"#$%" &'#%&(#)& *+ ,#'&-.

%" '#/&'%-)&/0
/*(# "#//*)/ +'*( &1# *)$*-)$ -)&#')%&-*)%" 2#3%&#/
A Reseaich Papei foi the !"#$%&'% )%$"*+%& ,$*+-."$%

(456789 #: ;75<=>
*
0ctobei 2S, 2u12















*
Asesoi, !"#$%&'% )%$"*+%& ,$*+-."$%.

The views expiesseu in this papei aie the authoi's own anu uo not necessaiily iepiesent
those of the FNE.
i
&%3"# *+ .*)&#)&/
I. INTR0B0CTI0N............................................................................................................................1
II. BECISI0N TBE0RY ANB TBE BESIuN 0F LEuAL STANBARBS..............................4
III. TBE0RETICAL & ENPIRICAL LITERAT0RE 0N RESALE PRICE
NAINTENANCE.......................................................................................................................... 11
A. Anticompetitive Effects of RPN........................................................................... 12
1. Incieaseu Consumei Piices..................................................................... 12
2. Reuuceu Retailing Innovation & Efficiency...................................... 14
S. Facilitation of Collusion............................................................................ 1S
4. Softening Competition............................................................................... 16
S. Foieclosuie at the Nanufactuiei Level.............................................. 16
B. Potential Piocompetitive Benefits of RPN...................................................... 17
1. New Piouuct Intiouuction....................................................................... 17
2. Pievention of Fiee Riuing: Classic Theoiy ....................................... 17
S. Pievention of Fiee Riuing in 0thei Ciicumstances ...................... 18
4. 0thei Explanations ..................................................................................... 19
C. Pievalence of Resale Piice Naintenance.......................................................... 2u
B. Pievalence of Pio- veisus Anticompetitive 0ses of RPN......................... 2u
Iv. RESALE PRICE NAINTENANCE IN TBE 0NITEB STATES ...................................... 22
A. Biief Pie-/001"+ Bistoiy of RPN in the 0niteu States ................................ 22
B. Evolution of 0.S. Tieatment of veitical Restiaints Pie-/001"+............... 24
C. /001"+ 230%4"50 63*78$4#9 :+$; 5; 6<=<9 :+$. ....................................................... 26
B. RPN in the 0.S. Post-/001"+ ................................................................................... 28
v. RESALE PRICE NAINTENANCE IN 0TBER }0RISBICTI0NS.................................. S2
A. Euiopean 0nion.......................................................................................................... S2
B. Canaua............................................................................................................................. SS
C. Austialia & New Zealanu ........................................................................................ S8
vI. S0NE PR0P0SEB STANBARBS F0R RPN..................................................................... 4u
A. 603 #0 Illegality............................................................................................................. 41
B. Piesumption of Illegality......................................................................................... 42
C. Comanoi & Scheiei ................................................................................................... 4S
B. Notta 04 %&...................................................................................................................... 4S
E. /001"+ Stiuctuieu Appioach.................................................................................. 46
F. "FTC" Appioach........................................................................................................... 47
vII. C0NCL0SI0N: Q0ESTI0NS F0R CBILE........................................................................... 48
1
-: -)&'*2?.&-*)
This ieseaich papeia companion piece to Piofessoi Patiick Rey's iecent
iepoit foi the FNE
1
iegaiuing the economics of veitical iestiaintsconsiueis how
the impoitant policy implications iaiseu by Piofessoi Rey's analysis might be
tianslateu into effective enfoicement stanuaius. As 0.S. Supieme Couit }ustice
Stephen Bieyei has concluueu, economic theoiy "can, anu shoulu, infoim
|competitionj law;" neveitheless, the law, as an auministiative system, "cannot, anu
shoulu not, piecisely ieplicate economist's (sometimes conflicting) views."
2
Thus, it
must seaich foi auministiable iules that, on balance, maximize consumei welfaie.
To that enu, this papei examines the ongoing uebate ovei the legal tieatment of one
paiticulai type of veitical iestiaint, iesale piice maintenance (RPN
S
), with the hope
that any insights ueiiveu can be applieu moie bioauly.
veitical iestiaints have been uefineu to incluue any
agieement oi conceiteu piactice enteieu into between
two oi moie unueitakings each of which opeiates, foi
the puiposes of the agieement oi the conceiteu
piactice, at a uiffeient level of the piouuction oi
uistiibution chain, anu ielating to the conuitions unuei

1
<00 Patiick Rey, "veitical iestiaints - an economic peispective" (0ctobei 1S, 2u12),
available at <http:www.fne.gob.clwp-contentuploaus2u121uveitical-
iestiaints.puf>.
2
/001"+ 230%4"50 63*78$4#9 :+$; 5; 6<=<9 :+$;, SS1 0.S. 877, 914-1S (2uu7) (Bieyei, }.,
uissenting). }ustice Bieyei noteu:
|Ljaw, unlike economics, is an auministiative system the
effects of which uepenu upon the content of iules anu
pieceuents only as they aie applieu by juuges anu juiies in
couits anu by lawyeis auvising theii clients.
:7; at 914.
While on the 0.S. Couit of Appeals foi the Fiist Ciicuit, then-}uuge Bieyei noteu in anothei
opinion:
Rules that seek to embouy eveiy economic complexity anu
qualification may well, thiough the vagaiies of
auministiation, piove countei-piouuctive, unueicutting the
veiy economic enus they seek to seive..
>%33? @3"1A4 2*3B; 5; :CC D3"++0&& 2*3B;, 724 F.2u 227, 2S4 (198S). In that case, the Fiist
Ciicuit auopteu a piice-cost test in ueteimining that the challengeu uiscounts at issue weie
not unlawful unuei the iule of ieason when they iemaineu above any ielevant measuie of
cost. :7. at 2SS.
S
When using the teim RPN, this papei is iefeiiing to ."+".8. iesale piice maintenance,
unless otheiwise inuicateu.
2
which the paities may puichase, sell oi iesell ceitain
goous oi seivices.
4

Some veitical iestiaints involve commitments about eithei paity's behavioi,
which incluues piactices such as RPN, quantity fixing, exclusive uealing, tie-ins, anu
teiiitoiial oi customei piovisions. 0theis establish geneial teims foi payments
(beyonu simply wholesale piices), which can take the foim of non-lineai taiiffs like
fianchise fees, anu piogiessive oi so-calleu fiuelity iebates, as examples. This list is
fai fiom exhaustive.
S

RPN is a veitical iestiaint that limits "+43%bianu piice competition";0;,
competition between ieselleis of the same manufactuiei's piouuctby iestiicting
the piice at which ietaileis may sell that piouuct.
6
This piactice may take many
foims, ianging fiom agieements that uiiectly contiol the ietailei's tiansaction
piices to policies that uo so inuiiectly by, foi instance, limiting sales only to ieselleis
that follow the manufactuiei's suggesteu ietail piices.
7
The piocompetitive benefits
of RPN may incluue the stiengthening of "+403bianu competition by eliminating
fiee-iiuei pioblems at the ietail level that iesult in the suboptimal piovision of pie-
sale auvice oi othei seivices, oi by guaianteeing a maigin at the ietail level to
encouiage the piomotion of a manufactuiei's piouuct.
8
In othei ciicumstances,
howevei, the piactice can iesult in seiious anticompetitive haims, such as the
facilitation of manufactuiei anu ietail caitels, the iestoiation of an upstieam fiim's
ability to exeicise maiket powei, anu even, in the context of inteilocking
ielationships, the elimination of both "+43%bianu %+7 "+403bianu competition.
9

Peihaps the most well known piouuct of the legal uebate conceining RPN
has been the 0.S. Supieme Couit iuling in /001"+,
1u
a S-4 uecision fiom }une 2uu7
that oveituineu the neaily one-hunuieu-yeai-olu B03 #0 iule establisheu in E3;
F"&0#
GG
in favoi a "iule of ieason" analysis. The iuling, which haimonizeu the

4
Euiopean Commission's uuiuelines on veitical Restiaints (2u1uC 1Suu1, 19 Nay 2u1u),
at 24, available at <http:ec.euiopa.eucompetitionantitiustlegislation
guiuelines_veitical_en.puf>.
S
<00 Rey, "veitical iestiaints," #8B3% note 1, at S-7 (uesciibing uiffeient types of veitical
iestiaints).
6
uiegoiy T, uunulach, "Resale Piice Naintenance Aftei /001"+: Topics anu Questions foi
Reseaich," FTC Beaiings on Resale Piice Naintenance (Nay 2u, 2uu9), at 2. Available at
<www.ftc.govoppwoikshopsipmmayu9uocsggunulach_w.puf >.
7
<00 "7. at 2-S foi a uiscussion of vaiious foims of uiiect anu inuiiect RPN piactices.
8
Rey, "veitical iestiaints," #8B3% note 1, at 4u.
9
:7. at 41-44.
1u
/001"+ 230%4"50 63*78$4#9 :+$; 5; 6<=<9 :+$;, SS1 0.S. 877 (2uu7).
11
E3; F"&0# F07"$%& 2*; 5; H*A+ E; 6%3I J <*+# 2*;, 2uu 0.S. S7S (1911).
S
tieatment of RPN in the 0.S. with that of othei veitical agieements,
12
ielieu on the
existence of piocompetitive justifications foi the piactice iuentifieu in the
economics liteiatuie.
1S
Shoitly theieaftei, in 2uu9, the Canauian Competition Act
was amenueu to ueciiminalize RPN anu intiouuce a maiket effects appioach moie
in line with the 0.S.
14
0nuei cuiient Canauian law, the Competition Tiibunal may
piohibit RPN only if it has oi is likely to have an auveise effect on competition.
Neanwhile, the Euiopean 0nion's (E.0.) veitical Restiaints Block Exemption
Regulation anu uuiuelines of veitical Restiaints, which took effect in }une 2u1u,
acknowleugeu the potential efficiencies fiom veitical iestiaints, but neveitheless
ietaineu the "haiu coie" uesignation foi RPN.
1S
Along the way, acauemics anu
iegulatois have come foiwaiu with numeious pioposalsoften vaiiations on a
themefoi uealing with RPN.
In woiking towaius the goal of uiawing policy lessons fiom Piofessoi Rey's
insights anu the ongoing conveisations ovei RPN, this papei begins in section II
with a uiscussion of uecision theoiy anu how that piocess might infoim the uebate
on legal stanuaius. Section III then tuins to RPN anu pioviues a biief summaiy of
the anticompetitive iisks anu asseiteu piocompetitive iationales associateu with
the piactice, along with the limiteu empiiical ieseaich on those subjects. Section Iv
then uiscusses RPN in the 0niteu States anu the impact of /001"+ at the feueial anu
state levels, wheie consiueiable unceitainty still iemains moie than five yeais aftei
the uemise of E3; F"&0#. Section v suiveys the cuiient stanuaius in the E.0., Canaua,
Austialia anu New Zealanu, the lattei two of which, in contiast to Canaua, have
ietaineu B03 #0 tieatment of RPN. Section vI then consiueis auuitional pioposeu
RPN stanuaiusincluuing vaiious pioposals foi "stiuctuieu" iule of ieason
analysesanu how those fiamewoiks might allow foi the legitimate,
piocompetitive benefits of RPN to be iealizeu in an auministiatively feasible
mannei that also piotects against anticompetitive abuses.
Section vII concluues with a biief consiueiation of the Chilean maiket anu
whethei the paiticulaiities of that maiket counsel in favoi oi against ceitain
stanuaius. As will be seen thioughout, ielevant chaiacteiistics of the Chilean
economylike many othei small economies
16
incluue a ielatively high uegiee of

12
<00 2*+4"+0+4%& C;K;9 :+$; 5; DC, <?&5%+"%9 :+$;, 4SS 0.S. S6 (1977) (applying iule of ieason
to non-piice veitical iestiaints); <4%40 L"& 2*; 5; =A%+, S22 0.S. S (1997) (applying iule of
ieason to maximum iesale piice agieements).
1S
/001"+, SS1 0.S. at 889 ("Though each siue of the uebate can finu souices to suppoit its
position it suffices to say heie that economics liteiatuie is ieplete with piocompetitive
justifications foi a manufactuiei's use of iesale piice maintenance.").
14
<00 "+M3% Section v.B.
1S
<00 "+M3% Section v.A.
16
Foi a uiscussion of geneial chaiacteiistics of small economies, anu implications foi
competition policy that might follow, #00 Nichal S. ual, C0NPETITI0N P0LICY F0R SNALL
NARKET EC0N0NIES (2uuS).
4
concentiation, with some of the most impoitant inuustiies having just a few
paiticipants, with "+43%bianu competition in many maikets being uiiven by
oligopolies. In this context, as Piofessoi Rey notes, stiategic behavioi between iival
veitical stiuctuies caiiies ieal iisks foi social welfaie. Those iisks may mean that
RPNanu othei veitical iestiaintsiequiie moie caieful consiueiation, anu thus
uiffeient stanuaius, than might be the case in othei contexts.
--: 2#.-/-*) &1#*'@ %)2 &1# 2#/-$) *+ "#$%" /&%)2%'2/
The stiuctuie of legal iules in the competition contextincluuing the
assignment of buiuens of pioof anu the stanuaius foi satisfying those buiuenscan
play an impoitant iole in enfoicement of those laws.
17
In the 0.S., foi instance, the
piactical uiffeience between litigating a B03 #0 case compaieu to a mattei ueciueu
unuei the iule of ieason is significant. As foimei FTC Chaiiman Robeit Pitofsky has
commenteu, "iule of ieason cases often take yeais to litigate|,j aie extiemely
expensive" anu aie "veiy uifficult foi a plaintiff (eithei the goveinment oi a piivate
paity) to win.
18
Inueeu, commentatois have noteu that the iule of ieason, as applieu
in the 0.S. in the veitical non-piice context, has iesulteu in a 70 M%$4* iule of B03 #0
&01%&"4?.
19
That is not the iesult of non-piice iestiaints nevei being haimful (as
Piofessoi Rey notes, they can be). Rathei, it is because the "huiules foi iecoveiy"
imposeu by 0.S. couits applying an unstiuctuieu iule of ieason stanuaiu aie so
high.
2u


17
Foi an illuminating uiscussion about policy consiueiations anu legal stanuaius in the
context of exclusionaiy uiscounts, #00 Robeit B. Lanue, "Shoulu Pieuatoiy Piicing Rules
Immunize Exclusionaiy Biscounts.," 2uu6 0TAB L. REv. 879 (2uu6), available at
<http:ssin.comabstiact=112147S>.
18
Robeit Pitofsky, "In Befense of Biscounteis: The No-Fiills Case foi a Pei Se Rule Against
veitical Piice Fixing, "71 uE0. L.}. 1487, 1489 (198S); #00 %&#* Naiina Lao, "/001"+ anu
Resale Piice Naintenance - A Nouel foi Emulation oi foi Caution foi the Woilu," S9 INT'L
REv. I.P. & C0NP. L. 2SS, 2S7 (2uu8) (noting that veitical iestiaint cases unuei the iule of
ieason "aie notoiiously expensive anu uifficult to litigate, anu often uegeneiate into uueling
matches between competing economic expeits with contiauictoiy economic theoiies on
maiket uefinition, elasticities of uemanu oi supply, entiy baiiieis, anu so foith.")
19
<009 0;1;9 Bouglas B. uinsbuig, "veitical Restiaints: Be Facto Legality 0nuei the Rule of
Reason," 6u ANTITR0ST L.}. 67 (1991); #00 %&#* Lao, "/001"+ anu RPN - A Nouel foi Emulation
oi foi Caution," #8B3% note 18, at 2S7 ("This litigation ieality will likely uetei most piivate
RPN suits unuei a iule of ieason stanuaiu. Even if feueial antitiust enfoiceis. choose to
continue litigating these cases, theii iesouices aie limiteu.").
2u
Richaiu N. Biunell, "0veiiuling E3; F"&0#: The Supieme Tiaue Commission in Action," S2
ANTITR0ST B0LL. 47S, S18 (2uu7). Biunell obseives that couits in the 0.S. not only make
"plaintiffs jump thiough the 'agieement' hoops. establisheu foi iesale piice maintenance,"
but also they "have oiuinaiily iequiieu plaintiffs to make a thiesholu showing that the
manufactuiei has maiket powei anu '|mjost cases have maue cleai that powei will not be
infeiieu unless the uefenuant's maiket shaie is significant." :7. at S18 n.188 (citing 6%3IN%?
S
Accoiuing to the 0.S. Supieme Couit, a B03 #0 piohibition is waiianteu "only
aftei couits have hau consiueiable expeiience with the type of iestiaint at issue, anu
only if couits can pieuict with confiuence that it woulu be invaliuateu in all oi
almost all instances unuei the iule of ieason."
21
Baseu on the piocompetitive
iationales foi RPN iuentifieu in the liteiatuie, the /001"+ majoiity concluueu that "it
cannot be stateu with any uegiee of confiuence that iesale piice maintenance
'always oi almost always tenu|sj to iestiict competition anu ueciease output.'"
22

Thus, notwithstanuing the potential that RPN might be useu in an anticompetitive
mannei, the couit concluueu that the B03 #0 piohibition shoulu give way to a iule of
ieason stanuaiu.
As }ustice Bieyei obseiveu in his uissent, howevei, it is not enough simply to
note that #*.04".0# a piactice may be beneficial. Because law is an auministiative
system, it "cannot, anu shoulu not, piecisely ieplicate economists' (sometimes
conflicting) views."
2S
In uevising auministiable iules, it theiefoie is inevitable that
business piactices that "#*.04".0# piouuce benefits" sometimes will be
piohibiteu.
24
Accoiuingly, in auuition to asking NA04A03 the economics liteiatuie
suggests a piactice $%+ have piocompetitive benefits, it is also necessaiy to ask
"such questions as, how often aie haims oi benefits likely to occui. Bow easy is it to
sepaiate the beneficial sheep fiom the antitiust goats."
2S
The /001"+ majoiity gave
only cuisoiy attention to these questions.
26

