Maryland antitrust enforcers hint at aggressive new action

At a recent American Bar Association event, the Chief of the Maryland Attorney General’s Antitrust Division revealed the office’s new focus on prosecuting resale price maintenance (RPM) agreements. These comments indicate an emerging trend of aggressive antitrust prosecution in Maryland, which could have a significant impact on how manufacturers, distributors, and retailers conduct business in Maryland and elsewhere.

History of retail price maintenance

RPM refers to agreements between manufacturers and distributors or retailers setting the prices at which resellers may sell the manufacturer’s product. Also known as vertical price fixing, RPM agreements may involve setting minimum or maximum resale prices.

The legality of RPM is complex and broadly debated. Historically, the Supreme Court had held minimum RPM agreements to be per se illegal under section 1 of the Sherman Act in Dr. Miles Medical Co. v. Park & Sons Co.[1] Despite this prohibition on minimum RPM agreements, in United States v. Colgate & Co. the Supreme Court held that manufacturers were not prohibited from unilaterally setting the price at which their goods must be sold and refusing to deal with any retailers or distributors who refused to comply.[2] This became known as the Colgate exception.

In its seminal 2007 opinion in Leegin Creative Leather Prod., Inc. v. PSKS, Inc, the Supreme Court overruled its longstanding rule of per se illegality for minimum RPM agreements, instead holding that such agreements should be analyzed under the more flexible rule of reason standard.[3] Because Leegin delt with the interpretation of the Sherman Act, a federal law, states are not automatically bound by the Supreme Court’s interpretation. Instead, states are free to enact their own antitrust laws and interpret them however they see fit. Nevertheless, most states have followed the Supreme Court’s lead, scrutinizing minimum RPM agreements under the rule of reason standard.

Maryland’s Leegin repealer statute

Maryland, unlike the majority of other states, has not followed the Supreme Court’s precedent in Leegin. In 2009, Maryland amended its antitrust laws to make minimum RPM agreements, also known as price floors, per se illegal, expressly adopting a contrary standard.[4] Now, under section 11-204(b) of Maryland’s Commercial Law Code, “a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce.” However, since the passage of its so-called Leegin repealer statute, Maryland has only pursued two actions to enforce its prohibition on minimum RPM agreements.[5]

RPM legislation in New York

New York has also passed similar anti-RPM legislation. Under section 369-a of New York’s General Business Law Code, “[a]ny contract provision that purports to restrain a vendee of a commodity from reselling such commodity at less than the price stipulated by the vendor or producer shall not be enforceable or actionable at law.”[6] Notably, the language of the statute renders minimum RPM agreements unenforceable, not illegal.

In 2008, Jay L. Hines, then Chief of the Antitrust Bureau of the Office of the Attorney General of New York, argued that section 369-a amounted to a per se rule of illegality against minimum RPM agreements.[7] However, New York courts have not adopted this interpretation.[8] Since Leegin, the New York Office of the Attorney General has largely been unsuccessful in prosecuting minimum RPM agreements,[9] and New York federal courts have applied the rule of reason analysis to vertical RPM claims under the Donnelly Act (New York’s state antitrust legislation).[10] However, the New York Court of Appeals has not yet addressed what standard applies to RPM claims under the Donnelly Act.[11]

More recently, the Coordinated Conduct Committee of the New York State Bar Association issued a memorandum discussing whether the New York legislature should amend the Donnelly Act to specify that RPM agreements are per se unlawful. Ultimately, the committee recommended against revision given that “there is no clear New York policy or statute in favor of a per se rule.”[12]

The committee further found that, because the Donnelly Act is to be construed in accordance with federal precedent, there is no need to amend the Donnelly Act to specify that RPM agreements be analyzed under the rule of reason analysis.[13] Thus, despite New York’s anti-RPM legislation, RPM claims under New York’s Donnelly Act have been evaluated using the rule of reason standard.

RPM legislation in California

Like Maryland, California courts have also diverged from the Supreme Court’s decision in Leegin. Under the Cartwright Act (California’s state antitrust legislation), minimum RPM agreements had also historically been judged under a per se rule.[14] However, the state of California’s law regarding RPM agreements is still uncertain.

California courts, both state and federal, have taken conflicting approaches when interpreting the Cartwright Act in the context of minimum RPM agreements.[15] Some California courts have declined to apply the Supreme Court’s reasoning in Leegin to the Cartwright Act.[16] However, because California precedent applying the per se rule to minimum RPM agreements relied on Dr. Miles, which was expressly overruled by Leegin, other California courts have found Leegin persuasive.

RPM legislation in other states

Other states have also proposed legislation addressing RPM agreements following Leegin. In 2012, Pennsylvania senators unsuccessfully introduced Senate Bill 848, which sought to prohibit minimum RPM agreements.[17] The bill was later reintroduced on March 14, 2013, and referred to the state Senate Judiciary Committee, where it has remained for the last ten years.

Conversely, the Kansas state legislature enacted a law mandating the application of the rule-of-reason analysis to RPM agreements under state law, essentially codifying Leegin in Kansas. Under the Kansas law RPM agreements must be “reasonable in view of all the facts and circumstances of the particular case and do not contravene public welfare.”[18]

Recent developments and implications

At a recent American Bar Association event, Schonette Walker, Chief of the Maryland Attorney General’s Antitrust Division, stated that “Maryland has ongoing [resale price maintenance] investigations currently. So, we'll see what that yields.”[19] Walker went on to say that “as enforcers we look at substance, not just form.”[20]

Walker’s comments are significant. Since Leegin, state prosecution of minimum RPM agreements has been rare, particularly outside of California. Despite the passage of its Leegin repealer statute nearly 15 years ago, Maryland has only prosecuted two minimum RPM agreements. However, Walker’s comments indicate an emerging trend of vigorous RPM enforcement in Maryland.

