Abstract
Leegin decision of the Supreme Court in 2007 affirmed that minimum RPM was to be evaluated under the rule of reason henceforth. Conversely, minimum RPM retains its position as a hard-core restraint in EU’s BER 2010 and the De Minimis Notice. The limited amount of case law reveal that in the absence of certain factors, such as significant market power of the parties, minimum RPM is unlikely to result in the detriment of consumers. Consequently, despite the retention of the maintenance of the single market as a significant aim in EU competition policy, minimum RPM practices are entitled to a more lenient approach, if the ultimate aim is to attain consumer welfare as stated by the Commission and through most judgments of the Court of Justice of the European Union.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
For more information regarding the evolution of antitrust policy in the US: See Kovacic and Shapiro (2000).
Communication from the Commission—Notice—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97–118. Article 81 EC is the predecessor of Article 101 TFEU, which prohibits agreements “which may affect trade between Member States and which have their object or effect the prevention, restriction, or distortion of competition within the internal market”. Nevertheless, such an agreement may still be allowed if it satisfies the conditions of Article 101(3) TFEU [81(3) EC]. Article 101(3) [81(3)] requires that the agreement “contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit”, as well as not imposing “restrictions which are not indispensable to the attainment of these objectives” and not affording the parties “the possibility of eliminating competition in respect of a substantial part of the products in question”.
Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336, 29.12.1999, pp. 21–25.
Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 23.4.2010, pp. 1–7.
Commission Notice—Guidelines on Vertical Restraints, OJ C 291, 13.10.2000 and Commission Notice—Guidelines on Vertical Restraints, OJ C 130, 19.5.2010.
In Case 27/87, SPRL Louis Erauw-Jacquery v La Hesbignonne SC., ECR 1919 (1988). para. 12, it has been established by the Court that a minimum RPM agreement falls under Article 101(1), “only if it appreciably affects trade between Member States”.
Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis), OJ C 368, 22.12.2001. The De Minimis Notice, from the scope of which minimum RPM is excluded, exempts vertical agreements from the scope of Article 101 TFEU [81 EC] if the market shares of the parties to the agreements are below fifteen percent, with the assumption that they would not have an appreciable effect on the market.
As a counter argument for minimum RPM facilitating cartels both on manufacturer and retail level, Ippolito and Overstreet’s Corning Glass Works case study has been pointed out. The study revealed that there was no evidence consistent with the conclusion that its minimum RPM scheme supported collusion at either level, even though Corning Glass was condemned. See, Ippolito and Overstreet (1996), p. 298 et seq.
It has also been claimed that not only minimum RPM but also maximum RPM might cause an increase in prices and total social welfare becomes higher in the absence of minimum or maximum RPM (O’Brien and Shaffer 1992: 307).
Note that all these discussions are set on assumptions that both the manufacturers and the retailers are profit maximizers while the customers make rational decisions to maximize their utilities.
For Mathewson and Winter (1998: 66), in modern markets, this criterion is no longer an issue for the application of minimum RPM, since outlets are well-designed.
Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977).
According to Mathewson and Winter (1998: 64), if both the upstream and downstream sectors are perfectly competitive, then it becomes impossible to observe existence of minimum RPM schedule. In other words, in the existence of perfect competition, there will be no need for such a contract for the firms.
As discussed in Sect. 1, market share is a crucial component of the discussions about minimum RPM. However, it is very difficult to determine 'modest' market share for each firm and for each industry.
FTC Modifies Order in Nine West Resale Price Maintenance Case, Press release, May 6, 2008, http://www.ftc.gov/news-events/press-releases/2008/05/ftc-modifies-order-nine-west-resale-price-maintenance-case (last visited: 19.5.2014).
United States of America v. Apple Inc., et al, 12 Civ. 2862 (DLC), p. 153.
As seen from these examples, treatment of minimum RPM cases in different parts of the US has not been the same. The dissimilarity among the states might stem from various market structures. For instance, it is very likely that the market share of upstream firm in one state might be different than that in other state; or, this firm might be a monopoly in one state while it might encounter more competitive business environment in other parts of the US.