}ustice Bieyei's analysis in /001"+ is consistent with mouein uecision
theoiy"a piocess foi making factual ueteiminations anu uecisions when

D%&&03? !83+;9 :+$; 5; ="44"+103O60++#?&5%+"% P*8#0 D3*8B9 :+$;, 878 F.2u 8u1 (4th Cii. 1989);
quoting Aieeua & Bovenkamp, ANTITR0ST LAW (2u eu. 2uu4) 164Sc, at 4u4-uS).
21
/001"+, SS1 0.S. at 886-87 (inteinal citations omitteu).
22
:7. at 894 (quoting >8#"+0## ,&0$; 2*3B; 5; <A%3B ,&0$; 2*3B, 48S 0.S. 717, 72S (1988)).
2S
:7. at 914-1S (Bieyei, }., uissenting).
24
:7. at 91S (emphasis auueu).
2S
:7. at 914.
26
<00 "7. at 894 ("|Ajlthough the empiiical eviuence on the topic is limiteu, it uoes not
suggest efficient uses of the agieements aie infiequent oi hypothetical."); #00 %&#* "7. at 89u
("The few iecent stuuies uocumenting the competitive effects of iesale piice maintenance
also cast uoubt on the conclusion that the piactice meets the ciiteiia foi a pei se iule.").
vaiious commentatois have questioneu the stiength of the empiiical eviuence upon which
the /001"+ majoiity ielieu. <009 0;1;9 Naiina Lao, "Resale piice maintenance: A ieassessment
of its competitive haims anu benefits," at S1-S4 ("The weakness of these two empiiical
stuuies is eviuent fiom the fact that, while the /001"+ majoiity citeu them, it also specifically
acknowleugeu that histoiical examples suggest that the use of RPN to implement anu
enfoice uealei-caitels is a legitimate concein. In shoit, Ippolito's conclusion seems to be
inconsistent with histoiy, anu 0veistieet's conclusion is substantially qualifieu by his othei
contiaiy obseivations."), available at <http:ssin.comabstiact=14S4984>.
6
infoimation is costly anu theiefoie impeifect,"
27
anu a useful fiamewoik foi
analyzing legal stanuaius. Couits oi othei uecision makeis, when consiueiing
whethei to allow oi piohibit paiticulai activities, necessaiily ieach uecisions baseu
on limiteu anu impeifect infoimation.
28
Those souices of infoimation incluue
piesumptions, logical analysis anu factual investigation.
29
Becision theoiy helps to
ueteimine, among othei things, how much infoimation shoulu be gatheieu in
making a uecision, anu if infoimation is to be gatheieu, what infoimation is to be
gatheieu, what infoimation shoulu be consiueieu anu in what oiuei.
Su

Following this mouel, an optimal stanuaiu uepenus on "the configuiation of
infoimational piesumptions, costs anu benefits foi a paiticulai case oi class of
cases."
S1

Piesumptions aie "the initial geneial anu case-specific infoimation known to
the uecision makei."
S2
Foi instance, in the context of hoiizontal piice fixing,
the piesumption may be that such conuuct tenus to haim consumeis anu is
veiy unlikely to have any efficiency benefits;
Costs incluue gatheiing anu evaluating auuitional infoimation about the
conuuct; anu
Benefits consist of "the ieuuceu likelihoou of factual anu juuicial eiioi, which
uepenus on the 701300 *M 8+$034%"+4? faceu in the absence of the infoimation
anu the ".B*34%+$0 *M 4A0 "##80 to the piopei outcome of the case."
SS

Becision theoiy posits that the piopei focus is not simply whethei
challengeu conuuct might sometimes be piocompetitive. Rathei, the analysis also
must consiuei (1) how M30Q80+4&? those piocompetitive (veisus anticompetitive)
uses aie encounteieu; (2) the .%1+"4870 of any benefits (veisus haims) fiom that
conuuct; anu (S) whethei, given unavoiuable eiioi costs,
S4
an alteinative iule

27
<00 C. Fieueiick Becknei III & Steven C. Salop, "Becision Theoiy anu Antitiust Rules," 67
ANTITR0ST L.}. 41 (1999).
28
:7. at 4S.
29
:7.
Su
<00 "7. at 44 ("Eveiy uecision makei faceu with impeifect infoimation must iesolve thiee
ielateu questions. Fiist, assuming that a uecision must be maue with impeifect infoimation,
what is the optimal uecision. Seconu, how much infoimation shoulu the uecision makei
gathei anu consiuei in making a uecision. Thiiu, if infoimation is to be gatheieu, exactly
which infoimation shoulu be consiueieu anu in what oiuei.").
S1
:7. at 7S.
S2
:7.
SS
:7. (emphasis auueu).
S4
As }ustice Bieyei noteu, economic theoiy suggests that even hoiizontal piice-fixing coulu
be moie beneficial than "unfetteieu competition" unuei some veiy limiteu ciicumstances.
<00 /001"+, SS1 0.S. at 91S (citing F.N. Scheiei & B. Ross, INB0STRIAL NARKET STR0CT0RE ANB
7
woulu, on balance, "geneially impiove consumei welfaie anu auministiation of the
|competitionj laws."
SS
This type of analysis can be seen in H0MM03#*+ 6%3"#A,
S6
in
which the Supieme Couitby balancing accuiacy veisus the costs anu benefits of
acquiiing auuitional infoimation pioviueu a justification foi the B03 #0 iule
against piice fixing:
|Tjhe iationale foi B03 #0 iules if to avoiu a buiuensome
inquiiy into actual maiket conuitions in situations
wheie the likelihoou of anticompetitive conuuct is so
gieat as to ienuei unjustifieu the costs of ueteimining
whethei the paiticulai case at bai involves
anticompetitive conuuct.
S7


EC0N0NIC PERF0RNANCE (Su eu. 199u) at SSS-S9). Bowevei, a B03 #0 iule against hoiizontal
piice fixing agieements is justifiable given the potential costs anu the uifficulties involveu in
iuentifying those few scenaiios.
SS
<00 Biief of the Ameiican Antitiust Institute as R."$8# 283"%0 in Suppoit of Responuent,
/001"+ 230%40 /0%4A03 63*7#;9 :+$; 5; 6<=<9 :+$;, No. u6-48u (Feb. 26, 2uu7) at 11. <00 %&#*
Biunell, "0veiiuling E3; F"&0#," #8B3% note 2u, at 49S; Lao, "/001"+ anu RPN - A Nouel foi
Emulation oi foi Caution," #8B3% note 18, at 2S4 (Nouein uecision theoiy "iequiies focus.
on the fiequency of |any piocompetitivej benefits anu |anticompetitivej haims, eiioi costs,
anu whethei an alteinative iule woulu bettei seive consumei welfaie anu the
auministiation of the antitiust law."); Ainut Chiistiansen & Wolfgang Keibei, "Competition
Policy with 0ptimally Biffeientiateu Rules Insteau of "Pei Se Rules vs Rule of Reason," 2 }.
C0NP. L & EC0N. 21S, 2S8 (2uu6) (applying an "eiioi cost appioach," it is "not sufficient to
show that theie aie cases in which iesale piice maintenance can leau to positive welfaie
effects.").
S6
H0MM03#*+ 6%3"#A P*#B; E"#4; 5; P?70, 466 0.S. 2 (1984).
S7
:7. at 16 n.2S. <00 %&#* )2RR 5; >*%37 *M S010+4#, 468 0.S. 8S, 1uS (1984) ("Pei se iules aie
invokeu when suiiounuing ciicumstances make the likelihoou of anticompetitive conuuct
so gieat as to ienuei unjustifieu fuithei examination of the challengeu conuuct."); Becknei
& Salop, "Becision Theoiy anu Antitiust Rules," #8B3% note 27, at 62-6S.
A test pioposeu in 196S by Kaysen & Tuinei follows a similai iubiic anu suggests that a pei
se test coulu be justifieu when one of the following conuitions is met:
The piactice is always haimful;
The piactice is sometimes haimful anu sometimes neutial, but nevei contiibutes
positively to the woiking of the maiket; oi
The piactice is sometimes haimful, sometimes neutial anu sometimes beneficial,
but the aggiegate of haim in the situations in which it is haimful fai outweighs the
aggiegate of benefit in situations in which it makes a beneficial contiibution to the
woiking of the maiket.
<00 Waiien Pengilley, "Resale piice maintenance: An oveiview of the pei se ban in light of
iecent couit obseivations," 16 C0NP. & C0NS. L. }. 1, 19 (2uu8) (citing C. Kaysen & Bonalu
Tuinei, ANTITR0ST P0LICY (196S) at 142). 0nlike the Becknei & Salop test, howevei, the
8
Although }ustice Bieyei founu B03 #0 tieatment of RPN to be a fai moie
uifficult call than foi piice fixing, given the plausible efficiency justifications,
neveitheless he questioneu the oveiall utility of engaging in the auuitional inquiiy.
Beginning with the initial piesumption (stuuies suggesting that RPN can cause haim
with some iegulaiity
S8
), the inquiiy consiueis the potential benefits of gatheiing
auuitional infoimation about the piactice. }ustice Bieyei asks how fiequently the
potentially piocompetitive uses iuentifieu by the majoiity aie encounteieu in
piactice, anu on this point, he concluues with an "unceitain 'sometimes,'"
S9

suggesting the oveiall benefits of auuitional inquiiy may be mouest. With iespect to
the costs of gatheiing auuitional infoimation, these can be significant, often
"invit|ingj lengthy time-consuming aigument among competing expeits, as they
seek to apply abstiact, highly technical ciiteiia to often ill-uefineu maikets."
4u

Finally, how often will engaging in this infoimation gatheiing ueciease eiiois. 0i in
}ustice Bieyei's woius: "Bow easily can couits iuentify instances in which the
benefits aie likely to outweigh potential haims."
41
Bis answei: "|Njot veiy easily."
42

Baseu on this analysis, }ustice Bieyei suggesteu that, weie he foiceu to ueciue the
question, he woulu opt foi a B03 #0 iule, "slightly mouifieu to allow an exception foi
the moie easily iuentifiable anu tempoiaiy conuition of 'new entiy'"
4S
a potential
piocompetitive use of RPN uiscusseu in the next section.
44

The same mouel can pioviue insights into othei possible inquiiies beyonu a
simple iule B03 #0 iule oi full iule of ieason analysis, which coulu leau to moie
nuanceu anu bettei tailoieu appioaches foi paiticulai categoiies of conuuct. In
)2RR
4S
anu :+7"%+% !07; *M E0+4"#4#,
46
the 0.S. Supieme Couit iecognizeu the
appiopiiateness of "quick look" appioaches to ceitain classes of iestiaints, in which
efficiency claims coulu be consiueieu (anu sometimes summaiily iejecteu) befoie
engaging in a moie extensive inquiiy unuei the iule of ieason if necessaiy. In the

Kaysen & Tuinei test uoes not focus so much on the costs anu benefits of acquiiing
auuitional infoimation.
S8
/001"+, SS1 0.S. at 91S (Bieyei, }., uissenting).
S9
:7. at 916.
4u
:7. at 917.
41
:7. at 916.
42
:7.
4S
:7. at 917-18.
44
<00 "+M3% at section III.B.1.
4S
In )2RR 468 0.S. 8S, the Supieme Couit ueclineu to holu that agieements limiting the
numbei of football games each paiticipating college coulu sell to television was B03 #0
unlawful, but insteau auopteu a "quick look" appioach unuei which a uetaileu maiket
analysis was not iequiieu to piove that the uefenuant hau maiket powei anu that the
iestiaint hau an anticompetitive effect.
46
!07; C3%70 2*..T+ 5; :+7"%+% !07; *M E0+4"#4#, 476 0.S. 447 (1986).
9
wake of those uecisions, the FTC announceu in F%##; >*%37 *M LB4*.043? a
"stiuctuieu" iule of ieason appioach foi what the agency teimeu "inheiently
suspect" hoiizontal iestiaints.
Fiist, we ask whethei the iestiaint is "inheiently
suspect." In othei woius, is the piactice the kinu that
appeais likely, absent an efficiency justification, to
"iestiict competition anu ueciease output.". If the
iestiaint is not inheiently suspect, then the tiauitional
iule of ieason. must be applieu. But if it is inheiently
suspect, we must pose a seconu question: Is theie a
plausible efficiency justification foi the piactice.
|whichj cannot be iejecteu without extensive factual
inquiiy|.j If it is not plausible, then the iestiaint can be
quickly conuemneu. But if the efficiency justification is
plausible, fuithei inquiiya thiiu inquiiyis neeueu
to ueteimine whethei the justification is ieally valiu.
47

This stiuctuieu analysiswhich is also consistent with the mouel uesciibeu
above
48
was useu by the FTC again in 6*&?D3%. P*&7"+1#,
49
anu accepteu by the
0.S. Couit of Appeals foi the B.C. Ciicuit on appeal.
Su

Nany commentatois have suggesteu that the /001"+ majoiity similaily
inviteu lowei couits anu enfoicement agencies to uevise a stiuctuieu iule of ieason
appioach foi RPN. "As couits gain expeiience consiueiing the effects of these |RPNj
iestiaints by applying the iule of ieason ovei the couise of uecisions," the majoiity
wiote,

47
:+ 4A0 F%4403 *M F%##; >7; *M LB4*.043?, 11u F.T.C. S49, 6u4 (199u).
48
Becknei & Salop, "Becision Theoiy anu Antitiust Rules," #8B3% note 27, at 68.
49
:+ 30 6*&?D3%. P*&7"+19 :+$;, FTC No. 9298 (2uuS). Available at
<http:www.ftc.govos2uuSu7polygiamopinion.puf>.
Su
Wiiting foi the couit, }uuge uinsbuig concluueu:
If, U%#07 8B*+ 0$*+*."$ &0%3+"+1 %+7 4A0 0VB03"0+$0 *M 4A0
.%3I049 "4 "# *U5"*8# 4A%4 % 30#43%"+4 *M 43%70 &"I0&? ".B%"3#
$*.B04"4"*+, then the iestiaint is piesumeu unlawful anu, in
oiuei to avoiu liability, the uefenuant must eithei iuentify
some ieason the iestiain is unlikely to haim consumeis oi
iuentify some competitive benefit that plausibly offsets the
appaient oi anticipateu haim.
6*&?D3%. P*&7"+19 :+$; 5; !07; C3%70 2*..T+, 416 F.Su 29, S6 (B.C. Cii. 2uuS) (emphasis
auueu). Because Polyuiam faileu to iuentify any such justification foi an agieement with a
joint ventuiei to iefiain fiom auveitising competing piouucts not pait of the joint ventuie,
the B.C. Ciicuit helu that the agieement violateu section S of the FTC Act, without
consiueiing whethei theie was substantial eviuence of actual competitive haim. :7. at S8.
1u
they can establish the litigation stiuctuie to ensuie the
iule opeiates to eliminate anticompetitive iestiaints
fiom the maiket anu to pioviue moie guiuance to
businessmen. Couits can, foi example, uevise iules ovei
time foi offeiing pioof, oi even piesumptions wheie
justifieu, to make the iule of ieason a faii anu efficient
way to piohibit anticompetitive iestiaints anu to
piomote piocompetitive ones.
S1

The FTC, in )"+0 @0#4, set foith one such appioach (as uiscusseu below).
S2

0ne pioblem aiises when the piobability of so-calleu Type I (false
conuemnation of piocompetitive conuuct) anu Type II (failuie of conuemn
anticompetitive conuuct) eiiois cannot be ieliably pieuicteu. Piobably the most
influential view in the 0.S. foi uealing with this uilemma was auvanceu by }uuge
Easteibiook, who aigueu that eiioneous conuemnations of piocompetitive conuuct
aie apt to have highei costs than "false negatives."
SS
In his view, that is because
eiioneous iulings will not only pievent that economic agent fiom acting in a
beneficial mannei, but otheis that woulu employ the same oi similai conuuct.
S4
It
woulu, in shoit, have a chilling effect on competition. This view has iesulteu in the
auoption of a stiong anti-Type I eiioi tenuency in the 0.S.
SS
Bowevei, that bias
which is piemiseu on a stiong belief that because most collaboiative business
conuuct is efficient, juuges who iefuse to conuemn such conuuct aie moie likely to
be coiiect than not
S6
is not uncontioveisial.
S7
Inueeu, the same biaswhatevei it
may bemight not be appiopiiate foi all categoiies of conuuct.
S8
Noieovei, some

S1
/001"+, SS1 0.S. at 898-99.
S2
<00 "+M3% section vI.F. <00 %&#* "+M3% section vI.E foi a similai /001"+-inspiieu pioposal
fiom then-0.S. Assistant Attoiney ueneial foi Antitiust, Chiistine A. vainey.
SS
<00 Fiank B. Easteibiook, "The Limits of Antitiust," 6S TEX. L. REv. 1 (1984).
S4
:7. at 2.
SS
<00 Alvin Bevlin & Nichael }acobs, "Antitiust Eiioi," S2 WN. & N. L. REv. 7S, 96 (2u1u).
Note, the co-authoi of that aiticle shoulu not be confuseu with the authoi of this papei.
S6
Easteibiook, "The Limits of Antitiust," #8B3% note SS, at 1u.
S7
<00 Bevlin & }acobs, "Antitiust Eiioi," #8B3% note SS, at 96 n.86.
S8
:7. at 1uS ("We finu that the likelihoou, magnituue, anu piesence of eiioi aie fai fiom
homogeneous acioss case types anu business behaviois. Biffeient foims of conuuct aie
likely to give iise to uistinct iisks of eiioi, even if those iisks cannot be piecisely quantifieu.
As a iesult, theie is goou ieason foi antitiust law to uevelop unique stanuaius oi iules foi
each.").
11
have questioneu whethei a paiticulai biaseven if appiopiiate to the 0.S. context
is univeisally applicable fiom one economy to anothei.
S9

Section vI summaiizes seveial tests that have been pioposeu foi uealing with
RPNianging fiom B03 #0 illegality to B03 #0 legality. Following the mouel just
uesciibeu, foi each of those tests, it shoulu be askeu: how often aie the
anticompetitive haims anu any piocompetitive benefits likely to occui; how easily
the haimful situations can be uistinguisheu fiom the beneficial situations, the
magnituue of the haims anu any benefits; anu whethei any benefits coulu be
achieveu thiough alteinative means. This analysis necessaiily iequiies that
qualitative juugments be maue about the ability of a paiticulai legal institution to
uetect anu uetei anticompetitive uses of a piacticeeithei thiough public oi piivate
enfoicement mechanismsanu to uistinguish accuiately between anti- anu
piocompetitive instances. Anu, as Piofessoi Rey intimates, it also iequiies that the
calculus of benefits anu haims be calibiateu to the paiticulai economic
ciicumstances of an economy, since the fiequency anu magnituue of those effects
will likely vaiy.
6u

---: &1#*'#&-.%" A #(B-'-.%" "-&#'%&?'# *) '#/%"# B'-.#
(%-)&#)%).#
The anticompetitive effects of RPN, anu possible piocompetitive
justifications foi the piacticewhich aie given moie extensive tieatment in
Piofessoi Rey's ieseaich papei
61
aie the subjects of vigoious uebate in the
economic anu legal liteiatuie. As uiscusseu in the piioi section, howevei, when
consiueiing the appiopiiate legal tieatment of RPN, auuitional factois must entei
the equation, incluuing the fiequency anu magnituue of any piocompetitive benefits
anu the anticompetitive haims. Noieovei, some of the piocompetitive benefits
might be obtaineu thiough less-iestiictive alteinativesanothei consiueiation to
take into account. 0nfoitunately, while RPN has been the subject of extensive
tieatment in the theoietical liteiatuie, empiiical uata aie limiteu anu the iesults
somewhat ambiguous. Neveitheless, at least some empiiical uata suggests that RPN
is ielatively wiuespieau when peimitteu anu iesults in highei consumei piices.
With iespect to the fiequency of anticompetitive veisus piocompetitive uses, the
empiiical eviuence is mixeu.

