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Resale Price Maintenance After Monsanto: A Doctrine Still at War With Itself
Abstract
In this article, two enforcement officials at the Federal Trade Commission reexamine resale price maintenance in light of the Supreme Court's recent decision in Monsanto Co. v. Spray-Rite Service Corp. Commissioner Calvani and Mr. Berg consider both antitrust law and economic policy in their review of the history of resale price maintenance; they point out the chronic inconsistencies to which this antitrust regime has been subject, and identify these same inconsistencies at work in Monsanto. The authors set forth three theses with respect to Monsanto: first, that the Court intimated a willingness to reconsider at some future time the per se standard of illegality for resale price maintenance; second, that the Court recognized the continuing vitality of the Colgate doctrine, which had been seriously questioned in recent years; and, third, that the Monsanto Court unsuccessfully attempted to delineate a workable evidentiary standard applicable to communications between sellers and resellers when it is alleged that such communications constitute an illegal contract, combination, or conspiracy under section one of the Sherman Act. The authors suggest that, taken together, these elements in Monsanto display a doctrine at war with itself. The authors conclude by examining the possible implications of the Monsanto decision for the future direction of the law of resale price maintenance.
This paper investigates whether a supply chain can achieve coordination by implementing two mechanisms: a cooperative advertising program and a price discount mechanism. We start by analyzing a consignment contract with a revenue-sharing agreement in which a manufacturer decides both the price and the quality investment while the retailer sets the store advertising efforts. The manufacturer is the brand owner and increases the goodwill through quality and pricing. We solve three dynamic games, in which the manufacturer is the Stackelberg leader, and compare the related solutions. We discover that the manufacturer, as chain leader, will always propose the adoption of a coordination mechanism. When the manufacturer opts for a cooperative program, the retailer is always economically better off; thus, a cooperative program is always profit-Pareto-improving. When the manufacturer opts for a price discount mechanism, the retailer is always economically worse-off because the discount applies only to her margins. Nevertheless, the price discount mechanism is profit-Pareto-improving in the case of high production cost: The price discount allows for considerably reducing the retail price, which translates to a substantial increase in demand. In all other cases, the retailer sets zero price discount, thus preferring a non-coordinated framework.
This article reviews the current state of law regarding resale price maintenance and analyzes how several recent legal decisions, including the United States Supreme Court's decision in the Monsanto case, have affected the development of law in this area. Guidelines are then developed to help firms formulate vertical price control programs that conform with the law.
This essay analyzes the June 2007 Supreme Court decision of Leegin v. PSKS. That case overruled a 96 year old Supreme Court case, Dr. Miles v. Park & Sons. The Leegin case eliminated Dr. Miles' per se rule in antitrust for minimum resale price maintenance between manufacturers and retailers. The essay examines the history and controversy of Dr. Miles, acts of Congress to circumvent and then restore Dr. Miles, the controversy over the Leegin case, and likely outcomes in the future.
CCH) 60,021 at 65,112. 144 See supra notes 109-19 and accompanying text; see also, e.g
- Odom Corp
Odom Corp., 5 TRADE REG. REP. (CCH) 60,021 at 65,112.
144. See supra notes 109-19 and accompanying text; see also, e.g., Roland Mach. Co. v. Dresser
Indus., Inc., 1984-2 TRADE CAS. (CCH) 66,175, at 66,631 (7th Cir. Aug. 31, 1984) ("a classic
example of the conduct permitted by...Colgate..., a decision whose continued vitality despite
much criticism is attested to by the Supreme Court's approving reference to it in Monsanto").
Ihe economic effect of all of the conduct described. ..-unilateral and concerted vertical price-setting, agreements on price and nonprice restrictions-is in many, but not all, cases similar or identical." (citing United States v
- Id
Id. at 1469-70 ("[Ihe economic effect of all of the conduct described...-unilateral and
concerted vertical price-setting, agreements on price and nonprice restrictions-is in many, but not
all, cases similar or identical." (citing United States v. Parke, Davis & Co., 362 U.S. 29, 43 (1960)).
- Kartell V Blue
- Shield
- Mass
- Inc
Kartell v. Blue
Shield of Mass., Inc., 1984-2 TRADE CAS. (CCH) 66,300, at 67,302 (1st Cir. Nov. 28, 1984);
- Roland Mach
Roland Mach. Co. v. Dresser Indus., 1984-2 TRADE CAS. (CCH) 66,175, at 66,631 (7th Cir. Aug.
Service Merchandise, 686 F), cert. pending, No. 82-848
- Davis-Watkins Co
Davis-Watkins Co. v.
Service Merchandise, 686 F.2d 1190, 1199 (CA6 1982), cert. pending, No. 82-848; Bruce
Drug, Inc v. Hollister, Inc., 688 F.2d 853, 856-857 (CAl 1982); see also Blankenship v.
Cf Letter from Rep) (characterizing the Monsanto decision as a "reaffirmation" of the per se illegality of resale price maintenanceCongress has spoken. The Supreme Court has spoken. I trust now that the Federal Trade Commission will do its duty But see Bender v. Southland Corp
@BULLET.. at least for the moment, Dr. Miles is alive and well."). Cf Letter from Rep. James J. Florio to
FTC Chairman James C. Miller, III (Apr. 10, 1984) (characterizing the Monsanto decision as a
"reaffirmation" of the per se illegality of resale price maintenance. "Congress has spoken. The
Supreme Court has spoken. I trust now that the Federal Trade Commission will do its duty."). But
see Bender v. Southland Corp., 1984-2 TRADE CAS. (CCH) 66,307, at 67,337 n.3 (6th Cir. Dec. 7,
1984) (observing that the Monsanto Court refused to reconsider the per se rule "adopted in Dr.