As the last two cases suggest, attitude of Member States towards minimum RPM might not be the same. In this case, a company operating in different members of the EU might have different practices within the framework of the minimum RPM. While in some countries such as Spain, market share is an important criterion for application of minimum RPM, in others such as Poland, it becomes insignificant. Accordingly, differences in application of the minimum RPM scheme across countries might have a huge impact on multinational firms’ investment decisions, and then on foreign direct investments in these countries. This situation might cause a hindrance for the single market integration purpose of the EU.
Even if countries take the market share of the firms into account, it still poses a great obstacle to determine the maximum level. Namely, while market share less than 20 % does not damage market competition in Brazil, this percentage might be lower or higher for other countries.
For more information about the characteristics of minimum RPM applications during the Fair Trade era: See, Meese (2013).
To present some examples; Article 3 TEU which lays down the objectives of the EU recites in its second and third paragraphs that the EU “shall offer its citizens an area of freedom, security and justice without internal frontiers” and “establish an internal market.” Article 3(1)(b) TFEU confers exclusive competence to the EU in “the establishing of the competition rules necessary for the functioning of the internal market”. Article 26(1) TFEU, titled “Internal Market”, states that the EU “shall adopt measures with the aim of establishing or ensuring the functioning of the internal market”. Article 101(1) prohibits the agreements that are “incompatible with the internal market”, while Article 102(1) prohibits the abuse of dominant position “within the internal market or in a substantial part of it”.
Case T-168/01, GlaxoSmithKline Services Unlimited v. Commission, ECR II-2969 (2006).
Case C-8/08, T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v.Raad van bestuur van de Nederlandse Mededingingsautoriteit, Opinion, para. 58. (Emphasis added).
Case 27/87, SPRL Louis Erauw-Jacquery v La Hesbignonne SC., ECR 1919 (1988) para. 12: the Court underlined that a minimum RPM agreement falls under Article 101(1), “only if it appreciably affects trade between Member States”. See also, Gippini-Fournier (2009).
Case C-226/11, Expedia/SNCF, 13 December 2012 (not yet reported); In Expedia, the Court held that an agreement that may affect trade between Member States and which has an anti-competitive object constitutes, by its nature and independently of any concrete effect that it may have, an appreciable restriction on competition. The Court’s language suggests that, with respect to agreements restricting competition by object, it will no longer employ the ‘appreciability’ proxy, which softens its stance towards the prohibition of agreements “which have as their object or effect the prevention, restriction or distortion of competition within the internal market” in the application of Article 101(1) TFEU. Thus, let alone removing minimum RPM agreements from the list of hard-core restrictions in the De Minimis Notice, which, incidentally, form only a sub-category of the agreements that are regarded as restricting competition by their object (among other specific instances of restriction by object that are enumerated numerus clausus as hard-core restrictions in De Minimis), the Court intends to expand the scope of hard-core restrictions in De Minimis to all restrictions by object as a category.
Draft De Minimis Notice 2013. Available at: http://ec.europa.eu/competition/consultations/2013_de_minimis_notice/de_minimis_notice_en.pdf (last visited: 13.4.2014).
References
Bauer, M. D. (2007). Whither Dr. Miles? Loyola Consumer Law Review, 20(1), 1–31.
Bennett, M., Fletcher, A., & Giovannetti, E. (2011). Resale price maintenance: Explaining the controversy, and small steps towards a more nuanced policy. Fordham International Law Journal, 33(4), 1278–1299.
Botteman, Y., & Kuilwijk, K. J. (2010). (Minimum) Resale price maintenance under the new guidelines: A critique and a suggestion. The CPI Antitrust Journal, 2010(1), 1.
Briceño Moraia, L. (2010). Resale price maintenance and free riding, new insights in the USA. Compared to the European approach. Giurisprudenza Commerciale, 37(1), 172.
Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.
Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1.
Dajani, M., & Zhu, J. (2013). Resale price maintenance treatment under the Chinese Anti-Monopoly Law, Regulatory Update. http://www.dlapiper.com/en/europe/insights/publications/2013/03/resale-price-maintenance-treatment-under-the-chi__/. Last visited 19 May 2014.
Daujotas, R. (2011). Leegin case: Resale price maintenance vs. consumer welfare. Social Science Research Network. http://ssrn.com/.