S9
<009 0;1;, Baviu Lewis, Chaiipeison, S. Afi. Competition Tiib., Speech: Chilling Competition,
at 2-4 (basic piemises behinu the 0.S. iule that monopolies aie shoit-liveu anu maikets aie
self-coiiecting uo not ieflect the South Afiican expeiience), available at <http:www.icn-
capetown.oig.zaPublicationsSpeecheslewis1S.puf>.
6u
Rey, "veitical iestiaints," #8B3% note 1, at 47 (suggesting that "|ijn th|e Chileanj context,
veitical iestiaints such as RPN anu exclusive uealing must be analyzeu caiefully, as the
possibility of anticompetitive effects is moie likely" given ceitain stiuctuial chaiacteiistics
of the maiket).
61
<00 "7. at S9-44.
12
%: %CD45<EF8D4D4G8 #HH85D> <H 'B(
I: -C5J87>8K .<C>LE8J BJ458>
Among the most immeuiate anu uiiect haimful effects of RPN aie incieaseu
piices, iesulting fiom the fact that uistiibutois aie pieventeu fiom loweiing theii
sales piices foi that paiticulai bianu.
62
Empiiical stuuies about the effect of RPN in
the 0.S. befoie 197Swhen, as uiscusseu below, the Nillei-Tyuings Act peimitteu
states to expeiiment with RPN
6S
founu that piices in states that hau enacteu "faii
tiaue" statutes weie 19-27 peicent highei than in states wheie RPN was illegal, anu
that "faii tiaue" imposeu costs on consumeis of seveial billion uollais a yeai.
64

Similaily, in an investigation involving use by music companies of "minimum
auveitiseu piicing" foi compact uiscs, the FTC estimateu that effoits by music
companies to suppoit iesale piices cost 0.S. consumeis as much as $48u million.
6S

Even the piocompetitive theoiies geneially iely on highei iesale piices as the
mechanism foi geneiating othei consumei benefits.
66

vaiious anticompetitive explanations have been auvanceu foi highei PRN
piices, even without eviuence of caitelization at eithei the manufactuiei oi uealei
levels.
67
Foi instance, a manufactuiei may use RPN to lowei uownwaiu piessuie on

62
<00 Thomas R. 0veistieet, }i., RESALE PRICE NAINTENANCE: EC0N0NIC TBE0RIES ANB
ENPIRICAL EvIBENCE (198S) at 12-2S; Biief foi WS Comanoi & FN Scheiei as R."$8# 283"%0
Suppoiting Neithei Paity, /001"+ 230%4"50 /0%4A03 63*7#; 5; 6<=<9 :+$;, No. u6-48u, at 4 ("It is
unifoimly acknowleugeu that RPN anu othei veitical iestiaints leau to highei consumei
piices. Anu stuuies have suggesteu that these highei piices can be substantial."). <00 %&#*
Naiina Lao, "RPN: A ieassessment," #8B3% note 26, at 12 n.S7 (listing "stuuies, analyses, anu
liteiatuie inuicating that iesale piice maintenance almost always iaises piices"), available
at <http:ssin.comabstiact=14S4984>.
6S
<00 "+M3% at section Iv.1.
64
<00 Beaiings on B.R. 2S84 Befoie the Subcomm. on Nonopolies anu Commeicial Law of
the B. Comm. on the }uuiciaiy, 94th Cong. 122 (197S) (statement of KI Cleaiwateis, Beputy
Assistant Att'y uen., Antitiust Bivision, B0}). <00 %&#* F.N. Scheiei, Comment on Coopei et
al.'s "veitical Restiictions anu Antitiust Policy," 1 C0NP. P0L. INT'L (Autumn 2uuS) at 6S, 72-
74 (summaiizing stuuies showing substantial consumei savings aftei RPN in light bulb,
ovei-the-countei uiugs, blue jeans, anu othei sectois enueu).
6S
<00 Feu. Tiaue Comm'n, "Recoiu Companies Settle FTC Chaiges of Restiaining
Competition in CB Nusic Naiket," (Nay 1u, 2uuu), available at
<http:www.ftc.govopa2uuuuScupies.shtm>.
66
<00 uunulach, "Resale Piice Naintenance Aftei /001"+," #8B3% note 6, at 1u ("With few
exceptions, both the piocompetitive anu anticompetitive explanations foi RPN incluue
highei piices in theii uesciiptions of its competitive effects.").
67
Lao, "RPN: A ieassessment," #8B3% note 26, at 14.
1S
its wholesale maigins
68
an issue uiscusseu by Piofessoi Rey.
69
Limiting intiabianu
competition, paiticulaily on populai bianus, may leau to highei piices not only foi
that bianu, but also foi competing bianus solu by multibianu ietaileis.
7u

Fuitheimoie, use of RPN in maikets with substantial bianu uiffeientiation may
haim consumeis by allowing manufactuieis anu ietaileis to jointly maximize
piofits:
Stiong bianu name acceptance insulates a bianu fiom
inteibianu competition to a ceitain extent, giving the
manufactuiei some powei to iaise piices even in a
ielatively competitive maiket. In this situation, the
economic piesumption that iestiictions on intiabianu
competition aie benign because of the existence of
inteibianu competition is questionable.
71

While the 0.S. Supieme Couit has questioneu whethei highei piices aie
necessaiily haimful,
72
otheis have uisagieeu with this conclusion, noting that "it
seems ieasonable to piesume anticompetitive effect when a piactice consistently
iesults in substantially highei piices on a wiue iange of piouucts."
7S


68
EC veitical Restiaint uuiuelines, at 224. The uuiuelines note that this may aiise in
paiticulai when the manufactuiei has a commitment pioblem
i.e. wheie he has an inteiest in loweiing the piice chaigeu to
subsequent uistiibutois. In such a situation, the
manufactuiei may piefei to agiee to RPN, so as to help it to
commit not to lowei the piice foi subsequent uistiibutois
anu to ieuuce the piessuie on its own maigin.
:7. <00 %&#* RL Steinei, "Bow Nanufactuieis Beal with the Piice-Cutting Retailei: When Aie
veitical Restiaints Efficient.," 6S ANTITR0ST L.}. 4u7, 441 (1997) (intense intiabianu
competition minimizes ietail maikup of that bianu, citing case stuuies involving Levi's
jeans).
69
<00 Rey, "veitical iestiaints," #8B3% note 1, at 42 ("|Ijmposing an inuustiy-wiue ietail
piice flooi pievents uownstieam competition fiom peicolating upwaius, thus allowing the
upstieam fiim to exeit moie fully its maiket powei, at the expense of consumeis anu
society.").
7u
Lao, "RPN: A ieassessment," #8B3% note 26, at 1S.
71
:7.
72
<00 /001"+, SS1 0.S. at 89S; =A%+, SS2 0.S. at 1S. <00 %&#* C0.B83W607"$, 626 F.Su at 1SS9
("Actual anticompetitive effects incluue, but aie not limiteu to, ieuuction of output, inciease
in piice, oi ueteiioiation in quality. Bighei piices alone aie not the "epitome" of
anticompetitive haim (as |the plaintiffj claims). Rathei, consumei welfaie, unueistoou in
the sense of allocative efficiency, is the animating concein of the Sheiman Act.").
7S
Lao, "RPN: A ieassessment," #8B3% note 26, at 1S-14. <00 %&#* )%4"*+%& <*$T? *M
63*M0##"*+%& ,+1"+003# 5; X+"407 <4%40#, 4SS 0.S. 679, 692 (1978) ("|pjiice is the 'cential
14
M: '8KL58K '8D7494CN -CC<G7D4<C A #HH4548C5O
In auuition to highei piices, RPN may impeue innovation at the uistiibution
level.
74
Intiabianu competition pioviues new entiants with potent competitive
tools, namely "the ability to uiscount populai bianueu items that uiaw customeis."
7S

In the 0.S., that ability has iesulteu in "a succession of innovative ietaileis emeiging
with new sales foimats that consumeis have embiaceu."
76

These ietail innovations incluue uepaitment stoies (e.g.
Nacys), chain stoies (e.g. Walgieen), self-seivice
supeimaikets (e.g. Safeway), catalog stoies (e.g. Seais);
anu, moie iecently, mass-meichanuise uiscounteis such
as Wal-Nait, specialty stoies such as Bome Bepot,
waiehouse of 'big box' stoies such as Best Buy anu
Costco, anu now online stoies such as Amazon.com.
77


neivous system of the economy'")(quoting X+"407 <4%40# 5; <*$*+?WK%$88. L"& 2*., S1u 0.S.
1Su, 226 n.S9 (194u)).
74
AAI R."$8# Bi., #8B3% note SS, at 14-1S.
7S
Lawience A. Sullivan & Waiien S. uiimes, The Law of Antitiust: An Integiateu Banubook
6.Sa2, at SSS (2u eu. 2uu6).
76
Lao, "RPN: A ieassessment," #8B3% note 26, at 16.
77
:7. 0.S. Senatoi Beib Kohl, chaiiman of the }uuiciaiy Committee's Antitiust
Subcommitteewhose family ietail business successfully positioneu itself between highei-
enu uepaitment stoies anu uiscounteisiemaikeu at a heaiing on Leegin:
I know fiom my own expeiience in the ietail inuustiy
uecaues ago that establisheu ietaileis can take auvantage of
veitical piice fixing to halt uiscounting ueau in its tiacks. In
oiuei to eliminate low-piice competition fiom smallei
ietaileis, laige ietaileis can uemanu that manufactuieis
foibiu uiscount piicing. These laige ietaileis have the
baigaining powei with manufactuieis to make these
uemanus stick, all to the uetiiment of upstait uiscount
competitois anu consumeis..
Sen. Kohl fuithei commenteu:
In the last few uecaues, millions of consumeis have benefiteu
fiom an explosion of ietail competition fiom new laige
uiscounteis in viitually eveiy piouuct, fiom clothing to
electionics to gioceiies, in both "big box" stoies anu on the
Inteinet. We have all taken foi gianteu oui ability to walk
into uiscount ietaileis anu buy bianu name piouucts at
shaiply uiscounteu piices.
1S
By eliminating piice competition between uiffeient uistiibutois, howevei, RPN may
uissuaue moie efficient ietaileis fiom enteiing the maiket, oi hinuei the entiy anu
expansion of piice uiscounteis oi othei foimats baseu on low piices.
78

P: +75494D7D4<C <H .<99L>4<C
Fuitheimoie, the use of RPN can facilitate collusion at the manufactuiei oi
ietailei levels. At the manufactuiei level, the use of RPN incieases tianspaiency in
the maiket, theieby making ueviations fiom a collusive equilibiium by a suppliei
easiei to uetect.
79
RPN pioviues a uisincentive, as well, foi a manufactuiei to cut
piices to its uistiibutois, since the minimum iesale piice imposeu the ietail level
will piecluue it fiom benefitting fiom any ueviation by expanuing sales.
8u
These
iisks aie paiticulaily acute in oligopolistic maikets, with a small numbei of
competitois anu high entiy baiiieis, when a significant pait of the maiket is
coveieu by RPN agieements.
81
At the uistiibution level, if oiganizeu ieselleis can

"The Biscount Piicing Consumei Piotection Act," Beaiings Befoie the Subcomm. on
Antitiust, Comp. Policy & Consumei Rights of the B. Comm. on the }uuiciaiy, 111th Cong.
267 (2uu9) (statement of Sen. Kohl).
Peihaps not suipiisingly, majoi 0.S. uiscounteis, incluuing Costco anu eBay, have been
vocal suppoiteis of legislation to oveiiiue /001"+ anu piohibit RPN. <00 Lao, "RPN: A
ieassessment," #8B3% note 26, at 17.
78
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 89S ("A uominant ietailei,
foi example, might iequest iesale piice maintenance to foiestall innovation in uistiibution
that uecieases costs."). <00 %&#* Robeit L. Steinei, "Bow Nanufactuieis Beal With the Piice-
Cutting Retailei: When aie veitical Restiaints Efficient.," 6S ANTITR0ST L.}. 4u7, 424 & n.47
(1997) ("giowth of. moie efficient new ietailing foims often has been seiiously ietaiueu
by theii inability to obtain well-known manufactuieis' bianus, fiee of RPN").
79
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 892 ("Resale piice
maintenance may, foi example, facilitate a manufactuiei caitel."); #00 %&#* AAI R."$8# Bi.,
#8B3% note SS, at 17-18.
Piofessoi Rey aigues that facilitation of collusion at the upstieam level
calls foi the stiongest foim of RPN (uictating the ietail piice,
iathei than imposing a piice cap oi a piice flooi), anu not
only foi maiket-wiue agieements (imposing the same piice
to all ietaileis, so as to ensuie that the final piice of a piouuct
is inueeu unifoim acioss local maikets), iathei than bilateial
agieements (in which the agieeu iesale piice coulu vaiy
fiom one ietailei to anothei), but also inuustiy-wiue
pievalence (that is, all the manufactuieis paiticipating to
|sicj the collusion scheme shoulu auopt similai schemes).
Rey, "veitical iestiaints," #8B3% note 1, at 41-42.
8u
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 89S.
81
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 897.
16
convince one oi moie supplieis to establish minimum iesale piices above the
competitive level, anu theieby allowing the ieselleis to ieach oi stabilize a collusive
equilibiium.
82

Q: /<HD8C4CN <H .<EF8D4D4<C
Apait fiom facilitation of caitels, RPN may soften competition at the
manufactuiei oi ietailei levels, oi both, especially when manufactuieis use the
same uistiibutois to uistiibute theii piouucts.
8S
As uiscusseu by Piofessoi Rey in his
iepoit foi the FNE, iecent stuuies show how RPN can soften competition when two
(oi moie) supplieis sell theii piouucts to two (oi moie) ietaileis, a situation which
coulu be teimeu of "inteilocking ielationships."
84
Some empiiical stuuies appeai to
coiioboiate the theoietical mouels.
8S

R: +<J859<>LJ8 7D D68 (7CLH75DLJ8J "8G89
Finally, a manufactuiei with maiket powei may use RPN to foieclose smallei
iivals. By offeiing incieaseu maigins, the manufactuiei may entice uistiibutois to
favoi its bianu ovei iivals when auvising customeis, even when such auvice is not in
the inteiest of the customei, oi not to sell the iival bianus at all.
86


Piofessoi Rey, in his iepoit foi the FNE, asseits:
In uispeiseu inuustiies, collusion is unlikely anu thus the iole
of RPN as suppoiting a uealei caitel oi as facilitating
collusion among upstieam fiims is not a seiious concein. By
contiast, these conceins gain weight in maikets with
significant entiy baiiieis anu a small numbei of competitois.
Rey, "veitical iestiaints," #8B3% note 1, at 4S.
82
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 89S ("veitical piice
iestiaints also might be useu to oiganize caitels at the ietailei level. A gioup of ietaileis
might colluue to fix piices to consumeis anu then compel a manufactuiei to aiu the
unlawful aiiangement with iesale piice maintenance.")(inteinal citation omitteu).
8S
EC veitical Restiaint uuiuelines, at 224; #00 %&#* AAI R."$8# Bi., #8B3% note SS, at 18
("RPN can be useu as a facilitating uevice not only to enfoice an unlawful caitel, but to
uampen piice competition among oligopolistic manufactuieis.").
84
Rey, "veitical iestiaints," #8B3% note 1, at 4S.
8S
:7. at 4S-44.
86
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at ("A manufactuiei with
maiket powei. might use iesale piice maintenance to give ietaileis an incentive not to sell
the piouucts of small iivals oi new entiants.").
Actual instances of RPN initiateu by uominant fiims in face of emeiging competition, such
as 0.S. Stanuaiu Fashion, lenu suppoit to an exclusionaiy explanation. <00 Ittai Paluoi,
"Rethinking RPN: Biu the Couits Bave It Right All Along.," Boctoial Bisseitation, uiauuate
17
3: B<D8CD479 BJ<5<EF8D4D4G8 38C8H4D> <H 'B(
I: )8S BJ<KL5D -CDJ<KL5D4<C
Apait fiom the competitive iisks associateu with RPN, the economics
liteiatuie has iuentifieu potential piocompetitive applications of the piactice. Foi
instance, when a manufactuiei intiouuces a new piouuct, RPN may be helpful
uuiing the intiouuctoiy peiiou of expanuing uemanu to pioviue an incentive foi
ieselleis to uistiibute anu piomote the piouuct.
87
When intiouucing a new piouuct,
attiacting uealeis
may be uifficult if uealeis feai that theii maiket
uevelopment investments woulu be unpiofitable.
Without RPN, latei-appointeu uealeis, who have
incuiieu no maiket uevelopment costs, woulu be able to
unueicut the pioneeiing uealeis' piices making it
uifficult foi the pioneei uealeis to ieap the benefits of
theii effoits.
88