); Rothery Storage & Van Co. v. Atlas Van Lines
Burlington Coat Factory Warehouse Corp. v. Esprit De Corp., 1984-2 TRADE CAS. (CCH) 66,299,
at 67,294-95 (S.D.N.Y. Nov. 16, 1984); Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 1984-2
TRADE CAS. (CCH) 66,258, at 67,126 (D.D.C. Nov. 9, 1984); Computer Place, Inc. v. Hewlett-
Packard Co., 1984-2 TRADE CAS. (CCH) 66,254 (N.D. Cal. Oct. 22, 1984), discussed supra notes
Vol. 1984:1163]
- Inc V Airweld
- Airco
- Inc
Airweld, Inc. v. Airco, Inc., 1984-2 TRADE CAS. (CCH) 66,197, at 66,747 (9th Cir. Sept. 11, 1984);
), a district court found that, under Monsanto, complaints by distributors followed by a reduction in the discount rate given plaintiff was insufficient to establish a conspiracy
- D Ide
- La
Id. In Gillette Tire Jobbers v. Appliance Indus., Inc., 1984-2 TRADE CAS. (CCH) 66,231,
at 66,231-32 (E.D. La. Oct. 3, 1984), a district court found that, under Monsanto, complaints by
distributors followed by a reduction in the discount rate given plaintiff was insufficient to establish a
conspiracy.
127. 104 S. Ct. at 1471.
128. 637 F.2d 105 (3d Cir. 1980), cert. denied, 451 U.S. 911 (1981).
On appeal, the Supreme Court vacated the decision and remanded it to the court of appeals for further consideration in light of Monsanto The Ninth Circuit's decision remained unchanged in an unpublished order filed
- Cas
CAs. (CCH) 65,918 (U.S. Apr. 2, 1984). On appeal, the Supreme Court vacated the decision and
remanded it to the court of appeals for further consideration in light of Monsanto. Buckingham
Corp. v. Odom Corp., 104 S. Ct. 1699 (1984). The Ninth Circuit's decision remained unchanged in
an unpublished order filed August 7, 1984. The supplier then petitioned for certiorari, 53 U.S.L.W.
Glen Eden Hosp. v. Blue Cross & Blue Shield, 740 F.2d
- Eg See
See, eg., Glen Eden Hosp. v. Blue Cross & Blue Shield, 740 F.2d 423, 431 (6th Cir. 1984)
(Monsanto "affirmed" the per se rule);
Professor Lawrence Sullivan has queried "whether Colgate is not now more than outmoded, whether its shade has not at last been quietly dispatched
- L Sullivan
- Handbook Of
- Law
- Antitrust
Professor Lawrence Sullivan has queried "whether Colgate is not now more than outmoded, whether its shade has not at last been quietly dispatched." L. SULLIVAN, HANDBOOK OF THE
LAW OF ANTITRUST 394 (1977). A good many courts have made similar observations. See, e.g.,
George W. Warner & Co. v. Black & Decker Mfg. Co., 277 F.2d 787, 790 (2d Cir. 1960) ("[T]he
enterprise."). Although some lower courts have continued to recognize the validity of Colgate, see, e.g., Official Airlines Guides, Inc. v. FTC, 630 F.2d 920, 927-28 (2d Cir. 1980), cert. denied,
The New York Regional Office identified another potential respondent-Jockey International (men's underwear, hosiery, and sportswear). Id. Commissioner Pertschuk was Chairman of the FTC when Russell Stover was in its formative stages
- Id
Id. at 33, col. 2. The Bureau of Competition identified three potential target companies-Russell
Stover (candies), Rolex (watches), and Fieldcrest (bed and bath linens). The New York Regional
Office identified another potential respondent-Jockey International (men's underwear, hosiery, and
sportswear). Id. Commissioner Pertschuk was Chairman of the FTC when Russell Stover was in its
formative stages. See Pertschuk, Report from the Federal Trade Commission, 48
outlining his antitrust enforcement priorities aimed at enhancing competition). Then-Chairman Pertschuk noted in 1979 that "[a]lthough we will be attempting to define new approaches to vertical restraints, resale price maintenance will remain our top priority in this area
- L Antrrrust
ANTrrRUST L.J.
629 (1979) (outlining his antitrust enforcement priorities aimed at enhancing competition). Then-Chairman Pertschuk noted in 1979 that "[a]lthough we will be attempting to define new approaches
to vertical restraints, resale price maintenance will remain our top priority in this area." Id. at 636.
Similarly, the FTC under Chairman Pertschuk attempted to expand per se applicability to nonprice
149. Id. at 1470. See supra notes 123-25 and accompanying text.
150. Id. at 1469.
Dresser Indus., 1984-2 TRADE CAS
- Roland Mach
- Co
Roland Mach. Co. v. Dresser Indus., 1984-2 TRADE CAS. (CCH) 66,175, at 66,631 (7th Cir. Aug.
31, 1984);