Doty, A. (2008). Leegin v. PSKS: New standard, new challenges. Berkeley Technology Law Journal, 23, 1–23.
Eklund, E. (2010). Question A, Which, if any, agreements, practices or information exchanges about prices should be prohibited in vertical relationships? LIDC Congress Report for the Congress, Bordeaux, 30 September–3 October 2010. http://www.wettbewerbszentrale.de/media/getlivedoc.aspx?id=30165. Last visited 19 May 2014.
García-Gallardo, R. (2014). Spain: Cartel regulation. The European antitrust review 2014. Global Competition Review. http://globalcompetitionreview.com/reviews/53/sections/179/chapters/2120/spain-cartel-regulation. Last visited 19 May 2014.
Ghosh, S. (2008). Vertical restraints, competition, and the rule of reason, The law and economics of antitrust, ed. Keith Hylton, Social Science Research Network. http://ssrn.com/.
Gippini-Fournier, E. (2009). Resale price maintenance in the EU: In statu quo ante bellum? In B. Hawk (Ed.), International antitrust law & policy: Fordham Competition Law (Chapter 20). New York: Fordham University School of Law.
Grimes, W. S. (2009). Resale price maintenance: A competitive assessment. Federal trade commission workshop on resale price maintenance panel on anticompetitive effects. http://www.ftc.gov/sites/default/files/documents/publicevents/resale_price_maintenance_under_sherman_act_and_federal_trade_commission_act/wgrimes0219.pdf. Last visited 24 Jul 2011.
Ippolito, P. (1991). Resale price maintenance: Empirical evidence from litigation. Journal of Law and Economics, 34(2), 263–294.
Ippolito, P. M., & Overstreet, T. R. (1996). Resale price maintenance: An economic assessment of the Federal Trade Commission’s Case against corning glass works. Journal of Law and Economics, 39, 285–328.
Kanton, K. (2012). Authority accepts leniency application in vertical price fixing arrangement. International Law Office. http://www.internationallawoffice.com/. Last visited 19 May 2014.
Karanovic, D., Nikolic, D. (2012). Serbia: Multi-Million Euro Fines. Focus on Competition. http://www.karanovic-nikolic.com/wp-content/uploads/2012/11/karanovic-nikolic-focus_on_competition_2012-book-WEB.pdf. Last visited 19 May 2014.
Klein, B., & Murphy, K. M. (1988). Vertical restraints as contract enforcement mechanisms. Journal of Law and Economics, 31(2), 265–297.
Kovacic, W. E., & Shapiro, C. (2000). Antitrust policy: A century of economic and legal thinking. Journal of Economic Perspectives, 14(1), 43–60.
Kretschmer, J. P. (2014). How to deal with resale price maintenance: What can we learn from empirical results? European Journal of Law and Economics, 38(2), 343–368.
Lambert, T. A. (2008). Dr. Miles is dead. Now what?: Structuring a rule of reason for evaluating minimum Resale Price maintenance. Social Science Research Network. http://ssrn.com/.
Lamoreaux, N. R., Raff, D. M., & Temin, P. (2002). Beyond markets and hierarchies: Toward a new synthesis of American business history (No. w9029). National Bureau of Economic Research.
Lao, M. (2008). Leegin and resale price maintenance: A model for emulation or for caution for the world? International Review of Intellectual Property and Competition Law, 39(3), 253–380.
Lugard, P., & Van Dijk, T. (2010). The new EC block exemption for vertical restraints: A step forward and a missed opportunity. The CPI Antitrust Journal, 2, 1–8.
Martinez, A. P., & de Araujo, M. T. (2013). Resale price maintenance in Brazil a moving target. CPI Antitrust Chronicle, 10(2), 1–5.
Mathewson, F., & Winter, R. (1998). The law and economics of resale price maintenance. Review of Industrial Organization, 13(1), 57–84.
Meese, A. J. (2013). Assorted anti-leegin canards: Why resistance is misguided and futile. Fla ST U L Rev, 40, 907.
Motta, M., Rey, P., Verboven, F., & Vettas, N. (2009). Hardcore restrictions under the Block Exemption Regulation on vertical agreements: An economic view. By the Vertical Restraints subgroup in Opinions of the Economic Advisory Group on Competition Policy (EAGCP), European Commission. http://ec.europa.eu/dgs/competition/economist/eagcp.html.