As noteu below, this is one of the theoiies cieuiteu by the majoiity anu
uissent in /001"+, anu }ustice Bieyei suggesteu a possible exception to the B03 #0 iule
to peimit such uses of RPN.
89
Ciitics of this theoiy, howevei, contenu that it meiely
pioviues new uealeis with uneaineu winufalls,
9u
anu that veitical non-piice
iestiaints such as exclusive teiiitoiies pioviue a moie appiopiiate mechanism foi
auuiessing this issue.
M: BJ8G8CD4<C <H +J88 '4K4CN0 .97>>45 &68<JO
Peihaps the most fiequently citeu justification offeieu foi RPN involves the
elimination of fiee iiuei pioblems. 0nuei this theoiy, some piouucts iequiie special
point-of-sale seivices, such as in-stoie piouuct uemonstiations. If enough customeis
take auvantage fiom those seivices but then puichase fiom a uiscountei that uoes
not incui the costs of pioviuing those seivices, high-seivice ietaileis may ieuuce oi
eliminate seivices that enhance the uemanu foi the suppliei's piouuct.
91
The extia

Bepaitment of Law, 0niveisity of Toionto (2uu7), at 287-91, available at
<http:ssin.comabstiact=9947Su>.
87
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 891, 91S.
88
Lao, "RPN: A ieassessment," #8B3% note 26, at 2S.
89
/001"+, SS1 0.S. at 917-918 (""|Ijf foiceu to ueciue now, at most I might agiee that the pei
se iule shoulu be slightly mouifieu to allow an exception foi the moie easily iuentifiable anu
tempoiaiy conuition of 'new entiy.'")(Bieyei, }., uissenting).
9u
Lao, "RPN: A ieassessment," #8B3% note 26, at 24 (citing Pitofsky, "In Befense of
Biscounteis," #8B3% note 18, at 149S).
91
EC veitical Restiaint uuiuelines, at 224; /001"+, SS1 0.S. at 89u-91.
18
maigin pioviueu by RPN in theoiy allows ietaileis to pioviue pie-sales seivices,
anu thus may help to pievent "fiee-iiuing" at the uistiibution level.
92

Economists Klein anu Nuiphy have aigueu that the stanuaiu fiee-iiuei
theoiy foi RPN is "funuamentally flaweu" because it is baseu on "the uniealistic
assumption that sole avenue of nonpiice competition available to ietaileis is the
supply of the paiticulai seivices uesiieu by the manufactuiei."
9S
Finally, while use
of RPN to pievent fiee iiuing anu inciease output, may be piofit-maximizing foi the
manufactuiei, "theie is no a piioii ieason to believe that consumeis as a whole
benefit because most consumeis may piefei the lowei-piiceu piouuct without the
seivices."
94

P: BJ8G8CD4<C <H +J88 '4K4CN 4C *D68J .4J5LE>D7C58>
A vaiiation of the "classic" fiee-iiuei theoiy involves "quality ceitification."
Accoiuing to this theoiy, when a ieputable uealei caiiieis a paiticulai piouuct, that
"ceitifies" the piouuct's quality oi stylishness. "Fiee iiuing occuis when uiscounteis
who uiu not invest to uevelop this ieputation sell to consumeis who want the
piouuct because it has the ieputable ietailei's stamp of appioval,"
9S
which

92
The /001"+ majoiity cieuiteu this theoiy as follows:
Absent veitical piice iestiaints, the ietail seivices that
enhance inteibianu competition might be unueipioviueu.
This is because uiscounting ietaileis can fiee iiue on
ietaileis who fuinish seivices anu then captuie some of the
incieaseu uemanu those seivices geneiate. Consumeis might
leain, foi example, about the benefits of a manufactuiei's
piouuct fiom a ietailei that invests in fine showiooms, offeis
piouuct uemonstiations, oi hiies anu tiains knowleugeable
employees.. If the consumei can then buy the piouuct fiom
a ietailei that uiscounts because it has not spent capital
pioviuing seivices. the high-seivice ietailei will lose sales
to the uiscountei, foicing it to cut back its seivices to a level
lowei than consumeis woulu otheiwise piefei. Ninimum
iesale piice maintenance alleviates this pioblem because it
pievents the uiscountei fiom unueicutting the seivice
pioviuei.
/001"+, SS1 0.S. at 89u-91 (inteinal citations omitteu).
9S
<00 Benjamin Klein & Kevin N. Nuiphy, "veitical Restiaints as Contiact Enfoicement
Nechanisms," S1 }.L. & EC0N. 2S6, 266 (1988).
94
AAI R."$8# Bi., #8B3% note SS, at 2u (citing Comanoi & Scheiei R."$8# Bi., #8B3% note 62,
at 4-S (noting that Scheiei & Ross have shown "that RPN may ieuuce both consumei anu
social welfaie unuei a plausible hypothesis iegaiuing the impact on uemanu foi the
piouuct")).
9S
Lao, "RPN: A ieassessment," #8B3% note 26, at 21.
19
supposeuly ueteis uealeis fiom investing in quality ceitification.
96
Ciitics have
noteu seveial pioblems with this theoiy, incluuing (a) RPN tenus to involve
establisheu bianus that uo not neeu ietailei ceitification; anu (b) RPN uoes not
solve the pioblem, but meiely gives the non-piestige ietailei a gieatei cost
auvantage ovei the piestige ietailei.
97
Fuitheimoie, to the extent some
manufactuieis use RPN to piomote a piestigious image foi theii bianu, some
commentatois have questioneu whethei that pioviues a cleai $*+#8.03 benefit that
waiiants iecognition by the competition laws.
98
Inueeu, some have aigueu that this
theoiy encouiages consumei ueception anu is %+4"$*.B04"4"50.
99

Q: *D68J #TF97C7D4<C>
0thei theoiies positing pio-competitive uses of RPN have also bee auvanceu.
Some incluue:
RPN as a contiact enfoicement mechanism, when it manufactuieis may face
uifficulties enfoicing contiacts with ieselleis specifying a iequiieu level of
seivices;
RPN as a means of pioviuing incentives to ieselleis to maintain inventoiy of
a piouuct when consumei uemanu is unceitain; anu
RPN as a mechanism foi coiiecting foi potential bias on the pait of ieselleis
towaius piice competition.
1uu

Ciiticism of these theoiies incluues that (a) while they may uemonstiate
piivate efficiencies, they uo not necessaiily enhance consumei oi social welfaie; (b)
RPN is not neeueu to inuuce uealei seivices even absent fiee-iiuing, as eviuenceu
by the uiveisity of uealeis that exist in the 0.S. anu E0 at a time when RPN geneially
has not been peimitteu; anu (c) theie aie likely less-iestiictive alteinatives to RPN
that coulu achieve the same objectives.
1u1


96
:7. (citing BP Naivel & S. NcCaffeity, "Resale Piice Naintenance anu Quality
Ceitification," 1S RANB }. EC0N. S46 (1984)).
97
:7. at 21-22.
98
:7. at 22.
99
<00 Waiien uiimes9 "Spiff, Polish, anu Consumei Bemanu Quality, veitical Piice
Restiaints Revisiteu," 8u CAL. L. REv. 81S, 8S4-S6 (1992).
1uu
Lao, "RPN: A ieassessment," #8B3% note S6, at 24-26. <00 %&#* uunulach, "Resale Piice
Naintenance Aftei /001"+," #8B3% note 8, at 9 (mentioning othei iationales that have been
offeieu, incluuing limiting uestiuctive competition anu ietailei allocation).
1u1
:7. at 26-S1; #00 %&#* AAI R."$8# Bi., #8B3% note SS, at 21-22 ("Any piocompetitive effects
of RPN can be achieveu by less iestiictive means that uo not pievent efficient ietaileis fiom
passing on the benefits of theii efficiency to consumeis.").
2u
.: BJ8G798C58 <H '8>798 BJ458 (74CD8C7C58
Infoimation iegaiuing the pievalence of RPN in an economy is an impoitant
consiueiation in assessing the potential magnituue of haims oi benefits that might
iesult fiom the piactice. A 2uu8 ieview of stuuies on this question finus that,
"|cjonceuing the geneialisations anu qualifications maue in these estimates anu
theii inheient impiecision, it can nonetheless be faiily concluueu that iesale piice
maintenance was, when legal, a piactice commonly accepteu anu wiuespieau."
1u2

The ieview noteu that, piioi to legislative contiols being enacteu, 2S-28 peicent of
goous weie subject to RPN in Sweuen, 2S-S8 peicent in Biitain, anu 2S peicent in
Austialia.
1uS
In Canaua, befoie the piohibition of RPN in 19S1, 2u peicent of goous
solu thiough gioceiy stoies, anu 6u peicent solu thiough uiugstoies, weie subject
to RPN.
1u4
While the 0.S. Supieme Couit in /001"+ citeu one suivey estimating that
RPN agieements applieu to no moie than ten peicent of consumei goous, anu
anothei placing the numbei at between foui anu ten peicent,
1uS
the 0.S. estimates
aie not compaiable to those pieviously citeu since the foimei iefei only to
%1300.0+4# anu theiefoie uo not account foi the entiiety of the piactice.
1u6
With
iespect to the use of RPN in the 0.S. following /001"+, theie is some anecuotal
eviuence of incieaseu pievalence,
1u7
but uoes not appeai to be any uefinitive answei
to this question.
2: BJ8G798C58 <H BJ<U ,8J>L> %CD45<EF8D4D4G8 ?>8> <H 'B(
Anothei ciitical consiueiation in assessing how the law shoulu ueal with
RPN ielates to the fiequency with which the piactice is useu in piocompetitive,

1u2
Pengilley, "Resale piice maintenance: An oveiview," #8B3% note S7, at 1u.
1uS
:7.
1u4
Lilla Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.," at 11 (citing F.N.
Scheiei anu B. Ross, INB0STRIAL NARKET STR0CT0RE ANB EC0N0NIC PERF0RNANCE (Su eu.
199u) at S49), available at <http:wS.unisa.euu.aucimauocsCCW%2u2u11
Papei%2uanu%2uCommentaiiesBay2session1.puf>.
1uS
/001"+, SS1 0.S. at 9u7 ("It is also of note that uuiing this time 'when the legal
enviionment in the |0niteu Statesj was moie favoiable foi |iesale piice maintenancej, no
moie than a tiny fiaction of manufactuieis evei employeu |iesale piice maintenancej
contiacts.. |Njo moie than one peicent of manufactuieis, accounting foi no moie than ten
peicent of consumei goous puichases, even employeu |iesale piice maintenancej in any
single yeai in the |0niteu Statesj.").
1u6
Pengilley, "RPN: An oveiview," #8B3% note S7, at 17-18.
1u7
<00 "+M3% at n.161. <00 %&#* uunulach, "Resale Piice Naintenance Aftei /001"+," #8B3% note
7, at 4 ("|Wjhethei RPN woulu inciease post-Leegin no longei appeais to be as much a
question as it once was|.j. Following mouein tienus in application of the iule of ieason
commentatois pieuicteu that RPN woulu inciease post-/001"+ anu anecuotal iepoits since
the uecision appeai to beai out that the piactice has incieaseu.").
21
veisus anticompetitive, manneis. 0nfoitunately, on this point, the empiiical
eviuence is limiteu, anu the conclusions ambiguous.
While theie appeai to be some examples of RPN-facilitateu caitels,
1u8

empiiical uata on the fiequency of such collusion is inconclusive. 0ne stuuy, which
sampleu litigateu RPN cases in the 0.S. between 1976 anu 1982, concluueu that the
conuuct allegeu geneially was not consistent with manufactuiei oi iesellei caitel
theoiies.
1u9
As }ustice Bieyei anu othei ciitics have pointeu out, howevei, the stuuy
"equates the failuie of plaintiffs to %&&010 collusion with the %U#0+$0 of collusion."
11u

A seconu stuuy, which examineu RPN cases biought by 0.S. feueial enfoicement
agencies between 189u anu 198S, concluueu that S6 peicent might have involveu
ietailei oi manufactuiei caitels, anu that of those, manufactuiei caitels may have
accounteu foi a quaitei to a thiiu.
111
Commentatois have noteu, howevei, that
because RPN was a B03 #0 offense, "it is likely the 0S enfoicement agencies woulu
not have taken the tiouble to piove the existence of conspiiacy in auuition to RPN
but in the most obvious of cases," thus piobably unueistating the fiequency of the
piactice.
112
A thiiu stuuy ievieweu 68 RPN cases biought by the FTC between 196S
anu 1982, anu concluueu that the majoiity of those "was not likely motivateu by
collusive uealeis who hau successfully coeiceu theii supplieis," though the authoi
has acknowleugeu limitations in the uata.
11S


1u8
Examples of RPN-facilitateu collusion at the manufactuiei level incluue X+"407 <4%40# 5;
D0+03%& ,&0$; 2*;, 82 F. Supp. 7SS, 76S-66 (1949), anu X+"407 <4%40# 5; D0+03%& ,&0$; 2*;, SS8
F. Supp. 7S1 (197S). <00 Lao, "RPN: A ieassessment," #8B3% note 26, at 19 & n.78. An
example of RPN-facilitateu collusion at the ietailei level may incluue E3; F"&0#. <00 Beibeit
Bovenkamp, TBE ANTITR0ST ENTERPRISE: PRINCIPLE ANB EXEC0TI0N (2uuS) at 186; /001"+, SS1
0.S. at 89S ("Bistoiical examples suggest this possibility |of ietail caitel facilitationj is a
legitimate concein.").
1u9
Pauline N. Ippolito, "Resale Piice Naintenance: Empiiical Eviuence fiom Litigation," S4
}.L. & EC0N. 26S (1991)
11u
/001"+, SS1 0.S. at 92u (Bieyei, }., uissenting) (citing B. Bovenkamp, FEBERAL ANTITR0ST
P0LICY: TBE LAW 0F C0NPETITI0N ANB ITS PRACTICE (Su eu. 2uuS) 11.Sc, at 464 & n.19). Ciitics
have noteu othei pioblems with the stuuy, some of which Ippolito also appeais to
iecognize. <00 Lao, "RPN: A ieassessment," #8B3% note 26, at S2.
111
Stanley I. 0instein, "Resale Piice Naintenance anu Caitels," Su ANTITR0ST B0LL. (198S) at
4S1.
112
Csoigo, "Resale Piice Naintenance Piovisions: Who has It Right.," #8B3% note 1u4, at 16-
17.
11S
0veistieet, RESALE PRICE NAINTENANCE, #8B3% note 62, at 66, 8u.
Ittai Paluoi concluues "that one shoulu be iathei suspicious of theoietical aiguments
accoiuing to which RPN as an enfoicement tool foi a ietaileis' caitel is implausible oi even
impossible. the histoiy of RPN makes a veiy peisuasive case that. ietailei collusion is not
simply an acauemic cuiiosity." Regaiuing manufactuiei caitels, Paluoi concluues, baseu on
a ieview of cases, that while "theie aie not many RPN systems that cleaily fit the
22
With iespect to the classic fiee iiuei theoiy, Piofessois Comanoi anu Scheiei
have noteu the "skepticism in the economic liteiatuie about how often |fiee iiuingj
occuis."
114
As ciitics have noteu, few piouucts actually iequiie uemonstiations oi
pie-sale seivices, paiticulaily in many of the instances in which the use of RPN has
been obseiveu, such as boxeu canuies, pet foou, jeans, shampoo, men's unueiweai
oi music CBs.
11S
Comanoi anu Scheiei fuithei point to the C*?# YSZ X#
GG[
litigation
wheie "fiee iiuei" claims weie iaiseu by the uefenuant anu iejecteu by the FTC anu
the 0.S. Couit of Appeals foi the Seventh Ciicuitas a cautionaiy lesson that "that
%318.0+4# #8BB*34"+1 S6F %+7 *4A03 5034"$%& 30#43%"+4# *+ M300W3"7"+1 13*8+7# #A*8&7
+*4 U0 %$$0B407 N"4A*84 4A0 .*#4 $%30M8& %+%&?4"$ %+7 M%$48%& #$384"+?."
117

