antitrust laws, as well as the compliance difficulties faced by businesses with national resale networks.

On May 4, 2012, the Kansas Supreme Court in O’Brien v. Leegin Creative Leather Products, Inc., 2012 Kan. LEXIS 246 (Kan. May 4, 2012), reversed a decision granting summary judgment to Leegin, holding that RPM agreements, whether in a purely vertical or dual distribution setting, are per se unlawful under the Kansas Restraint of Trade Act. The court acknowledged that following the United States Supreme Court’s 2007 Leegin decision, both types of agreements would be analyzed under the “rule of reason” with respect to federal law. The court rejected, however, the applicability of federal antitrust law to claims brought under the Kansas antitrust statute.

The O’Brien decision follows the growing trend among states, including Maryland and California, to continue to treat RPM agreements as per se unlawful notwithstanding the rule of reason treatment of those same agreements under federal law.

Four days later, the Appellate Division of the New York Supreme Court, in People v. Tempur-Pedic International, Inc., 2012 N.Y. App. Div. LEXIS 3528 (N.Y. App. Div. 1st Dep’t, May 8, 2012), reached a somewhat different conclusion, affirming the dismissal of the New York Attorney General’s complaint. That complaint alleged that RPM agreements are per se unlawful under New York state antitrust law. Unlike the Kansas Supreme Court, the New York court held that such agreements are not per se unlawful, just that they are unenforceable by statute.

These cases reflect the divergence between the treatment of RPM agreements under federal antitrust law and under the various state antitrust laws and highlight the importance of careful state-by-state analysis, drafting, and adherence to a Colgate policy for those businesses operating national resale networks.