Newburn, K. O., Winterscheid, J. F., & Wu, S. (2012). Resale pricing policies withstand state scrutiny again, but suppliers should continue to exercise caution. http://www.mwe.com/Resale-Pricing-Policies-Withstand-State-Scrutiny-Again-but-Suppliers-Should-Continue-to-Exercise-Caution-05-14-2012/. Last visited 19 May 2014.
Ning, S., Jia, L., Dasha, X., & Yin, H. (2013). Chinese court rendered final judgment on rainbow v. Johnson & Johnson—the First Antitrust Private Action of Vertical Monopolistic Agreement. http://www.chinalawinsight.com/2013/08/articles/corporate/antitrust-competition/chinese-court-rendered-final-judgment-on-rainbow-v-johnson-johnson-the-first-antitrust-private-action-of-vertical-monopolistic-agreement/. Last visited 19 May 2014.
O’Brien, D. P., & Shaffer, G. (1992). Vertical control with bilateral contracts. Rand Journal of Economics, 23(3), 299–308.
Overvest, B. M. (2012). A note on collusion and resale price maintenance. European Journal of Law and Economics, 34(1), 235–239.
Paldor, I. (2007). Vertical restraints’ paradox: Justifying the different legal treatment of price and non-price vertical restraints. Social Science Research Network. http://ssrn.com.
Pascual, A., & Contreras, M. (2013). Vertical agreements the regulation of distribution practices in 36 jurisdictions worldwide, Spain. Global Competition Review. http://www.herbertsmithfreehills.com/-/media/Files/PDFs/2013/VA2013%20Spain.pdf. Last visited 19 May 2014.
Pera, A., & Aurrichio, V. (2005). Consumer welfare, standard of proof and the objectives of competition policy. European Competition Journal, 2005(1), 153–177.
Reindl, A. P. (2011). Resale price maintenance and article 101: Developing a more sensible analytical approach. Fordham International Law Journal, 33(4), 1300–1333.
Stryszowska, M. (2014). The handbook of competition economics 2014, Poland. Global Competition Review. http://globalcompetitionreview.com/handbooks/56/sections/196/chapters/2229/poland/. Last visited 19 May 2014.
Van Bael, I., & Bellis, J. F. (2008). Hungarian competition council finds that resale price maintenance agreements do not have anti-competitive effects. VBB on Competition Law, 2008/9. http://www.vanbaelbellis.com/site/download.cfm?SAVE=761&LG=1. Last visited 19 May 2014.
van Doorn, F. (2009). Resale price maintenance in EC competition law: The need for a standardised approach. Social Science Research Network. http://ssrn.com.
Veljanovski, C. G. (1982). The Coase theorems and the economic theory of markets and law. Kyklos, 35(1), 53–74.
Whish, R. (2009). Competition law (6th ed.). Oxford: Oxford University Press.
Wild, M. S. (2008). Three state attorneys general obtain consent decree against herman miller for resale price maintenance. Antitrust Commentary. http://antitrustcommentary.com/.
Wild, M. S. (2013). Kansas enacts legislation making resale price maintenance subject to the rule of reason. Antitrust Commentary. http://antitrustcommentary.com/.
Williamson, O. E. (1981). The modern corporation: Origins, evolution. Attributes. Journal of Economic Literature, 19(4), 1537–1568.
Zarzur, C. S., & Spina, L. B. (2013). Brazil’s competition authority sets precedent involving resale price maintenance. MLex Market Insight. http://www.pinheironeto.com.br/arquivos/publicacoes/MLex_ZUR%20e%20LBR.pdf. Last visited 19 May 2014.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Hazıroğlu, E.C., Gökatalay, S. Minimum resale price maintenance in EU in the aftermath of the US Leegin decision. Eur J Law Econ 42, 45–71 (2016). https://doi.org/10.1007/s10657-015-9517-9
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10657-015-9517-9
Keywords
- Antitrust law
- US
- EU
- Art. 101 TFEU
- Dr. Miles
- Leegin
- Minimum resale price maintenance
- Hard-core restraints
- Per se
- Rule of reason
- Appreciability standard
- De Minimis notice