17 October 2008
It did not take long for the limits of the Supreme Court’s 2007 Leegin decision to be tested.1 On March 21, 2008, the attorneys general of New York, Illinois and Michigan sued Herman Miller, the maker of the popular Aeron chair, for resale price maintenance.2
The states charged that Herman Miller’s minimum advertised price agreements with retailers amounted to resale price maintenance because they effectively prevented retailers from selling the chairs for less than the advertised prices.
According to the complaint, which was filed in federal court in the Southern District of New York, discounting had been breaking out on the Internet and in newspaper advertising. Some retailers allegedly complained and Herman Miller introduced a policy under which retailers advertising prices below the suggested retail price would lose access to the chair for one year.
Allegedly, advertised prices for these chairs were “generally non-negotiable,” making limitations on price advertising particularly effective in controlling actual selling prices. Furthermore, the complaint alleged that Herman Miller restrained retailers from “disclosing any discount price on any medium that could be seen by the public, including in-store shelf tags.” Moreover, prior to the end of the one-year suspensions, Herman Miller allegedly began to engage in “dialogue” with suspended retailers, urging them to return to the fold and stop discounting—and many allegedly “acquiesced.”
According to the attorneys general, these activities amounted to agreements in violation of Section 1 of the Sherman Act and state antitrust law. The states sought unspecified civil damages and injunctive relief.
The complaint never used the words “per se,” but it did include an allegation that Herman Miller not only entered into vertical agreements but also facilitated horizontal agreements among retailers to adopt uniform advertised prices. Presumably, the states were keeping their options open among a number of alternative theories of liability, including a per se and rule of reason attack on de facto resale price maintenance achieved through the advertising program, as well as a per se attack based on facilitating a horizontal agreement among competing retailers.
Ironically, two days later, in a front page story, The New York Times reported about American consumers becoming increasingly comfortable haggling with retailers for lower prices on everything from electronics to clothing and furniture.3
Nevertheless, almost immediately upon the suit being filed, Herman Miller entered into a consent decree. It paid the sum of $750,000 and agreed not to enter into any agreements with retailers regarding minimum resale prices or minimum advertised prices. It also agreed not to suspend dealers due to their prices if the suspension would be subject to reconsideration within less than a year, not to condition receipt of cooperative advertising funds on adherence to suggested resale selling prices, and—to ensure ample competition on the Internet—not to require dealers to obtain its prior approval for submission of reserve bids on auction web sites.
How typical was Herman Miller’s approach? How similar was Herman Miller’s situation to that of other manufacturers endeavoring to address resale pricing?
First, Herman Miller’s program applied to mature products that already were being discounted, leading to retailer complaints.
Second, the program allegedly was instigated by the retailers.
Third, Herman Miller apparently conceived its program as a Colgate program but allegedly engaged in impermissible dialogue with offending retailers while they were under their one-year suspensions, and these retailers “often acquiesced,” resulting in implied bilateral agreements to comply after reinstatement.4 The states alleged that retailers “had to agree.” The complaint also alleged that Herman Miller was facilitating horizontal agreements among retailers, apparently based on the receipt of retailer complaints. (It is impossible to tell from the pleading whether the retailers had been coordinating the complaints among themselves or the states were implying a hub-and-spokes conspiracy.)
Finally, the states asserted that Herman Miller’s advertising agreements amounted to resale price maintenance agreements, alleging that retailers’ prices on the Internet and in retailers’ catalogues “were generally non-negotiable” and the “price shown on a retailer’s website or catalogue was the price at which a consumer purchased the product.” As The New York Times story reported, this is not true in many settings any longer.
Bottom Line: It still should be possible to adopt a Colgate program, even under state antitrust law. As long as the manufacturer’s personnel in the field can be trusted to follow the Colgate guidelines, the program should work as effectively as it has for numerous companies for many years. Herman Miller demonstrates what has been true for some time, and what Leegin seems not to have changed: if a supplier does not keep a program of this kind unilateral, some states will be prepared to challenge it. Whether such challenges will survive Leegin if ever actually scrutinized by a court is another question, the answer to which may take some time to learn.
1 Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007).
2 New York v. Herman Miller, Inc., 08 CV 2977 (S.D.N.Y., filed March 21, 2008).
3 Matt Richtel, “At Megastores, Hagglers Find No Price Set in Stone,” N.Y. Times, March 23, 2008, p. 1, col. 1.
4 Compare United States v. Colgate & Co., 250 U.S. 300 (1919).