-,: '#/%"# B'-.# (%-)&#)%).# -) &1# ?)-&#2 /&%&#/
The economics liteiatuie summaiizeu by Piofessoi Rey have iesulteu in a
tiansfoimation in 0.S. law iegaiuing veitical iestiaints geneially, anu RPN in
paiticulai, as insights about potential piocompetitive justifications foi those
iestiaints have gaineu acceptance by the couits.
%: 3J48H BJ8U!""#$% 14>D<JO <H 'B( 4C D68 ?C4D8K /D7D8>
In 1911, the 0.S. Supieme Couit auopteu a B03 #0 iule against minimum RPN
in E3; F"&0# uecision.
118
Eight yeais, howevei, the Supieme Couit helu that a
manufactuiei, acting unilateially";0;, without the agieement of its ieselleiscoulu

manufactuieis' caitel explanation" some cleaily uo. Noieovei, Paluoi concluues that use of
RPN to facilitate manufactuiei caitels is moie than a theoietical possibility. <00 Paluoi,
"Rethinking RPN: Biu the Couits Bave It Right All Along.," #8B3% note 86.
Theie aie at least two auuitional suiveys of iecent stuuies on RPN: the fiist, by foui
membeis of the FTC staff, #00 }. Coopei, L. Fioeb, B. 0'Biien & N. vita, "veitical Restiictions
anu Antitiust Policy: What About the Eviuence," 1 C0NP. P0L'Y INT'L 4S (2uuS); the seconu,
by Fiancine Lafontaine anu Naigaiet Slaue, #00 F. Lafontaine & N. Slaue, "Exclusive
Contiacts anu veitical Restiaints: Empiiical Eviuence anu Public Policy," BANBB00K 0F
ANTITR0ST EC0N0NICS S91(2uu8). As Piofessoi Lao notes, the foimei has been haishly
ciiticizeu. Lao, "RPN: A ieassessment," #8B3% note 26, at SS-S4. With the seconu, the authois
themselves acknowleugeu pioblems stemming laigely fiom the veiy limiteu amount of
empiiical eviuence available. :7. at S4.
114
Comanoi & Scheiei R."$8# Bi., #8B3% note 62, at 6.
11S
Lao, "RPN: A ieassessment," #8B3% note 26, at 2u-21.
116
:+ 30 C*?# YSZ X#9 :+$;, FTC No. 9278 (0ct. 1S, 1998), aff'u sub nom., C*?# YSZ X#9 :+$; 5; !07;
C3%70 2*..T+, 221 F.Su 928 (7th Cii. 2uuu).
117
Comanoi & Scheiei R."$8# Bi., #8B3% note 62, at 6-7 (emphasis auueu).
118
E3; F"&0#, 22u 0.S. at S94, 4u8-u9 (holuing that an agieement between a meuicine
manufactuiei anu its uealeis to fix the minimum iesale piices foi those meuicines to be
invaliu unuei section 1 of the Sheiman Act).
2S
iefuse to ueal with uistiibutois that uiu not auheie to suggesteu ietail piices.
119
This
exception to the B03 #0 iule became known as the "2*&1%40 uoctiine," anu ovei the
next seveial uecaues, the Supieme Couit woulu ieuefine its bounuaiies.
12u

In 19S7, uuiing the uieat Bepiession, the 0.S. Congiess enacteu the Nillei-
Tyuings Faii Tiaue Act, which amenueu section 1 of the Sheiman Act to make
veitical piice fixing agieements lawful unuei feueial law when authoiizeu by faii
tiaue laws at the state level.
121
Fifteen yeais latei, in 19S2, Congiess extenueu this
exemption in the Ncuuiie Act to peimit those veitical piice agieements to be
enfoiceu against othei uistiibutois not involveu in the agieement.
122
0ltimately,
thiity-six of the fifty states enacteu "faii tiaue" legislation peimitting veitical piice
fixing agieements befoie Congiess passeu the Consumei uoous Piicing Act in 197S,
iepealing both the Nillei-Tyuings anu Ncuuiie Acts.
12S
Suppoit foi the iepeal of
these Acts in 197S came fiom eviuence suggesting that use of RPN in the states that
hau enacteu "faii tiaue" legislation iesulteu in highei consumei piices.
124

In the yeais leauing up to /001"+, state attoineys geneial actively puisueu
minimum RPN cases.
12S
Buiing the lattei yeais of the fiist Bush auministiation, anu
thioughout the Clinton auministiation, the FTC anu 0.S. Bepaitment of }ustice also
actively puisueu RPN matteis, biinging moie than a uozen cases.
126


119
X+"407 <4%40# 5; 2*&1%40 J 2*;, 2Su 0.S. Suu (1919).
12u
The 0.S. Supieme Couit cuitaileu the 2*&1%40 uoctiine uuiing the Waiien Couit, anu
subsequently expanueu it following enactment in 197S of the Consumei uoous Piicing Act.
Aftei the Supieme Couit helu that the iule of ieason applieu to non-piice veitical iestiaints
in <?&5%+"%, 4SS 0.S. S6, it subsequently heighteneu the buiuen of pioof iequiieu foi
establishing the existence of an agieement (as opposeu to puiely unilateial conuuct) in
F*+#%+4* 2*; 5; <B3%?WS"40 <035; 2*3B., 46S 0.S. 7S2 (1984). It also naiioweu the uefinition of
a "piice" veisus "non-piice" agieement in <A%3B ,&0$43*+"$#, 48S 0.S. 7S2. <00 Biunell,
"0veiiuling E3; F"&0#," #8B3% note 2u, at 477-78.
121
Su Stat. 69S (19S7). As Richaiu Biunell notes, the Nillei-Tyuings Act has been the only
substantive amenument maue to section 1 of the Sheiman Act in its entiie histoiy, uating to
189u. <00 Biunell, "0veiiuling E3; F"&0#," #8B3% note 2u, at 477 n.8.
122
66 Stat. 6S1 (19S2). This statute iesponueu to a naiiow ieauing by the 0.S. Supieme
Couit of the Nillei-Tyuings Act in <$A0N1.%++ >3*#; 5; 2%&5034 E"#4"&&03# 2*3B;, S41 0.S. S84
(19S1). <00 Biunell, "0veiiuling E3; F"&0#," #8B3% note 2u, at 477 n.9.
12S
Pub. L. No. 94-14S, 89 Stat. 8u1 (197S).
124
<00 #8B3% notes 6S-64 anu accompanying text.
12S
<00 Biief foi the States of New Yoik et al. as R."$8# 283"%0 Suppoiting Responuent,
/001"+ 230%4"50 63*78$4#9 :+$; 5; 6<=<9 :+$;, No. u6-48u.
126
FTC cases incluue: :+ 30 )"+40+7* *M R.03"$% :+$;, 114 F.T.C. 7u2 (1991); :+ 30 =300B?
=3%8&? X<R9 :+$;, 114 F.T.C 777 (1991); :+ 30 CA0 =07# 2*3B;, 117 F.T.C. S89 (1994); :+ 30
S00U*I :+4T:9 /47;, 12u F.T.C. 2u (199S); !07; C3%70 2*..T+ 5; L+I?* X;<;R; 2*3B;, 199S-2
Tiaue Cas. (CCB) 71,111 (B.B.C. 199S); :+ 30 )0N >%&%+$0 R4A&04"$ <A*09 :+$;, 122 F.T.C.
24
3: #G<9LD4<C <H ?:/: &J87DE8CD <H ,8JD4579 '8>DJ74CD> BJ8U!""#$%
Aiounu the same time as the iepeal of the Nillei-Tyuings anu Ncuuiie Acts
in 197S, a tiansfoimation began in the tieatment of veitical iestiaints unuei 0.S.
law. Not many yeais eailiei, in 1967, the Supieme Couit hau helu in <$AN"++
G\]
that
the veitical non-piice iestiaints at issue in that caseagieements by a bicycle
manufactuiei assigning exclusive teiiitoiies to its uistiibutois, anu imposing
exclusive uealing iestiictions on its ietaileisweie B03 #0 unlawful unuei the
Sheiman Act. The next yeai, in R&U30$A4,
128
the Supieme Couit iuleu that .%V".8.
iesale piice maintenance fell within the same B03 #0 piohibition that hau been
establisheu moie than fifty yeais eailiei in E3; F"&0#.
129

Less than a uecaue latei, howevei, in <?&5%+"%,
1Su
the Supieme Couit ieveiseu
<$AN"++ anu helu that non-piice veitical iestiaints woulu be examineu unuei the

1S7 (1996); :+ 30 R.03"$%+ 2?%+%."7 2*., 12S F.T.C. 12S7 (1997); :+ 30 )"+0 @0#4 D3*8B9
:+$;, No. C-S9S7, 2uuu WL 2Su227 (F.T.C); anu :+ 30 <*+? F8#"$ ,+4034%"+.0+49 :+$;, No. C-
S971, 2uuu WL 12S7799 (F.T.C.).
0.S. Bepaitment of }ustice cases incluue: X+"407 <4%40# 5; 2%+#4%3 <B*34# X<R9 :+$;, 199S-2
Tiaue Cas. (CCB) 7u,S72 (B. vt. 199S); X+"407 <4%40# 5; 2%&"M*3+"% <8+2%309 :+$;, 1994-2
Tiaue Cas. (CCB) 7u,84S (C.B. Cal. 1994); X+"407 <4%40# 5; 6&%?.*U"& X<R9 :+$;, 199S-1
Tiaue Cas. (CCB) 71,uuu (B.B.C. 199S); X+"407 <4%40# 5; R+$A*3#A%709 :+$;, 1996-2 Tiaue
Cas. (CCB) 71,64u (S.B. Fla. 1996); anu X+"407 <4%40# 5; >38#A !"U03#9 :+$;, 1997-2 Tiaue
Cas. (CCB) 71,91S (E.B. Pa. 1996).
127
X+"407 <4%40# 5; R3+*&79 <$AN"++ J 2*., SS8 0.S. S6S (1967).
128
R&U30$A4 5; P03%&7 2*;, S9u 0.S. 14S (1968).
129
The Supieme Couit in R&U30$A4 uesciibeu the potential anticompetitive haims fiom
maximum RPN as follows:
Naximum piices may be fixeu too low foi the uealei to
fuinish seivices essential to the value which goous have foi
the consumei oi to fuinish seivices anu conveniences which
consumeis uesiie anu foi which they aie willing to pay.
Naximum piice fixing may channel uistiibution thiough a
few laige oi specifically auvantageu uealeis who otheiwise
woulu be subject to significant nonpiice competition.
Noieovei, if the actual piice chaigeu unuei a maximum piice
scheme is neaily always the fixeu maximum piice, which is
incieasingly likely as the maximum piice appioaches the
actual cost of the uealei, the scheme tenus to acquiie all the
attiibutes of an aiiangement fixing minimum piices.
:7. at 1S2-SS.
1Su
2*+4"+0+4%& C;K;9 :+$; 5; DC, <?&5%+"%9 :+$;, 4SS 0.S. S6 (1977).
2S
iule of ieason. 0sing an analysis consistent with the mouel uesciibeu above,
1S1
the
couit stateu:
603 #0 iules thus iequiie the Couit to make bioau
geneializations about the social utility of paiticulai
commeicial piactices. The piobability that
anticompetitive consequences will iesult fiom a
piactice anu the seveiity of those consequences must be
balanceu against its piocompetitive consequences.
Cases that uo not fit the geneialization may aiise, but a
B03 #0 iule ieflects the juugment that such cases %30 +*4
#8MM"$"0+4&? $*..*+ *3 ".B*34%+4 the time anu expense
necessaiy to iuentify them.
1S2

Pointing to the insights of the economics liteiatuie conceining veitical non-
piice iestiaints, the Supieme Couit in <?&5%+"% obseiveu that "|vjeitical iestiictions
piomote inteibianu competition by allowing the manufactuiei to achieve ceitain
efficiencies in the uistiibution of his piouucts."
1SS
The couit then cieuiteu vaiious
ways in which "manufactuieis can use such iestiictions to compete moie effectively
against othei manufactuieis."
1S4
Baseu on these potential piocompetitive
justificationswhich aie among those uiscusseu above
1SS
the Supieme Couit

1S1
<00 Becknei & Salop, "Becision Theoiy anu Antitiust Rules," #8B3% note 27, at 6S.
1S2
<?&5%+"%, 4SS 0.S. at Su n.16 (quoting X+"407 <4%40# 5; C*B$* R##*$"%40#9 :+$., 4uS 0.S. S96,
6u9-61u (1972)) (emphasis auueu).
1SS
:7. at S4.
1S4
:7. at SS.
1SS
The justifications cieuiteu by the Supieme Couit in <?&5%+"% incluue:
|Njew manufactuieis anu manufactuieis enteiing new
maikets can use the iestiictions in oiuei to inuuce
competent anu aggiessive ietaileis to make the kinu of
investment of capital anu laboi that is often iequiieu in the
uistiibution of piouucts unknown to the consumei.
Establisheu manufactuieis can use them to inuuce ietaileis
to engage in piomotional activities oi to pioviue seivice anu
iepaii facilities necessaiy to the efficient maiketing of theii
piouucts. Seivice anu iepaii aie vital foi many piouucts,
such as automobiles anu majoi householu appliances. The
availability anu quality of such seivices affect a
manufactuiei's goouwill anu the competitiveness of his
piouuct. Because of maiket impeifections such as the so-
calleu "fiee iiuei" effect, these seivices might not be
pioviueu by ietaileis in a puiely competitive situation,
uespite the fact that each ietailei's benefit woulu be gieatei
if all pioviueu the seivices than if none uiu.
26
ueciueu that non-piice veitical iestiaints uo not satisfy the ciiteiia foi application of
a B03 #0 piohibition, ";0;, that the "iestiictions have oi aie likely to have a 'peinicious
effect on competition' oi that they 'lack. any ieueeming viitue.'"
1S6

In 1997, the Supieme Couit extenueu the holuing in <?&5%+"%which until
then hau applieu only to +*+WB3"$0 iestiaintsto .%V".8. iesale piice agieements
in =A%+.
1S7
In oveiiuling R&U30$A4, the couit noteu that the conceins aiticulateu in
that case "can be appiopiiately iecognizeu anu punisheu unuei the iule of
ieason."
1S8
It concluueu, howevei, that B03 #0 tieatment of the piactice was
inappiopiiate, both because the potential haims weie less seiious than pieviously
imagineu, the B03 #0 iule itself may actually haim consumeis by, foi instance,
"exaceibat|ingj pioblems ielateu to the uniestiaineu exeicise of maiket powei by
monopolist-uealeis."
1S9

.: !""#$% '(")*$+" ,(-./0*12 3%04 +4 ,5652 3%04
Ten yeais aftei =A%+, the Supieme Couit auuiesseu ."+".8. RPN in /001"+.
The case aiose as a uispute between the uesignei anu manufactuiei of leathei goous
anu accessoiies anu one its uealeis. In 1991, Leegin began to sell belts unuei the
"Biighton" bianu name, eventually expanuing to moie than S,uuu uealeismostly
small boutiques anu specialty stoiesacioss the 0.S.
14u
In 1997, Leegin instituteu a
ietail piicing anu piomotion policy unuei which it iefuseu to sell to ietaileis that
uiscounteu Biighton piouucts below suggesteu piices.
141
The claimeu iationale foi
this policy was "to give its ietaileis sufficient maigins to pioviue customeis the
seivice cential to its uistiibution stiategy" thiough specialty stoies.
142
In Becembei
2uu2, Leegin uiscoveieu that PSKS, which opeiateu a women's appaiel stoie calleu
Kay's Kloset, hau been uiscounting Biighton piouucts to compete with othei
ietaileis who hau been selling below Leegin's suggesteu piices.
14S
When Kay's
Kloset iefuseu to cease uiscounting, Leegin ceaseu selling to the stoie, iesulting in
consiueiable haim to the stoie's ievenues.
144
PSKS then sueu Leegin, alleging

:7. at SS.
1S6
:7. at S8.
1S7
<4%40 L"& 5; =A%+9 :+$;, S22 0.S. S (1997).
1S8
:7. at 17.
1S9
:7. at 18.
14u
/001"+, SS1 0.S. at 882.
141
:7. at 88S.
142
:7.
14S
:7. at 884.
144
:7.
27
violations of the Sheiman Act by "+403 %&"% "entei|ingj into agieements with ietails
to chaige only those piices fixeu by Leegin."
14S

In its S-4 uecision, the Supieme Couit ieveiseu E3; F"&0# anu helu that,
similai to othei veitical iestiaints, the iule of ieason was applicable to minimum
RPN. Beginning fiom the piemise that B03 #0 iules aie applicable only to conuuct
that "woulu be invaliuateu in all oi almost all instances unuei the iule of ieason,"
146

the majoiity noteu vaiious piocompetitive justifications foi RPN that have been
iuentifieu in the economics liteiatuie (anu uiscusseu above), incluuing:
Stimulation of inteibianu competition
147
by encouiaging ietail seivices that
might otheiwise not be pioviueu if uiscounting ietaileis can "fiee iiue" on
ietaileis that fuinish those seivices;
148

Facilitation of maiket entiy foi new fiims anu bianus;
149
anu
Encouiagement of ietailei seivices that woulu not be pioviueu even absent
fiee iiuing conceins.
1Su

At the same time, the majoiity iecognizeu that RPN coulu iesult in
anticompetitive haims, such as the facilitation of manufactuiei oi ietail caitels;
1S1

anu abuse by a poweiful manufactuiei oi ietailei to, foi example, uiscouiage entiy

14S
:7. Leegin aigueu befoie the uistiict couit that it hau not enteieu into actual agieements
with any ieselleis, but iathei hau establisheu a lawful unilateial piicing policy in
accoiuance with the 2*&1%40 uoctiine. The juiy, howevei, siueu with the plaintiff, anu Leegin
uiu not puisue the 2*&1%40 uefense on appeal. <00 "7. at 884-8S.
146
:7. at 886-87. The /001"+ majoiity went on to note: "It shoulu come as no suipiise, then,
that 'we have expiesseu ieluctance to auopt B03 #0 iules with iegaiu to iestiaints imposeu
in the context of business ielationships wheie the economic impact of ceitain piactices is
not immeuiately obvious." :7. at 887 (quoting =A%+, S22 0.S. at 1u).
147
Citing its eailiei uecision in =A%+, the majoiity stateu that the piomotion of inteibianu
competition is "the piimaiy puipose of the antitiust laws." :7. at 89u. This pioposition is by
no means geneially accepteu. <00 Waiien S. uiimes, "Bianu Naiketing, Intiabianu
Competition, anu the Nultibianu Retailei: The Antitiust Law of veitical Restiaints," 64
ANTITR0ST L.}. 8S (199S-96) (pioposing an "appioach to veitical iestiaints that focuses on
bianu meichanuising anu the intiabianu competition that it geneiates," which "uisciplines
any uownstieam maiket powei associateu with bianu meichanuising.").
148
/001"+, SS1 0.S. at 89u-91.
149
:7. at 891.
1Su
:7. at 891-92. Some of these potential benefits (uiscusseu above) that weie mentioneu by
the /001"+ majoiity incluue: specification of seivices to be pioviueu by a ietailei when it
may be uifficult oi inefficient foi a manufactuiei to make anu enfoice a contiact to that
effect; anu motivating ietaileis to stock auequate inventoiies of a manufactuiei's goous
when consumei uemanu might be unceitain.
1S1
:7. at 892-9S.
28
oi foiestall innovation.
1S2
Baseu on the limiteu empiiical eviuence available, the
majoiity concluueu that efficient uses of RPN aie not unusual oi iaie.
1SS

