Recent Developments on
Vertical Price Restraints under New York law
By: Amanda H. Freyre and Fusae Nara, Pillsbury Winthrop Shaw Pittman
In a landmark case, the Supreme
Court held that minimum retail price maintenance agreements are no
longer per se illegal under federal law. Leegin
Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877
(2007). Although these agreements are subject to the rule of
reason under federal law, many states continue to prohibit vertical
price agreements, finding them per se illegal.
New York state antitrust law
has generally mirrored federal antitrust law; however, § 369-a
of New York’s General Business law has made unclear whether
vertical price agreements should be analyzed under the rule of reason,
or whether they should be considered per
Interpretation of New York
antitrust law after Leegin
New York’s antitrust law,
codified in the Donnelly Act, has traditionally followed the federal
interpretation of the Sherman Act. Anheuser-Busch, Inc. v.
Abrams, 520 N.E.2d 535 (N.Y. 1988). Historically, under
the Sherman Act, minimum resale price maintenance agreements were
illegal per se. In Leegin, the Supreme Court held
that that such agreements were no longer per se illegal and now
would be judged under the rule of reason.
Leegin,551 U.S. 877. Although New York
antitrust law has generally been interpreted as its federal counterpart,
a New York statute, entitled “Price-fixing prohibited,”
states that “[a]ny contract provision that purports to restrain a
vendee of a commodity from reselling such commodity at less than the
price stipulated by the vendor or producer shall not be enforceable or
actionable at law.” N.Y. Gen. Bus.
Relying on § 369-a,
the New York Attorney General and at least one private entity have
recently challenged the legality of vertical price restraints in New
York, arguing that the statute evidences a state policy against such
agreements. Meanwhile, manufacturers have argued that the
language of the statute does not prohibit vertical price
In People v.
Tempur-pedic, a manufacturer notified retailers in a memorandum, of
a new minimum retail price policy for sale of its
products. The memorandum stated that Tempur-Pedic would
suspend doing business with any retailer that did not implement the
suggested prices. People v. Tempur-pedic Int’l, Inc.,
916 N.Y.S.2d 900, 903 (N.Y. Sup. Ct. 2011). Nevertheless, the
manufacturer specifically stated that the policy was a unilateral
decision, that the policy was not negotiable, and that it did not want,
nor would it accept an agreement from any retailer. Id. at
904. The New York Attorney General argued that the policy was an
illegal agreement under § 369-a, and that the policy was
incorporated into its Retail Partner Obligations and Advertising
Policies agreement (“RPOAP”). Id. at
the New York Supreme Court determined that the RPOAP pertained only to
advertising, and that the pricing memorandum was not incorporated into
the signed agreement. Id. at 908. On appeal, the
First Department agreed that “advertising agreements cannot be the
subject of a vertical retail price maintenance claim because they do not
restrain resale prices, but merely restrict advertising.”
People v. Tempur-Pedic Int’l., Inc., 944 N.Y.S.2d 518, 519
(N.Y. App. Div. 1st Dep’t 2012).
Second, even if a contract
existed between the parties, the New York Supreme Court stated that
there was no violation under § 369-a because “contracts for
resale price restraints are unenforceable and not actionable, but not
illegal.” Tempur-pedic, 916 N.Y.S.2d 900, 902
(N.Y. Sup. Ct. 2011), aff’d, People v. Tempur-Pedic
Int’l., Inc., 944 N.Y.S.2d 518 (N.Y. App. Div. 1st Dep’t
2012) (stating that an action to enforce a minimum resale price
agreement was not maintainable).
Third, the court determined
§ 369-a was inapplicable to the manufacturer’s policy
because no agreement between the parties existed on price
restraints. Tempur-Pedic, 916 N.Y.S.2d 900, 906 (N.Y.
Sup Ct. 2011). Because the retailers had independently decided to
yield to the pricing scheme to continue selling the manufacturer’s
products, there was no intent to be bound and no meeting of the
minds. Id. at 902. Put another way, merely adhering
to a suggested retail price did not establish an agreement. The court
suggested, however, that an implicit contract would be formed if a
manufacturer successfully employed coercive tactics or threats to
Federal court interpretation
of New York antitrust law
New York law, a Federal court determined that § 369-a does not
establish a per se rule making vertical retail price maintenance
agreements illegal, in New York. In Worldhomecenter.com v.
KWC, the plaintiff was a private internet retailer, and alleged that
the manufacturer’s Internet Advertising Policy (IAP) was a
vertical resale price agreement and therefore an illegal restraint of
trade under the Donnelly Act. Worldhomecenter.com Inc. v. KWC
Am. Inc., No. 10 Civ. 7781, 2011 WL 2565284, at *1 (S.D.N.Y. Sept.
15, 2011). To plead a violation of the Donnelly Act, the
plaintiff needed to allege that the manufacturer’s conduct was
anticompetitive under either the rule of reason or the per se rule
against vertical price restraints. Id. at *3. Thus,
the court had to determine whether the per se rule against vertical
price restraints was still applicable in New York.
The advertising policy
prohibited retailers from advertising the products below a certain price
on the internet. Id. The court found that contracts
between supplier and seller to set prices are unenforceable, but not
illegal in New York under § 369-a. Id. at *4 (citing
Tempur-Pedic, 916 N.Y.S.2d 900 (N.Y. Sup. Ct. 2011)). Even
if contracts restricting price were illegal, the court held that
advertising restrictions are not antitrust violations because they are
not actually price restrictions. KWC, 2011 WL 2565284, at
*5. The court further stated § 369-a did not apply
because the plaintiff was subjected to a unilateral policy restricting
advertising, rather than a party to a contract on prices.
Id. at *8.
The plaintiff in KWC
argued that there was no distinction between retail prices and
advertised prices on the Internet because prohibiting price
advertisements effectively restricted the resale price. Id.
at *5. The plaintiff claimed that Internet retailers are bound by
the advertised price because they are unable to communicate sale prices
directly to customers. Id. The court found that these
retailers nevertheless have opportunities to offer lower prices through
phone, email, and other forms of communication. Id.
Accordingly, the manufacturer did not prevent plaintiff from selling its
products at whatever price the retailer wished.
Finally, the court held that
the advertisement policy was not a violation of the Donnelly Act because
no agreement was actually formed: the Donnelly Act proscribes only
concerted action in the form of contract, agreement, or
arrangement. Id. at *6. In fact, a
manufacturer’s independent, unilateral acts to set minimum resale
prices, without seeking agreement from its retailers, do not amount to a
contract. Id. (citing Tempur-Pedic, 916 N.Y.S.2d 900
(N.Y. Sup. Ct. 2011)). Had the plaintiffs alleged sufficient facts
to suggest that the manufacturer had made agreements with other
distributors, the court may have found a violation of the Donnelly
Act. KWC, 2011 WL 2565284, at *6.
In sum, recent New York
decisions have helped to clarify
Leegin’sinfluence on the New York
courts. First, the Appellate Division agreed that vertical price
restraints are not unlawful in New York, but rather unenforceable.
Furthermore, in response to the Attorney General’s argument that
it can ask the court to enjoin unenforceable contracts, the court
determined that policies created by manufacturers are not
agreements. Instead, absent any facts indicating a meeting of the
minds between the parties, these policies are unilateral actions by the
manufacturers. Finally, agreements restricting advertisements are
not considered price restraints and, thus, do not violate the Donnelly
NEW YORK STATE BAR ASSOCIATION, ONE ELK STREET, ALBANY, NY 12207 PH: (518) 463-3200 SECURE FX: (518) 463-5993