If Walker intends to vigorously prosecute minimum RPM agreements, companies with sales in or into Maryland would need to reevaluate their compliance programs and any existing contracts. Walker’s comments clarify that Maryland has not abandoned the Colgate exception.

Manufacturers relying on a unilateral pricing strategy, including minimum advertised price (MAP) policies, are encouraged to carefully evaluate whether such policies are truly unilateral. Under Maryland’s substance-over-form policy, what appears to be a unilateral pricing strategy on paper may still violate Maryland antitrust law if implemented improperly.

For more information, please contact your usual DLA Piper relationship attorney or any of the authors of this alert.

^{[1] 220 U.S. 373, 384-85 (1911).
[2] 250 U.S. 300, 307 (1919).
[3] 551 U.S. 877 (2007).
[4] See MD. Commercial Law Code Ann. § 11-204(b).
[5] Chris May, MLEX, Maryland AG Investigating Potential Resale Price Maintenance Violations, Official Says (Nov. 17, 2023); see also Attorney General Frosh Announces Settlement of Price-Fixing Lawsuit Against Johnson & Johnson Vision Care, Inc. (Mar. 30, 2017).
[6] N.Y. Gen. Bus. Law § 369-a.
[7] Jay L. Himes, New York’s Prohibition of Vertical Price-Fixing, N.Y.L.H. Jan. 29, 2008 (available at https://lawprofessors.typepad.com/antitrustprof_blog/files/nylj_rpm_paper.pdf).
[8] People ex rel. State v. Tempur-Pedic Int'l, Inc., 30 Misc. 3d 986, 991, 916 N.Y.S.2d 900, 905 (Sup. Ct. 2011), aff'd sub nom. People v. Tempur-Pedic Int'l, Inc., 95 A.D.3d 539, 944 N.Y.S.2d 518 (2012); Worldhomecenter.com, Inc. v. KWC Am., Inc., No. 10 CIV. 7781 NRB, 2011 WL 4352390, at *3-4 (S.D.N.Y. Sept. 15, 2011); WorldHomeCenter.com, Inc. v. Franke Consumer Prod., Inc., No. 10 CIV. 3205 BSJ, 2011 WL 2565284, at *5 (S.D.N.Y. June 22, 2011); WorldHomeCenter.com, Inc. v. PLC Lighting, Inc., 851 F. Supp. 2d 494, 501-02 (S.D.N.Y. 2011).
[9] See Tempur-Pedic Int'l, Inc., 916 N.Y.S.2d at 905 (“The court agrees with Tempur–Pedic that the OAG has failed to allege an illegal act. … There is no ambiguity in the text of General Business Law § 369–a. Contracts for resale price restraints are unenforceable and not actionable, but not illegal.”); NYSBA Coordinated Conduct Committee, DARC Memorandum on Resale Price Maintenance Under the Donnelly Act, at 3-4, October 12, 2018 (available at https://nysba.org/NYSBA/Meetings%20Department/2019%20Annual%20Meeting/Coursebooks/Antitrust%20Section/Panel%205%20(10-12-2018)%20Coordinated%20Conduct%20DARC%20Memo%20re%20RPM.pdf) (hereinafter the “NYSBA Committee Memo”).
[10] PLC Lighting, 851 F. Supp. 2d at 502 (“the Court finds that the rule of reason and not the per se rule applies to Plaintiff's Donnelly Act claim.”); Franke Consumer Prod., 2011 WL 2565284, at *5 (“this Court finds that Plaintiff's claim for vertical price maintenance should be analyzed under the rule of reason standard.”).
[11] KWC Am., 2011 WL 4352390, at *3; NYSBA Committee Memo, supra note 12.
[12] NYSBA Committee Memo, supra note 12, at 1.
[13] NYSBA Committee Memo, supra note 12, at 7-8.
[14] Mailand v. Burckle, 572 P.2d 1142, 1147 (1978)
[15] Compare Alsheikh v. Superior Ct., No. B249822, 2013 WL 5530508, at *1 (Cal. Ct. App. Oct. 7, 2013) (holding that “vertical price fixing is a per se violation of the Cartwright Act is the governing law of California.”), with Kaewsawang v. Sara Lee Fresh, Inc., No. BC360109, 2013 WL 3214439, at *5 (Cal. Super. May 06, 2013) (finding it unlikely that RPM agreements are per se illegal following Leegin); see also In re Online Travel Co. (OTC) Hotel Booking Antitrust Litig., No. 3:12-CV-3515-B, 2014 WL 5460450, at *10 (N.D. Tex. Oct. 27, 2014) (stating that, with respect to whether RPM agreements are per se illegal under the Cartwright Act, “lower courts have diverged on this issue following Leegin, leaving the law in California unclear.”).
[16] See, e.g., Alsheikh, 2013 WL 5530508, at *1.
[17] S.B. 848, § 904, 2013 Reg. Sess. (Pa. 2013).
[18] S.B. 124, 58th Leg., 2013 Reg. Sess. (Kan. 2013) (enacted).
[19] May, supra note 5.
[20] Id.}