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General Counsel Corner By Peter H. Gunst, Esquire
Time was when all retailers – including service station dealers – were stoutly protected by federal antitrust law against efforts by their suppliers to dictate the retail prices at which they resold goods to the public. The law was that independent dealers, who purchase products for resale and bear the risk of loss as well the expense of operating retail businesses, deserved the unfettered right to determine the prices that they would charge their customers. The rule was of long duration. In 1911, the Supreme Court squarely held in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, that it was illegal under the Sherman Act, 15 U.S.C. § 1, for a manufacturer to fix the price of goods resold to the public. It could be held liable to the retailers that it coerced for triple damages and attorneys fees. Then along came the new, revisionist Supreme Court. In 1997, the Court weakened the prohibition through its decision in State Oil v. Khan, 522 U.S. 3, which held that a supplier could prohibit its dealers from charging prices that the supplier deemed to be excessive unless the dealer could prove that the prohibition unreasonably restrained trade throughout an identifiable geographic and product market. Any attempt by a dealer to satisfy that standard would be quixotic at best, in view of the expense and burden of challenging such a prohibition. Then, in 2007, in its controversial 5-to-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, the Supreme Court completely upset long-existing law by ruling that a supplier could also prohibit a retailer from discounting its product, unless the dealer could prove that the supplier’s conduct unreasonably restrained trade throughout an identifiable geographic and product market. This effectively removed any protection that dealers had against resale price maintenance under the Sherman Act. On their face, the Supreme Court’s decisions affected only the reach of federal antitrust law, and did not directly impact the parallel state antitrust laws that have existed in most states for many decades. By and large, however, state courts will look to the Supreme Court’s interpretation of federal antitrust law to determine the extent of a dealer’s remedies under state antitrust law. After Leegin, one state – Maryland – rejected the Supreme Court’s endorsement of resale price maintenance by enacting an amendment to its antitrust statute, which provides that a contract or agreement establishing “a minimum price below which a retailer … may not sell a commodity or service” is, in and of itself, “an unreasonable restraint of trade or commerce.” Dealer protection may also be found in more limited state laws restricted to a particular industry, like statutes governing the relationship between service station dealers and their suppliers. Because of the unique degree of control enjoyed by suppliers over dealers in the service station industry, a number of states have passed laws applying specifically to that relationship. Such laws may include a prohibition against resale price maintenance. The Maryland Gasohol and Gasoline Products Marketing Act, for example, has long prohibited a supplier from setting or attempting to set the prices at which the dealer sells the supplier’s products, although the supplier may “counsel” the dealer concerning his or her retail prices. Do such laws remain effective despite the Supreme Court’s recent decisions? One commentator, Michael Lindsay, had suggested “the possibility that state laws contrary to Leegin might be preempted.” He argues that such state laws may now be unenforceable because they interfere with the “important federal policy” announced by the Supreme Court in Leegin that retail price maintenance agreements may have “potential precompetitive benefits,” although there is little if any evidence to that effect. Let’s hope he is wrong, and he well may be. The preemptive standard applied to the Sherman Act is not all-embracing and competition law is an area in which the individual states have a well-recognized and substantial interest. As independent business people, dealers bear considerable economic risk and are in the best position to judge the prices at which to resell the products for which they paid good money. http://www.agtlawyers.com/thefirm/newsitem.php?item=39 October 3, 2009 SSDA-AT Executive Vice-President Paul Fiore presents the Friend of the Industry award to Sal Risalvato of NJGCA October 3, 2009 President David Freitag opens the Annual Mega Trade Show
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