In auopting the iule of ieason, the Supieme Couit suggesteu vaiious scieens
that might be useu to uistinguish piocompetitive fiom anticompetitive scenaiios.
Those incluue whethei ietaileis weie the impetus foi the piacticein which case
theie may be a gieatei likelihoou of a ietailei caitel oi exclusion by a uominant
ietaileianu whethei the ielevant ietailei oi manufactuiei has maiket powei.
1S4

}ustice Bieyei, wiiting foi the minoiity, agieeu that RPN sometimes coulu be
beneficial. Be founu theie to be no consensus, howevei, iegaiuing the fiequency
with which RPN might be piocompetitive,
1SS
anu questioneu whethei couits, as a
piactical mattei, easily iuentify those instances, even with the scieens suggesteu by
the majoiity.
1S6
Finally, placing consiueiable emphasis on #4%30 70$"#"#, }ustice
Bieyei concluueu that "no change in ciicumstances" since E3; F"&0# was fiist ueciueu
justifieu changing the long-establisheu B03 #0 iule in the 0.S. at the feueial level.
2: 'B( 4C D68 ?:/: B<>DU!""#$%
Soon aftei /001"+ was ueciueu, pioposeu legislation was intiouuceu in the
0.S. Congiess that woulu statutoiily oveituin the iuling anu iestoie the B03 #0 iule

1S2
:7. at 89S-94.
1SS
/001"+, SS1 0.S. at 894 (quoting 0veistieet, RESALE PRICE NAINTENANCE, #8B3% note 62, at
17u (noting that "|ejfficient uses of |iesale piice maintenancej aie eviuently not unusual oi
iaie")).
1S4
:7. at 897-98.
1SS
:7. at 91S-16 (Bieyei, }., uissenting).
1S6
With iespect to potential scieens, }ustice Bieyei wiote:
Bow easily can couits iuentify instances in which the benefits
aie likely to outweigh the potential haims. Ny own answei
is, +*4 503? 0%#"&?. Foi one thing, it is often to iuentify NA*
piouucei oi uealeiis the moving foice behinu any given
iesale piice maintenance agieement. Suppose, foi example,
seveial laige multibianu ietaileis all sell iesale-piice-
maintaineu piouucts. Suppose fuithei that small piouuceis
set ietails piices because they feai that, otheiwise, the laigei
ietaileis will favoi (say, by allocating bettei shelf-space) the
goous of othei piouuceis who piactice iesale piice
maintenance. Who "initiateu" this piactice, the ietaileis
hoping foi consiueiable insulation fiom ietail competition,
oi the piouuceis, who simply seek to ueal best with the
ciicumstances they finu.
:7. at 916-17 (emphasis in oiiginal).
29
at the feueial level.
1S7
"Repealei" statutes also have been pioposeu (anu in one
instance, enacteu
1S8
) at the state level. Even in the absence of legislation, howevei,
state couits aie not necessaiily ceitain to follow /001"+.
1S9
As a consequence,
unceitainty iemains about the status of RPN, anu enfoicement officials in seveial
statesincluuing some laige juiisuictions such as Califoiniacontinue to
uemonstiate a willingness to puisue RPN as a B03 #0 offense unuei state law.
16u


1S7
<009 0;1;9 S. 2261 (11uth)("Biscount Piicing Consumei Piotection Act"). Buiing iecent
confiimation heaiings befoie the 0.S. Senate }uuiciaiy Committee, William Baei, who was
nominateu to seive as Assistant Attoiney ueneial in chaige of the 0.S. Bepaitment of
}ustice's Antitiust Bivision, inuicateu that he "woulu have kept E3; F"&0#" anu suppoiteu
legislative effoits to iestoie the B03 #0 stanuaiu foi RPN. <00 "Senate }uuiciaiy Committee
Consiueis Antitiust Chief Nomination," R+4"438#4 2*++0$4 >&*1 (}uly S1, 2u12), available at
<http:antitiustconnect.com2u12u7S1senate-juuiciaiy-committee-consiueis-
antitiust-chieu-nomination>.

1S8
<00 NB. C0BE ANN., C0N. LAW 11-2u4(b) (West 2u12) (uefining any "contiact,
combination, oi conspiiacy that establishes a minimum piice below which a ietailei,
wholesalei, oi uistiibutoi may not sell a commouity oi seivice" to be an unieasonable
iestiaint of tiaue oi commeice).
1S9
Foi instance, in LT>3"0+ 5; /001"+ 230%4"50 /0%4A03 63*7#;9 :+$;, 277 P.Su 1u62 (Kan. 2u12),
a putative class action baseu on the same basic facts as the 0.S. Supieme Couit's /001"+
uecision, the Kansas Supieme Couit helu that "|tjhe cleai statutoiy language" of the state
antitiust statute makes RPN agieements pei se unlawful. :7. at 1u8S (noting that the
Kansas antitiust statute, howevei, is not patteineu on the Sheiman Act).
In contiast, in 60*B&0 5; C0.B83W607"$ :+4T&;9 :+$;, 9S A.B.Su SS9 (N.Y. App. Biv. 2u12), an
inteimeuiate appellate couit in the State of New Yoik affiimeu the uismissal of an RPN
claim biought by the New Yoik Attoiney ueneial.
Although many state antitiust statutes incluue "feueial haimonization clauses" uiiecting, in
one way oi anothei, state couits to give consiueiation to feueial antitiust iulings
inteipieting similai piovisions unuei the Sheiman Act, uiffeiences have aiisen in othei
contexts as well, such as the feueial bai on inuiiect puichasei stanuing. <009 0;1;9 2*.0# 5;
F"$3*#*M4 2*3B;, 646 N.W. 2u 44u (Iowa 2uu2) (ueclining to follow :&&"+*"# >3"$I
notwithstanuing haimonization clause); >8+I03T# D&%## 2*; 5; 6"&I"+14*+ B&$;, 7S P.Su 99
(Aiiz. 2uuS); R34A83 5; F"$3*#*M4 2*3B;, 676 N.W.2u 29 (Neb. 2uu4).
16u
Foi a moie thoiough tieatment of RPN at the state level, #009 0;1;9 Nichael A. Linusay,
"Fiom the Piaiiie to the 0cean: Noie Bevelopments in State RPN Law," ANTITR0ST S00RCE
(August 2u12); #00 %&#* Nichael A. Linusay, "A Tale of Two Coasts: Recent RPN Enfoicement
in New Yoik anu Califoinia," ANTITR0ST S00RCE (Apiil 2u11) (noting that the Califoinia
Attoiney ueneial, post-/001"+, obtaineu a consent ueciee unuei state law against a company
that hau enteieu into RPN agieements with inuepenuent ieselleis in Califoinia).
Piofessoi uavil has noteu, with iespect to the potential "Balkanization" of RPN tieatment in
the 0.S. at the state level, that
if fiims inclineu to use RPN ciaft uistiibution stiategies that
utilize RPN in states wheie it is piesumptively legal, while
avoiuing it in states wheie it is not, natuial expeiiments
Su
Whethei oi not the pievalence of RPN in the 0.S. post-/001"+ has incieaseu, anu the
effect of any confusion at the state level on the implementation of RPN policies,
appeai to be open questions.
161

At least thiee feueial appellate couits have auuiesseu RPN since /001"+, anu
these uecisions pioviue illustiate some of the issues involveu in litigating an RPN
case unuei the iule of ieason. In C*&07* F%$I,
162
the 0.S. Couit of Appeals foi the
Thiiu Ciicuit concluueu that the plaintiff, a Nack tiuck uealei, hau piesenteu
sufficient eviuence unuei the iule of ieason of an unlawful RPN agieement between
the manufactuiei anu its uealeis. In ieaching its uecision, the Thiiu Ciicuit noteu
that two of the /001"+ "plus" factois
16S
eviuence that ietaileis weie the impetus of
the veitical piice iestiaint, anu use by a uominant manufactuieiweie paiticulaily
ielevant.
164
Fiist, the plaintiff piesenteu eviuence that the manufactuiei agieeu to
suppoit the hoiizontal agieement among its uealeis, which the couit concluueu was
sufficient to establish the illegal object of the agieements.
16S
Seconu, the plaintiff
establisheu that the manufactuiei possesseu maiket powei in two ielevant piouuct
maikets, which was sufficient to meet the plaintiff's buiuen of pioving anti-
competitive effects in the ielevant maiket.
166
While C*&07* F%$I uemonstiates that

coulu iesult that woulu pioviue some neeueu empiiical uata
foi stuuying the uses anu abuses of PRN.
Anuiew uavil, "Resale Piice Naintenance in the Post-/001"+ Woilu: A Compaiative Look at
Recent Bevelopments in the 0niteu States anu Euiopean 0nion," CPI ANTITR0ST }. (}une
2u1u) at 2, available at <http:www.competitionpolicyinteinational.comiesale-piice-
maintenance-in-the-post-leegin-woilu-a-compaiative-look-at-iecent-uevelopments-in-the-
uniteu-states-anu-euiopean-union>.
161
Piofessoi Lao notes the existence of some anecuotal eviuence "that many supplieis have
alieauy acteu on /001"+ to iequiie ietaileis to entei into minimum-piicing pacts anu have
cut them off when they piiceu below the set minimums." <00 Naiina Lao, "Resale piice
maintenance: A ieassessment of its competitive haims anu benefits," at 9-1u, available at
<http:ssin.comabstiact=14S4984>.
162
C*&07* F%$I <%&0# J <035;9 :+$; 5; F%$I C38$I#9 :+$;, SSu F.Su 2u4 (Su Cii. 2uu8).
16S
}. Thomas Rosch, "Bevelopments in the Law of veitical Restiaints: 2u12," at 16
(chaiacteiizing these as /001"+ "plus" factois), available at <http:www.ftc.govspeeches
iosch12uSu7veiticaliestiaints.puf>.
164
C*&07* F%$I, SSu F.Su at 22S.
16S
:7. at 226. The Thiiu Ciicuit iuentifies foui factois as ielevant to analyzing a iestiaint
unuei the iule of ieason: (1) that the uefenuants contiacteu, combineu oi conspiieu among
each othei; (2) that the combination oi conspiiacy piouuceu auveise, anti-competitive
effects within the ielevant piouuct anu geogiaphic maikets; (S) that the objects of anu the
conuuct puisuant to that contiact oi conspiiacy weie illegal; anu (4) that the plaintiffs weie
injuieu as a pioximate iesult of that conspiiacy. :7. at 22S (quoting S*##" 5; <4%+7%37
S**M"+19 :+$;, 1S6 F.Su 4S2, 464-6S (Su Cii. 1998)).
166
:7. at 226.
S1
a plaintiff can pievail in a iule of ieason RPN case, it neveitheless also pioviues a
glimpse at the consiueiable buiuens associateu with uoing so, even when one oi
moie /001"+ plus factois is piesent.
Some couits have applieu the stiict stanuaiu aiticulateu by the 0.S. Supieme
Couit in CN*.U&?
167
to uismiss RPN cases at the pleauing stage";0;, befoie any
eviuence is even intiouuceu. In the /001"+ case itself, following iemanu to the
uistiict couit, plaintiff fileu an amenueu complaint, which was subsequently
uismisseu on the basis that the ielevant maikeu allegeu was uefective as a mattei of
law.
168
The 0.S. Couit of Appeals foi the Fifth Ciicuit affiimeu.
169
In so uoing, the
Fifth Ciicuit noteu that because "even anticompetitive uses of RPN uo not cieate
concein unless the ielevant entity has maiket powei," a maiket-powei scieen is
"compatible with /001"+ anu oui pieceuent anu that of oui sistei ciicuits."
17u
uiven
the pioceuuial postuie of the case, howevei, the scieen applieu potentially cieates a
"safe haiboi" of 70 M%$4* B03 #0 legality foi RPN unuei ceitain ciicumstances.
In C0.B83W607"$,
171
the 0.S. Couit of Appeals foi the Eleventh Ciicuit
similaily concluueu that the plaintiff faileu to pleau a piopei ielevant maiket with
sufficient factual uetail to suivive a challenge unuei CN*.U&?.
172
It went even
fuithei, though, anu helu that, even the ielevant maiket pioposeu by the plaintiffs
in which the uefenuant hau an 8u-9u peicent maiket shaieweie accepteu,
uismissal woulu still be iequiieu because the complaint uiu not pioviue "uiiect
eviuence of the injuiious exeicise of maiket powei," such as .%3I04N"70 piice
incieases.
17S
Again, this uecision suggests that successfully piosecuting an RPN case
unuei the iule of ieason coulu piove uifficult, unlessas uiscusseu belowcouits
follow the FTC's suggestion of following a "stiuctuieu" appioach.
174


167
>0&& R4&%+4"$ 2*3B; 5; CN*.U&?, SSu 0.S. S44 (2uu7).
168
6<=<9 :+$; 5; /001"+ 230%4"50 /0%4A03 63*7#;9 :+$;, 2uu9 WL 9S8S61 (E.B. Tex. 2uu9).
169
6<=<9 :+$; 5; /001"+ 230%4"50 /0%4A03 63*7#;9 :+$;, 61S F.Su 412 (Sth Cii. 2u1u) (citations
anu footnotes omitteu), $034; 70+"07, 1S1 S. Ct. 1476 (2u11).
17u
:7. at 418-19. <00 %&#* <B%A3 5; /001"+ 230%4"50 /0%4A03 63*7#;9 :+$;, 2uu8 WL S914461
(E.B. Tenn. 2uu8) (uismissing complaint foi failuie to pleau a piopei ielevant maiket).
171
H%$*U# 5; C0.B83W607"$ :+4T&9 :+$;, 626 F.Su 1S27 (11th Cii. 2u1u).
172
The uissent questions whethei the piopei scope of the ielevant maiket, which is a
"uetaileu anu complicateu" analysis, can be ueteimineu on a motion to uismiss. :7. at 1S4S-
46 (Ryskamp, }., uissenting).
17S
:7. at 1S4u. The Eleventh Ciicuit, in suppoit of this pioposition, citeu /001"+T# statement
that the piimaiy puipose of the antitiust laws is to piotect inteibianu competition. >84 #00
>%U?%10;$*.9 :+$; 5; C*?# YSZ X#9 :+$;, SS8 F. Supp.2u S7S (E.B. Pa. 2uu8) (haim to intiabianu
competition cognizable when biought about by a uominant ietailei with maiket powei in
the ietail sales maiket).
174
<00 "+M3% at section vI.f.
S2
,: '#/%"# B'-.# (%-)&#)%).# -) *&1#' ;?'-/2-.&-*)/
%: #LJ<F87C ?C4<C
In contiast to the 0.S., E.0. law has not unueigone a similai tiansfoimation
with iespect to tieatment of RPN. In 2u1u, the Euiopean Commission piomulgateu
a new Regulation anu uuiuelines on the tieatment of veitical agieements unuei E.0.
competition law,
17S
which has been seen as the intiouuction in E.C. competition law
of an effects-baseu appioach to veitical agieements. Befoie the new iegulation anu
guiuelines weie issueu, E.0. law tieateu minimum RPN as quasi-B03 #0 unlawful, anu
the piactice coulu iesult in significant fines if uiscoveieu by the Commission oi a
national competition authoiity (NCA).
176
While possible ielaxation of the E.0.'s
stiict appioach was uebateu uuiing the consultation piocess leauing up to the
implementation of the new iegulations,
177
in the enu, the E.0. appeais to have maue
only minoi changes to the establisheu RPN stanuaiu, notwithstanuing its geneial
"move in a ueciueuly moie 0.S.-style uiiection" by moie fully acknowleuging the
potential efficiency iationales associateu with veitical iestiaints.
178

0nuei E.0. law, Aiticle 1u1(1) piohibits agieements that appieciably iestiict
oi uistoit competition,
179
while Aiticle 1u1(S) exempts those agieements that

17S
Euiopean Commission's uuiuelines on veitical Restiaints, #8B3% note S; Commission
Regulation (E0) No SSu2u1u (0} L 1u21-7, 2S Apiil 2u1u), available at <http:eui-
lex.euiopa.euLexi0iiSeivLex0iiSeiv.uo.uii=0}:L:2u1u:1u2:uuu1:uuu7:EN:PBF>.
176
Beiiue Tiapp, "Resale Piice Naintenance anu Bub-anu-Spoke Collusion: E0 peispective
on iecent uevelopments," ABA SECTI0N 0F INTERNATI0NAL LAW, 2u11 FALL NEETINu (0ctobei
2u11), at 2, available at <http:www2.ameiicanbai.oigcalenuaisection-of-inteinational-
law-2u11-fall-meetingNeeting%2uNateiialsIssues%2uof%2uveitical%2uanu%2u
Boiizontal%2uPiice%2uCooiuination%2u-%2uAt%2uthe%2uTop%2uof%2uthe%2u
Enfoicement%2uAgenuaTRAPP_Beiiuie-Resale_Piice_Naintenance_Bub_anu_Spoke.puf>.
177
:7., at 2-S; #00 %&#* uavil, "RPN in the Post-/001"+ Woilu," #8B3% note 1S1, at 7.
178
uavil, "RPN in the Post-/001"+ Woilu," #8B3% note 16u, at 7. uavil iefeis to the Regulation
anu uuiuelines as "compiomise uocuments" that "seek to ieconcile sometimes-competing
goals anu, at times, hint at some continuing uebate within the EC as to the piopei tieatment
of veitical iestiaints." :7.
179
Aiticle 1u1(1) pioviues:
1. The following shall be piohibiteu as incompatible with the
inteinal maiket: all agieements between unueitakings,
uecisions by associations of unueitakings anu conceiteu
piactices which may affect tiaue between Nembei States anu
which have as theii object oi effect the pievention,
iestiiction oi uistoition of competition within the inteinal
maiket, anu in paiticulai those which:
(a) uiiectly oi inuiiectly fix puichase oi selling piices oi any
othei tiauing conuitions;
SS
confei sufficient benefits to outweigh the anticompetitive effects.
18u
The Block
Exemption Regulation (BER) cieates a "safe haiboi" foi ceitain veitical agieements
that, by viitue of a lack of maiket powei, aie consiueieu not to iaise competition
conceins. The exemption applies if the suppliei anu buyei's maiket shaies aie both
Su peicent oi less. The exemption uoes not apply, howevei, to ceitain "haiucoie
iestiictions"incluuing RPN
181
that aie set foith in Aiticle 4 of the BER. Baiucoie

