Sunday, November 24, 2013

Resale Price Maintenance—The Blurred Lines

Christian Riis-Madsen & Ozlem Fidanboylu (O'Melveny & Myers) describe Resale Price Maintenance—The Blurred Lines.

ABSTRACT: The 2007 U.S. Supreme Court decision in Leegin set in motion a landslide by overturning a 96-year old precedent. After identifying that the probability of anticompetitive resale price maintenance was too low to justify a per se prohibition, the Court now advocated a rule of reason approach to RPM cases. Despite the following protracted debate regarding the interface between economic theory and legal rules, the landscape for RPM remains blurred across jurisdictions. RPM, often referred to as vertical price-fixing, occurs when suppliers fix the (minimum) price at which distributors can resell its products. While the U.S. federal analysis took a dramatic U-turn to review RPM under the rule of reason, the European approach remains largely unchanged. RPM is classified as a restriction of competition by object that will be presumed to breach Article 101(1) of the Treaty on the Functioning of the European Union and, consequently, presumed not to contain the sufficient efficiency requirements of Article 101(3).

This harsh stance does not fully embrace an economics-based approach as it fails to truly recognize that market power is a prerequisite for consumer harm to occur. Consequently, the European Commission's hostile approach causes the risk of over-enforcement through "type 1" errors where pro-competitive restraints are prohibited. This creates the risk that undertakings will not engage in pro-competitive RPM and will, instead, implement other vertical restraints that have a lower likelihood of providing welfare benefits to consumers.

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