February 20, 2007

U.S. Supreme Court to Hear Antitrust Case


In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the Supreme Court will review the vitality of the long-standing per se prohibition on vertical price fixing. The Court may decide that minimum resale price maintenance is not in and of itself a violation of the Sherman Antitrust Act but is governed by a "rule of reason." The Supreme Court has already determined in recent years that maximum resale price maintenance is not per se unlawful. If the Court now holds that both minimum and maximum vertical price setting are subject to a rule of reason, franchisors may be able to control lawfully the price charged by franchisees for products or services. Franchisors will find this most helpful when it comes to system-wide promotions and national accounts programs. Controlling franchisee prices raises a number of issues, including whether the franchisor has the contractual right to do so and a possible increased exposure to vicarious liability. Franchisors should, however, consider whether they modify their standard form of agreement to reserve a contractual right to establish resale prices, maximum and minimum, pending a ruling in Leegin.

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