(b) limit oi contiol piouuction, maikets, technical
uevelopment, oi investment;
(c) shaie maikets oi souices of supply;
(u) apply uissimilai conuitions to equivalent tiansactions
with othei tiauing paities, theieby placing them at a
competitive uisauvantage;
(e) make the conclusion of contiacts subject to acceptance by
the othei paities of supplementaiy obligations which, by
theii natuie oi accoiuing to commeicial usage, have no
connection with the subject of such contiacts.
Tieaty on the Functioning of the Euiopean 0nion (TFE0) Ait. 1u1(1), available at
<http:eui-lex.euiopa.euLex0iiSeivLex0iiSeiv.uo.uii=CELEX:12uu8E1u1:EN:BTNL>.
18u
Aiticle 1u1(S) pioviues:
S. The piovisions of paiagiaph 1 may, howevei, be ueclaieu
inapplicable in the case of:
- any agieement oi categoiy of agieements between
unueitakings,
- any uecision oi categoiy of uecisions by associations of
unueitakings,
- any conceiteu piactice oi categoiy of conceiteu piactices,
which contiibutes to impioving the piouuction oi
uistiibution of goous oi to piomoting technical oi economic
piogiess, while allowing consumeis a faii shaie of the
iesulting benefit, anu which uoes not:
(a) impose on the unueitakings conceineu iestiictions which
aie not inuispensable to the attainment of these objectives;
(b) affoiu such unueitakings the possibility of eliminating
competition in iespect of a substantial pait of the piouucts in
question.
TFE0 Ait. 1u1(S).
181
The iegulation incluues not only contiactual piovisions that contiol iesale piices
uiiectly, but also ceitain piactices that uo so inuiiectly:
Examples of the lattei aie an agieement fixing the
uistiibution maigin, fixing the maximum level of uiscount the
uistiibutoi can giant fiom a piesciibeu piice level, making
S4
iestiictions insteau give iise to the piesumption that (a) the agieement falls within
Aiticle 1u1(1); anu (b) it is unlikely to fulfill the conuitions of Aiticle 1u1(S).
182

Neveitheless, the possibility still iemains foi the paities to establish that Aiticle
1u1(S) has been satisfieu in that paiticulai instance. If that buiuen is met, then the
Commission is to assess the likely anticompetitive effects befoie ueteimining
whethei, in fact, the iequiiements of Aiticle 1u1(S) have been satisfieu.
18S

The E.0. uuiuelines iecognize the same anticompetitive iisks associateu with
RPN that hau been iuentifieu by the 0.S. Supieme Couit in /001"+. In auuition, the
uuiuelines uesciibe auuitional uangeis, incluuing (1) uampening competition, "in
paiticulai when manufactuieis use the same uistiibutois to uistiibute theii
piouucts anu RPN is applieu by all oi many of them,"
184
anu (2) ieuucing piessuie
on manufactuiei maigins.
18S
As Piofessoi uavil has noteu, while the /001"+
majoiity
uownplayeu the competitive value of intiabianu
competition... these auuitional theoiies aie baseu on the
contiaiy assumption that intiabianu competition has
inuepenuent value to consumei because it can fostei
upstieam inteibianu competition.
186

With iespect to the efficiencies that might be assesseu unuei Aiticle 1u1(S),
the uuiuelines also ieflect the same economic views iecognizeu in /001"+.
187
Like
}ustice Bieyei, the uuiuelines appeai to give the most cieuence to this potential
justification.
188
This is conuitioneu, howevei, on it not being "piactical foi the

the giant of iebates oi ieimbuisement of piomotional costs
by the suppliei subject to the obseivance of a given piice
level, linking the piesciibeu iesale piice to the iesale piices
of competitois, thieats, intimiuation, wainings, penalties,
uelay oi suspension of ueliveiies oi contiact teiminations in
ielation to obseivance of a given piice level.
EC veitical Restiaint uuiuelines, #8B3% note S, at 48.
In contiast, iecommenuing iesale piices, oi iequiiing the iesellei to iespect a .%V".8.
iesale piice, is coveieu by the Block Exemption Regulation, pioviueu these uo not, in fact,
constitute minimum oi fixeu sale piice as a iesult of piessuie oi incentives offeieu. <00 "7. at
226.
182
:7. at 22S.
18S
:7.
184
:7. at 224.
18S
EC veitical Restiaint uuiuelines, at 224.
186
uavil, "RPN in the Post-/001"+ Woilu," #8B3% note 16u, at 8.
187
<00 EC veitical Restiaint uuiuelines, at 22S.
188
With iespect to this theoiy, the uuiuelines note:
SS
suppliei to impose on all buyeis by contiact effective piomotion iequiiements."
189

As foi fiee iiuei theoiies, which (as noteu above) have come unuei ciiticism in the
economics liteiatuie, the uuiuelines caution:
The paities will have to $*+5"+$"+1&? uemonstiate that
the RPN agieement can be expecteu to not only pioviue
the means but also the incentive to oveicome possible
fiee iiuing between ietaileis on these seivices anu that
the pie-sales seivices oveiall benefit consumeis as pait
of the uemonstiation that all the conuitions of Aiticle
1u1(S) aie fulfilleu.
19u

uiven the buiuen of uemonstiating that RPN be inuispensable (within the
meaning of Aiticle 1u1(S)) to achieve the asseiteu efficiencies, the piactical effect of
the Regulation anu uuiuelines may be ue facto B03 #0 unlawfulness.
191
NCAs
continue to tieat RPN as an enfoicement piioiity, taking a stiict enfoicement
appioach against minimum RPN, anu theie aie numeious examples of fines being
imposeu foi the piactice.
192
To uate, theie uo not appeai to be any examples so fai
at the E0-level an authoiity oi a couit accepting that minimum RPN was justifieu
unuei Aiticle 1u1(S), although some examples can be founu at the NCA level when
the RPN aiiangements coulu not have hau any appieciable effect on competition.
19S

3: .7C7K7
In contiast to the E.0., Canaua implementeu sweeping changes to its
tieatment of RPN in the wake of /001"+. Piioi to 2uu9, RPN was tieateu not only as
a B03 #0 violation of the Competition Act, but also a $3"."+%& offense. Since then, RPN
has been ueciiminalizeu anu a competitive effects test has been piohibits RPN only

F*#4 +*4%U&?, wheie a manufactuiei intiouuces a new
piouuct, RPN may be helpful uuiing the intiouuctoiy peiiou
of expanuing uemanu to inuuce uistiibutois to bettei take
into account the manufactuiei's inteiest to piomote the
piouuct. RPN may pioviue the uistiibutois with the means
to inciease sales effoits anu if the uistiibutois in this maiket
aie unuei competitive piessuie this may inuuce them to
expanu oveiall uemanu foi the piouuct anu make the launch
of the piouuct a success, also foi the benefit of consumeis.
EC veitical Restiaint uuiuelines, at 22S (emphasis auueu).
189
:7., at 22S n.S9.
19u
:7., at 22S (emphasis auueu).
191
Tiapp, "Resale Piice Naintenance," #8B3% note 176, at S.
192
:7;, at S, S-8 (uiscussing NCA cases).
19S
:7., at 8-9.
S6
when it has been establisheu that "the conuuct has hau, is having oi is likely to have
an auveise effect on competition in a maiket."
194

The Competition Act pioviues a numbei of exemptionsall of which weie
available unuei the pievious ciiminal piovisionsthat assume a ciitical iole in
establishing efficiency uefenses once RPN has been establisheu. In paiticulai, no
oiuei against RPN will be maue if the Competition Tiibunal is satisfieu that:
Theie was a piactice by the iesellei of using the piouuct as a loss leauei;
The piouuct was being useu as a "bait anu switch"; i.e., "a piactice of using
the piouucts not foi the puipose of selling them at a piofit but foi the
puipose of attiacting customeis in the hope of selling them othei piouucts";
The iesellei was making a piactice of engaging in misleauing auveitising; oi

194
Competition Act s. 76(1)(b), available at < http:www.laws.justice.gc.caengactsC-
S4page-48.html#h-S2>.
0nuei the Competition Act, the RPN piohibition applies to when a peison, "uiiectly oi
inuiiectly"
(i) by agieement, thieat, piomise oi any like means, has
influenceu upwaiu, oi has uiscouiageu the ieuuction of, the
piice at which the peison's customei oi any othei peison to
whom the piouuct comes foi iesale supplies oi offeis to
supply oi auveitises a piouuct within Canaua, oi
(ii) has iefuseu to supply a piouuct to oi has otheiwise
uisciiminateu against any peison oi class of peisons engageu
in business in Canaua because of the low piicing policy of
that othei peison oi class of peisons|.j
:7., s. 76(1)(a).
Suggestion of iesale oi minimum piices, unuei the Competition Act
is pioof that the peison to whom the suggestion is maue is
influenceu in accoiuance with the suggestion, in the absence
of pioof that the piouucei oi suppliei, in so uoing, also maue
it cleai to the peison that they weie unuei no obligation to
accept the suggestion anu woulu in no way suffei in theii
business ielations with the piouucei oi suppliei oi with any
othei peison if they faileu to accept the suggestion.
:7., s. 76(S).
Similaily, an auveitisement by a piouucei oi suppliei that mentions a iesale piice
is pioof that the piouucei oi suppliei is influencing upwaiu
the selling piice of any peison to whom the piouuct comes
foi iesale, unless the piice is expiesseu in a way that makes it
cleai to any peison whose attention the auveitisement
comes to that the piouuct may be solu at a lowei piice.
:7., s. 76(6).
S7
Theie was a piactice of not pioviuing the level of seivice that puichaseis of
the piouuct might ieasonably expect.
19S

It has been obseiveu that "|mjany mouein economic theoiies on the pio-
competitive natuie of RPN uo not easily fit unuei these exemptions."
196
The fiee
iiuei theoiy is incluueu, but not, foi instance, a new entiy justification.
uiven the iecent natuie of the amenuments to the Competition Act, theie uo
not appeai to be any iulings by the Competition Tiibunal on the meaning of
"auveise effect on competition in a maiket" unuei section 76(1)(b). (A mattei is
cuiiently penuing befoie the Tiibunal in which these issues may be auuiesseu.
197
)
The Tiibunal has, howevei, consiueieu the meaning of that stanuaiu in the context
of iefusal to ueal cases unuei section 7S, in which the Tiibunal noteu that
|ajuveise effects in a maiket aie geneially likely to
manifest themselves in the foim of an inciease in piice,
the pieseivation of a piice that woulu otheiwise have
been lowei, a ueciease in the quality of piouucts solu in
the maiket (incluuing such piouuct featuies as
waiianties, quality of seivice anu piouuct innovation)
oi a ueciease in the vaiiety of piouucts maue available
to buyeis.
198

This is a lowei thiesholu than is iequiieu unuei the abuse of uominance piovisions,
foi which a "substantial lessening" must be founu.
199
Whethei oi not the section 7S
inteipietation is auopteu, this piovision shoulu tenu to act as an initial scieen anu
pievent the RPN piovision fiom ieaching agieements between manufactuieis anu
ieselleis that uo not have some uegiee of maiket powei at eithei level of the
uistiibution chain.

19S
:7., s. 76(9).
196
Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.," #8B3% note 1u4, at 11.
197
<00 2*..; *M 2*.B04"4"*+ 5; K"#% 2%+%7% 2*3B; %+7 F%#4032%37 :+4T&9 :+$;, CT-2u1u-u1u,
case uocuments available at <http:www.ct-tc.gc.caCasesAffaiiesCasesBetails-
eng.asp.CaseIB=SSS>.
198
>W!"&03 :+$; 04 %& 5; CA0 >%+I *M )*5% <$*4"%, CT-2uuS-uu6 (Bec. 2u, 2uu6).
199
<00 Competition Act, s. 79(1)(c) (iequiiing that "the piactice has hau, is having oi is
likely to have the effect of pieventing oi lessening competition substantially in a maiket").
S8
.: %L>DJ7947 A )8S V8797CK
Finally, Austialia anu New Zealanu appeai to take the stiictest appioaches to
RPN. Both the Austialian Competition anu Consumei Act 2u1u
2uu
anu the New
Zealanu Commeice Act 1986
2u1
establish B03 #0 bans against the piactice. Inueeu,
given that neithei law iecognizes a 2*&1%40-type exception foi unilateial conuuct,
the B03 #0 piohibitions aie even moie iestiictive than the 0.S. iule piioi to /001"+.
2u2

0ne exception available in Austialia (but not New Zealanu) is when a iesellei has
useu the suppliei's goous oi seivices as a loss leauei within the past twelve months.
Peihaps because of the B03 #0 tieatment of RPN in Austialia anu New
Zealanu, theie is little juiispiuuence fiom eithei countiy on the subject.
2uS
In
H83&"Q80 :+4T&,
2u4
which involveu the makei of piemium skin caie piouucts,
2uS
the

2uu
Section 48 of the Austialian Competition anu Consumei Act 2u1u pioviues that
"coipoiation oi othei peison shall not engage in the piactice of iesale piice maintenance."
Available at <http:www.comlaw.gov.auBetailsC2u12CuuS14Btmlvolume_1>.
<00 %&#* Austialian Submission, "Resale Piice Naintenance," 0ECB Policy Rounutable
(1997), at 22, available at <http:www.oecu.oigcompetition
abuseofuominanceanumonopolisation192u261.puf>; Csoigo, "Resale Piice Naintenance
Piovisions: Who has it Right.," #8B3% note 1u4, at 6.
2u1
Section S7 of the New Zealanu Commeice Act 1986 pioviues that "|njo peison shall
engage in the piactice of iesale piice maintenance" (s.S7(1)), available at
<http:www.legislation.govt.nzactpublic1986uuuSlatestBLN88289.html>.
2u2
Pait vIII, Section 96, of the Austialian Competition anu Consumei Act 2u1u, uefines
conuuct that constitutes RPN to incluue, "+403 %&"%:
Setting a minimum piice at which ieselleis shoulu auveitise, uisplay oi offei theii
goous foi sale oi foi the iesupply of seivices (s.96(S)(a));
Inuucing ieselleis not to uiscount, foi example by giving special ueals to ieselleis
who agiee not to (s.96(S)(b));
Agieements with ieselleis that the lattei will not auveitise oi sell below a specifieu
piice (s.96(S)(c));
Taking oi thieatening to take action against a iesellei to foice the iesellei to sell the
goous oi iesupply seivices at oi above the minimum specifieu piice, foi example by
iefusing to continue supplying them (s.96(S)(u),(e)); oi
Inuicating a piice that is taken by the iesellei as a piice below which the iesellei
shoulu not iesell (s.96(S)(f)).
The New Zealanu statute pioviues similai uefinitions of iesale piice maintenance. <00
Commeice Act s.S7(2)-(4). Neiely iecommenuing a piice, without moie, is not RPN
pioviueu the suppliei makes cleai that the piice is only iecommenueu anu that theie is no
obligation to comply with the iecommenuation. <00 "7. s.S9.
2uS
Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.," #8B3% note 1u4, at 7.
2u4
R222 5; H83&"Q80 :+4T&; 64? /47;, ATPR 42-146; |2uu7j FCA 79; BC2uu7uuS96, available at
<http:www.austlii.euu.auaucasescthFCA2uu779.html>.
S9
Austialian Feueial Couit acknowleugeu the economics liteiatuie iegaiuing
potential piocompetitive uses of RPN.
2u6
In paiticulai, the couit noteu the
aiguments conceining pieseivation of bianu image:
Theie is a stiong case foi the aigument that by
employing a minimum iesale piice, anu pieventing the
unueicutting of piices by uiscount ietaileis, the image
anu status of a piouuct is piotecteu; that is, the high
piice is a mechanism thiough which a manufactuiei can
ceitify to its customeis consumei that the piouucts they
aie puichasing aie of a high quality.
2u7

The couit concluueu, howevei, that "notwithstanuing |thesej views... |ijesale piice
maintenance is a B03 #0 contiavention of s 48 of the Act |anu that ijt is theiefoie
somewhat of an inuulgence to consiuei whethei the law ought to be uiffeient fiom
what it piesently is."
2u8
The couit imposeu a iecoiu fine foi the company's
uelibeiate violations of the piohibition.
2u9

In both countiies, supplieis may seek appioval fiom theii iespective
competitions commissions to use RPN,
21u
which will be gianteu only if the suppliei
can uemonstiate that any benefits to the public outweigh the haim.
211
This

