MAY 23, 2012
Resale price maintenance news
By John Foote and David Martland
Appellate courts in two different states recently issued rulings on resale price maintenance claims
under their respective state statutes within the course of five days. On May 4, 2012, the Kansas
Supreme Court reversed a summary judgment ruling issued in favor of Leegin Creative Leather
Products, Inc. and remanded the case for further proceedings regarding a putative class action
alleging price fixing in the form of resale price maintenance. O’Brien v. Leegin Creative Leather Products,
Inc., 2012 Kan. LEXIS 246 (May 4, 2012) (“O’Brien”).1 On May 8, the Supreme Court of New York,
Appellate Division, affirmed a lower court ruling dismissing a petition by the state Attorney General
against Tempur-Pedic International, Inc. for allegedly violating New York General Business Law 369-a
by entering into resale price maintenance agreements with its retail distributors. New York v. TempurPedic International, Inc., 2012 N.Y. App. Div. LEXIS 3528 (May 8, 2012) (“Tempur-Pedic”).
KANSAS
In O’Brien, the Kansas Supreme Court interpreted two Kansas statutes, K.S.A. 50-101 and K.S.A. 50112. The former statute makes illegal any trust (“a combination of capital, skill, or acts, by two or
more persons”) which exists for any of a number of different purposes, including: (1) “to increase or
reduce the price of merchandise, produce, or commodities”; and (2) “to fix any standard or figure,
whereby such person’s price to the public shall be, in any manner, controlled or established, any
article or commodity of merchandise, produce or commerce intended for sale, use or consumption in
this state.” K.S.A. 50-101. The latter provides that “all arrangements, contracts, agreements, trusts or
combinations between persons, designed or which tend to advance, reduce or control the price or
the cost to the producer or to the consumer of any such products or articles . . . are hereby declared
to be against public policy, unlawful and void.”
The court held that neither of these statutes is subject to any rule of reason limitation, so a plaintiff is
not required to show that any agreement, combination, or arrangement that falls within the terms of
either is unreasonable in order to prevail. To the contrary, the court held that these statutes prohibit
all arrangements, contracts, agreements, trusts, or combinations that fall within their terms, whether
Defendant in this case is the same Leegin Creative Leather Products that convinced the U.S. Supreme Court to
discard per se treatment of resale price maintenance under federal law in Leegin Creative Leather Products, Inc. v. PSKS,
Inc., 551 U.S. 877 (2007).
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or not they are reasonable or unreasonable. In effect, the court applied a per se rule to these statutes.
Moreover, the court held that the statutes did not distinguish in any way between horizontal and
vertical price-fixing or allow for any exceptions to the per se rule for dual-distribution arrangements.
In addition, the court found that neither statute requires an actual agreement to show a violation, as
all that is required is a “combination” or an “arrangement.” The court found that there was ample
evidence of a combination and an arrangement between Leegin and its retail distributors for the
plaintiff to avoid summary judgment, including that: (1) Leegin’s pricing policy was distributed to all
of its retailers; (2) for at least a year, Leegin required its retailers to acknowledge in writing that
violation of its pricing policy was grounds for dismissal; (3) Leegin’s owner testified that it required
all of its retailers to charge the same price; (4) Leegin did not allow unauthorized promotions by its
retailers; (5) Leegin maintained a “Pending Pricing Issues” file; and (6) Leegin conducted
investigations into the pricing practices of retailers suspected of discounting.
The court also held that neither of the Kansas statutes at issue requires a showing that prices were
actually increased but only that the agreement, combination, or arrangement was for the purpose of
or designed to fix prices, which was to be judged by a subjective standard. Once again, the court
found that there was ample evidence of Leegin’s intent to fix the prices that retailers charged for its
products, including: (1) the language of its pricing policy that required Leegin’s advance consent to
make exceptions or grant discounts and that stated its express goal for prices to be the same for all of
its retailers, (2) Leegin’s rejection of a retailer’s request to hold a promotional event, and (3) Leegin’s
enforcement practices of keeping files on retailer pricing and investigating retailers suspected of
discounting.
In summary, it is clear from the O’Brien case that Kansas law treats resale price maintenance as a per
se violation of its antitrust statutes, and that the law in Kansas is essentially what it was under federal
law prior to the U.S. Supreme Court’s decision in Leegin to discard per se treatment of resale price
maintenance under federal law.
Less than one week after the Kansas Supreme Court issued its opinion in O’Brien, a bill was
introduced in the Kansas legislature to overturn O’Brien in order “to prevent wasteful litigation” and
prevent businesses potentially affected by O’Brien from refusing to do business in Kansas. The bill
was written to prohibit any arrangement, contract, agreement, trust, understanding, or combination
from being deemed an unlawful, wrongful, or prohibited trust under Kansas law if it would be
deemed a reasonable restraint under federal law as interpreted by the federal courts. The bill was later
amended to exempt from the reach of the Kansas statutes any arrangement, contract, agreement,
trust, understanding, or combination that constitutes a reasonable restraint of commerce. On May
10, 2012, the Kansas House of Representatives passed the amended bill 96 to 18, but the Kansas
Senate voted in favor by only 19 to 16, which did not meet the statutorily mandated majority. Both
those in favor and those against the bill characterized the bill as effectively dead.
NEW YORK
In Tempur-Pedic, the New York appellate court affirmed an earlier ruling by the trial court interpreting
New York General Business Law 369-a, which provides that “contract provisions” that impose
minimum resale prices “will not be enforceable or actionable at law.” The court agreed with the prior
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ruling that, while this statutory language makes it clear that such contractual provisions cannot be
enforced, it does not declare them to be illegal or unlawful.
The court further held in Tempur-Pedic that, even if the statute did render such contractual provisions
unlawful or illegal, the two types of evidence tendered by New York were insufficient to come within
the statute. The first, an agreement signed by Tempur-Pedic and its retailers entitled “Retail Partner
Obligations and Advertising Policies, was insufficient because it contained restrictions only on
retailer advertising, not pricing. The second, Tempur-Pedic’s minimum price policy, was insufficient
because it was not contained in any agreement between Tempur-Pedic and its retailers or otherwise
agreed to by the retailers. Rather, Tempur-Pedic’s retailers “independently determined to acquiesce to
the pricing scheme in order to continue carrying Tempur-Pedic’s products.” In essence, the court
found that an agreement could not be inferred from a manufacturer’s enforcement of its unilateral
pricing policy.
For more information on the content of this alert, please contact your Nixon Peabody attorney or:

John Foote at [email protected] or (415) 984-8326

David Martland at [email protected] or (617) 345-6145
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