Maryland AG Challenges Resale Price Maintenance Agreement
On February 29, 2016, the Attorney General of Maryland filed a complaint alleging that Johnson & Johnson Vision Care, Inc. (Johnson & Johnson) violated the Maryland state antitrust law by entering into an agreement with a retailer regarding a resale price maintenance (RPM) policy.
The complaint alleged that Johnson & Johnson initially instituted an RPM policy in response to objections from eye care professionals that they were losing business to discount retail stores, including Costco Wholesale Corporation (Costco), who were charging less than the eye care professionals to fill prescriptions for Johnson & Johnson’s contact lenses. Once Johnson & Johnson implemented its RPM policy, which fixed minimum retail prices for all retailer sellers of its contact lenses, Costco complained to Johnson & Johnson that the policy prevented Costco from offering discounted pricing on the lenses that its customers had come to expect. In response to Costco’s complaint, Johnson & Johnson entered into negotiations with Costco regarding the terms of its RPM policy. Ultimately, Johnson & Johnson agreed with Costco to amend its RPM policy to permit Costco to provide gift cards and other discounts to Costco customers who purchased Johnson & Johnson’s contact lenses from Costco. Johnson & Johnson then entered into similar RPM policy amendments with certain other retailers.
Johnson & Johnson’s per se violation of Maryland’s antitrust law, according to the complaint, turns on the allegation that Johnson & Johnson negotiated a modified RPM policy with Costco instead of unilaterally implementing and enforcing an RPM policy. The Supreme Court of the United States established in U.S. v. Colgate & Co. that a manufacturer may unilaterally institute and enforce a pricing policy. However, for nearly a century, it was a per se violation of federal antitrust laws to enter into an agreement with a retailer regarding an RPM policy. That changed in 2007, when the Supreme Court held in Leegin Creative Leather Products Inc. v. PSKS Inc. that RPM agreements are not per se violations of federal antitrust law. However, in response to Leegin, Maryland’s state legislature amended the Maryland antitrust law to clarify that agreements with retailers regarding RPM policies remained per se illegal under Maryland state law. Therefore, today, “to be legal in Maryland, a resale price maintenance policy must result from the purely unilateral decision of a manufacturer, without negotiation as to its terms, and must be enforced unilaterally.”
It is also important to note that Johnson & Johnson developed its initial RPM policy in response to objections from certain retailers that were losing business to other discount retailers. In Leegin, the Court noted that whether the manufacturer or retailer initiated the RPM agreement may be an important consideration in determining whether an RPM agreement violates federal antitrust laws under the rule of reason. Specifically, if “there is evidence retailers were the impetus for a vertical price restraint, there is a greater likelihood that the restraint facilitates a retailer cartel…” whereas if “a manufacturer adopted the policy independent of retailer pressure, the restraint is less likely to promote anticompetitive conduct.”
Companies seeking to implement RPM policies must remember to unilaterally institute and enforce the policies and avoid entering into negotiations or agreements with retailers regarding the policies. Otherwise, companies may violate state antitrust laws in those states where RPM agreements remain per se illegal after Leegin under state law, notably Maryland, California and New York.