2uS
:7. at S7.
2u6
:7. at 61-74.
2u7
:7. at 69. Whethei this is a "piocompetitive" justification that shoulu be cieuiteu by the
competition laws is a mattei of uebate. <00 uiimes9 "Spiff, Polish, anu Consumei Bemanu
Quality," #8B3% note 1u2, at 8S4-S6.
2u8
H83&"Q80 :+4T&; 64? /47;, ATPR 42-146, at 7S.
2u9
:7. at 1u2; #00 %&#* Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.,"
#8B3% note 1u4, at 7.
21u
Pait vII, Section 88, of the Austialian Competition anu Consumei Act 2u1u pioviues:
|Tjhe Commission may, upon application by oi on behalf of a
peison, giant an authoiisation to the peison to engage in
conuuct that constitutes (oi may constitute) the piactice of
iesale piice maintenance. While the authoiisation iemains in
foice, section 48 uoes not pievent the peison fiom engaging
in that conuuct in accoiuance with the authoiization
(s.88(8A)).
Pait S, Section S8, of the New Zealanu Commeice Act incluues a similai piovision with
iespect to the New Zealanu commission. <00 Commeice Act s.S8(7)("A peison who wishes
to engage in |RPNj. may apply to the Commission foi an authoiisation to uo so, anu the
Commission may giant an authoiisation foi that peison to engage in the piactice.").
211
Section 9u of the Austialian Competition anu Consumei Act 2u1u establishes that no
authoiization shall be given by the ACCC foi an unueitaking to engage in RPN
4u
exception was intiouuceu in Austialia in 199S in iecognition of possible efficiencies
such as "a uesiie to pioviue a high quality image foi the piouuct oi to ensuie that
ietaileis pioviue auequate aftei sales seivice anu the iequiieu level of safety
tiaining."
212
The exception has been available in New Zealanu since 199u.
21S
The
exception uo not appeai to have hau any piactical effect on the B03 #0 tieatment of
RPN.
214
Neveitheless, they pioviue a vehicle thiough which the Austialian anu New
Zealanu laws coulu account foi potentially piocompetitive uses of RPN,
notwithstanuing the B03 #0 iule.
,-: /*(# B'*B*/#2 "#$%" /&%)2%'2/ +*' 'B(
Buiing the couise of the uebate ovei RPN, both leauing up to anu following
/001"+, vaiious commentatois have offeieu suggestions foi the appiopiiate legal
tieatment of the piacticestanuaius that might peimit piocompetitive uses of
RPN, while piotecting against anticompetitive haims. This section suiveys some of
those pioposeu stanuaius anu the iationales unueilying them.
21S
The puipose of

unless it is satisfieu in all the ciicumstances that the
pioposeu piovision oi the pioposeu conuuct woulu iesult, oi
be likely to iesult, in such a benefit to the public that the
pioposeu contiact oi aiiangement shoulu be alloweu to be
maue, the pioposeu unueistanuing shoulu be alloweu to be
aiiiveu at, oi the pioposeu conuuct shoulu be alloweu to
take place, as the case may be|.j (s.9u(8)(a)).
Section 61 of the New Zealanu Commeice Act pioviues:
The Commission shall not make a ueteimination gianting an
an authoiisation. unless it is satisfieu that |the use of
RPNj. will in all the ciicumstances iesult, oi be likely to
iesult in such a benefit to the public that. the engaging in
the piactice shoulu be peimitteu|.j
Commeice Act s.61(8).
212
Austialian 0ECB RPN Submission, #8B3% note 2uu, at 21; #00 %&#* Csoigo, "Resale Piice
Naintenance Piovisions: Who has it Right.," #8B3% note 1u4, at 6.
21S
Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.," #8B3% note 1u4, at 7.
214
As one scholai has noteu with iespect to Austialia: ""It seems to be the geneially
accepteu view that authoiisation foi any iesale piice maintenance conuuct is so unlikely
that one woulu neeu astionomical ouus fiom the bookies befoie placing a bet on an
application succeeuing." Pengilley, "Resale piice maintenance: An oveiview," #8B3% note S7,
at S4. At least as of 2u1u, theie uo not appeai to have been any such applications maue in
New Zealanu. <00 Csoigo, "Resale Piice Naintenance Piovisions: Who has it Right.," #8B3%
note 1u4, at 7.
21S
This suivey is by no means exhaustive. Foi a fuithei uiscussion of vaiious RPN
pioposals, #00 }igen-Petei Kietschmei, "Bow to ueal with iesale piice maintenance: What
can we leain fiom empiiical iesults.," }oint uiscussion papei seiies in economics, No. 16-
41
this suivey is to illustiate how uiffeient appioaches can be constiucteu using the
uecision theoietic mouel. The vaiiations geneially iesult fiom uiffeiences iegaiuing
initial piesumptions about the anticompetitive haims likely to iesult fiom RPN, anu
the kinus of scieens (oi low cost, high value infoimation) that woulu best iesolve
the majoiity of cases befoie pioceeuing to the collection of highei cost infoimation
unuei full "iule of ieason" analyses.
%: ,"( 1" -998N794DO
216

As uiscusseu above, }ustice Bieyei auvocateu maintaining a B03 #0 ban on
RPN in the 0.S. Balancing the magnituue of possible benefits anu haims of following
a iule of ieason appioach (foi which he founu no economic consensus), with the
ability of couits to uiffeientiate between piocompetitive anu anticompetitive uses of
RPN (which he believeu woulu piove to be a uifficult task).
217

The Ameiican Antitiust Institute (AAI) aigueu in favoi of maintaining the B03
#0 iule (although it has suggesteu an alteinative iule as well, which is uiscusseu
below) piemiseu on the giounus that the anticompetitive haims of RPN aie
significant anu likely to be iealizeu, while any piocompetitive benefits aie unlikely
oi, at the veiy least, coulu be accomplisheu by means of less iestiictive
alteinatives.
218
In the Austialian context (which uoes not have a 2*&1%40-like

2u11 (2u11) at 11-18, available at <http:www.uni-maibuig.uefbu2makiofoischung
magkspapeisinuex_html%28magks%29>.
216
At the opposite enu of the spectium, otheis have aigueu foi B03 #0 legality. <00 "7. at 12
(uiscussing Posnei anu Boik, aiguing that existing hoiizontal caitel piohibitions aie
sufficient to ueal with the potential manufactuiei oi uealei collusion).
Posnei, foi example, applying a mouel that uownplays the competitive iisks associateu with
ceitain veitical iestiaints, has wiitten:
uiven the absence of eithei theoietical oi empiiical giounus
foi conuemning puiely veitical iestiictions as
anticompetitive, to ueclaie veitical iestiictions in
uistiibution legal pei se woulu seive both to lighten the
buiuen of the couits anu to lift a clouu of uebilitating uoubt
fiom piactices that aie usually. piocompetitive.
Richaiu A. Posnei, "The Next Step in the Antitiust Tieatment of Restiicteu Bistiibution: 603
#0 Legality," 48 0. CBI. L. REv. 6, 2S (1981). Such a iule, howevei, is uifficult to ieconcile with
the economic liteiatuie, anu ielies on ceitain assumptionsnot necessaiily giounueu in
empiiical eviuencethat anticompetitive uses of veitical piactices will be iaie.
217
/001"+, SS1 0.S. at 917-918 (Bieyei, }., uissenting).
218
AAI /001"+ Bi., #8B3% note SS, at 1-2. The AAI aigues:
In contiast to the theoietical case offeieu by pioponents foi a
iauical shift in antitiust policy, the ieality is that RPN
viitually always iaises piices to consumeis, pievents moie
efficient ietaileis fiom passing along the savings fiom theii
42
uoctiine exempting unilateial piactices), Waiien Pengilley, foimei Commissionei of
the Austialian Tiaue Piactices Commission, also has aigueu foi maintaining the B03
#0 piohibition on RPN notwithstanuing uevelopments in othei juiisuictions.
219

The piimaiy aigument against the B03 #0 iule, as uiscusseu above, is that it
woulu piohibit the efficient uses of RPN iuentifieu in the economics liteiatuie. To
accommouate that, howevei, limiteu caive-outs coulu be cieateusuch as }ustice
Bieyei's suggestion that he might opt foi a "slightly mouifieu |B03 #0 iulej to allow
an exception foi the moie easily iuentifiable anu tempoiaiy conuition of 'new
entiy.'"
22u
Similaily, mechanisms coulu be establisheu, as in Austialia anu New
Zealanu, by which businesses coulu petition foi authoiization to use RPN if a public
benefit can be uemonstiateu. The lattei appioach woulu tenu to nuuge a B03 #0 iule
in the uiiection of the E.0. mouel, although buiuens coulu be aujusteu accoiuingly to
account foi competitive iisks (oi ielative lack theieof) foi naiiow categoiies of
conuuct.
3: BJ8>LEFD4<C <H -998N794DO
Notwithstanuing hei ciiticism of /001"+, Piofessoi Lao appeais to conceue
that a B03 #0 appioach may not be the iueal stanuaiu because #*.04".0# such
agieements might be justifiable.
221
She theiefoie auvocates applying a piesumption
of illegality to RPNsimilai to the E.0. appioachwhich the uefenuant coulu iebut
only by showing that (a) the iestiaint is ieasonably necessaiy to achieve a
legitimate business puipose 4A%4 U0+0M"4# $*+#8.03#, anu (b) no less iestiictive
alteinative is available to accomplish that goal.
222
Piofessoi Lao uefenus the
piesumption of illegality as follows:
|Njaiket competition is the noim in the economies of
most auvanceu inuustiializeu countiies, anu piice is an
impoitant uimension of competition. Since iesale piice
maintenance is essentially a iestiaint on piice
competition, albeit intiabianu piice competition,
piesuming illegality to the piactice anu placing the onus
of iebuttal on the RPN pioponent woulu stiike a piopei
balance. This is paiticulaily tiue given the absence of

efficiency to consumeis, tenus to ietaiu innovations in
ietailing, anu often has been useu by ietaileis anu
manufactuieis foi anticompetitive enus.
:7.
219
Pengilley, "Resale piice maintenance: An oveiview," #8B3% note S7, at 21-22.
22u
/001"+, SS1 0.S. at 917-918 (Bieyei, }., uissenting).
221
Lao, "RPN: A ieassessment," #8B3% note S6, at SS (emphasis on "#*.04".0#" in oiiginal).
222
:7.
4S
ieliable empiiical eviuence on the pievalence anu
significance of RPN's effects.
22S

The AAI in its %."$8# biief in /001"+, put foiwaiu a similai pioposal (in the
event the Supieme Couit oveituineu E3; F"&0#). Beginning fiom the piesumption
that an open-enueu iule of ieason stanuaiu woulu be a "litigation nightmaie,"
224
the
AAI suggests that a piesumption of illegality be applieu to RPN given the fact that
(a) the piactice oiuinaiily 7"30$4&? iaises piices to consumeis, anu (b) theie is an
absence of theoietical anu empiiical eviuence that consumeis geneially benefit fiom
these highei piices.
22S
The AAI then pioposes that, in auuition to the subsequent
buiuens imposeu on the uefenuant unuei Piofessoi Lao's appioach, any eviuence of
ietailei piessuie in imposing RPN woulu weigh against finuing any legitimate
puipose.
226
This "any eviuence" iulewhich uoes not appeai to iequiie that it be
pioven by a pieponueiance of the eviuence that ietaileis oiiginateu the conuuct
mitigates some of the conceins iaiseu by }ustice Bieyei about the effectiveness of
this potential scieen.
227
If the uefenuant iebuts the piesumption, the buiuen woulu
then shift to the plaintiff to establish that the RPN neveitheless is anticompetitive.
This coulu be accomplisheu, foi instance, by pioving that the upstieam maiket is
highly concentiateu oi that RPN coveiage in uownstieam maikets is wiuespieau.
228

Auvantages of the Lao anu AAI appioachesif the ielative iatio of
anticompetitive iisks to piocompetitive benefits is peiceiveu to be highlies in its
auministiability, as a neai B03 #0 iule that allows the pioponent of RPN to justify the
piactice in ceitain ciicumstances. Bowevei, to the extent the appioaches uo not
peimit the pioponent to offei some low infoimation cost iebuttal that might satisfy
its buiuen (such as pioposeu in Notta 04 %&, below), it is possible that they coulu
iesult in ovei ueteiience of beneficial oi otheiwise benign uses of RPN.
.: .<E7C<J A /568J8J
In theii /001"+ %."$8# biief, Piofessois Comanoi anu Scheiei piopose an
appioach that woulu not tieat all RPN as piesumptively unlawful; iathei, they
suggest an initial "quick look" scieen that woulu consiuei the souice of the iestiaint.
Because, they aigue, RPN efficiency uefenses "aiise pieponueiantly fiom

22S
:7.
224
AAI /001"+ Bi. at 28 n.4S (citing Thomas 0veistieet }i. & Alan A. Fishei, "Resale Piice
Naintenance anu Bistiibution Efficiency: Some Lessons fiom the Past," S C0NTENP. P0LICY
ISS0ES 4S, SS-S4 (198S)).
22S
:7. at 29.
226
:7.
227
<00 /001"+, SS1 0.S. at 916-17 (noting the potential uifficulties of iuentifying the piimaiy
motivatoi of RPN).
228
AAI R."$8# Bi., #8B3% note SS, at Su.
44
ciicumstances wheie the manufactuiei is the moving paity,"
229
eviuence that
uistiibutois inuuceu the iestiaint woulu iesult in piesumption of B03 #0
unlawfulness, iebuttable only on the "piesentation of cieuible contiauictoiy
eviuence."
2Su
If the iestiaint oiiginateu with the manufactuiei, on the othei hanu,
they suggest that a iule of ieason analysis woulu be followeu.
2S1

Comanoi anu Scheiei piopose a iule of ieason appioach that woulu apply a
"test of quantitative substantiality" to take into account that "RPN is most likely to
be haimful to consumeis when wiuely applieu in a meaningful piouuct line."
2S2

They suggest a iebuttable piesumption of illegality when moie than Su peicent of
commeice in a ielevant, +%33*N&?W70M"+07 maiket is coveieu by RPN.
2SS

Responuents woulu then have an oppoitunity to iebut this piesumption by
establishing that (a) the ielevant maiket was impiopeily uefineu; (b) consumei
choices weie not significantly limiteu as a iesult of the piactices; oi (c) the
iestiaints weie "necessaiy to sustain the piovision of seivices valuable to
consumeis."
2S4

The auvantage of the Comanoi anu Scheiei appioach is that it woulu be moie
favoiable to potential piocompetitive uses of RPN, assuming that the benefits of
allowing such conuuct tenueu to outweigh the iisks. Bowevei, it is piemiseu on the
ability to quickly anu easily iuentify the souice of the piacticean assumption that

229
Comanoi & Scheiei R."$8# Bi., #8B3% note 62, at 7-8.
2Su
:7. at 9.
2S1
:7.
2S2
Accoiuing to Comanoi & Scheiei
|ijn such ciicumstances, consumei choice is iestiicteu to
goous beaiing high uistiibution maigins in the absence of
possible lengthy anu eneigy-guzzling shopping tiips. Anu if
unuei the umbiella of high maigins, most ietaileis engage in
substantial pie-sale piomotion, theii effoits will laigely
cancel each othei out in the aggiegate, leauing to a high-
piice, high-maigin, high piomotional cost equilibiium with
ielatively little if any expansion of uemanu.
:7.
2SS
:7.
2S4
:7. at 9-1u. Comanoi & Scheiei piopose an alteinative test confoiming to the then-
cuiient 0.S. Bepaitment of }ustice anu FTC Boiizontal Neigei uuiuelines. The fiist scieen
woulu consiuei whethei the Beifinuahl-Biischman inuex exceeueu 18uuinuicating an
oligopolistic maiket in which imitation of one sellei's maiketing stiategy by otheis is moie
likely than is less concentiateu maikets. 0nuei this pioposal, antitiust stanuing woulu be
confeiieu when RPN is implementeu by a sellei with at least a 1u peicent shaie of the
ielevant maiket, anu the conuuct woulu be piesumeu unlawful, subject to the uefenses
mentioneu eailiei. :7. at 1u.
4S
has been questioneu elsewheie.
2SS
Noieovei, the seconu scieen piesumes the
ability to iuentify, with ielative ease, the ielevant maiket, anu to measuie maiket
concentiationanothei assumption that has been questioneu.
2S6

2: (<DD7 "* )7
Notta 04 %&a gioup that incluues Piofessoi Reypiopose an initial scieen
baseu on maiket shaie. They suggest changes to the Block Exemption Regulation as
follows: (1) the 70 ."+"."# iule unuei the E.0. stanuaiu, uesciibeu above, woulu
apply to RPN as with othei veitical iestiaints (";0., a fiim with less than 1S peicent
maiket shaie can engage in RPN); (2) when a fiim has a shaie above 1S peicent, it
woulu have the buiuen of pioving that RPN will have beneficial effects; anu (S) it
shoulu be piesumeu that a fiim with a shaie in excess of Su peicent is will be
unlikely to be able to show that RPN will have a net beneficial effect.
2S7
This
pioposal is piemiseu upon the following conclusions with iespect to the potential
haims anu benefits of RPN:
(i) foi both the commitment effect anu foi the softening
competition effect to be a souice of woiiy, the supplieis
engaging into RPN shoulu be enuoweu with
consiueiable maiket powei. Theiefoie, it is likely that
such effects coulu be oveilookeu if supplieis have small
maiket shaie; (ii) the pio-collusive effects of RPN
iequiie inuustiy-wiue RPN to exist, anu can theiefoie
be taken caie of by the BER's piovisions (aiticle 8) that
the exemption can be ievokeu in the case of netwoiks of
veitical iestiaints coveiing moie than Su% of the
maiket. Fuithei, wheie fiims have uelibeiately

2SS
<00 /001"+, SS1 0.S. at 916-17 (noting the potential uifficulties of iuentifying the piimaiy
motivatoi of RPN).
2S6
}ustice Bieyei obseiveu with iespect to this issue:
I iecognize that scholais have sought to uevelop check lists
anu sets of questions that will help couits sepaiate instances
wheie anticompetitive haims aie moie likely fiom instances
wheie only benefits aie likely to be founu. But applying these
ciiteiia in couit is often easiei saiu than uone. The Couit's
invitation to consiuei the existence of "maiket powei," foi
example, invites lengthy time-consuming aigument among
competing expeits, as they seek to apply abstiact, highly
technical, ciiteiia to often ill-uefineu maikets.
:7. at 917 (inteinal citations omitteu).
2S7
Nassimo Notta, 04 %&, "Baiucoie iestiictions unuei the Block Exemption Regulation on
veitical agieements: An economic view," at 4, available at < http:ec.euiopa.euugs
competitioneconomisthaiucoie_iestiictions_unuei_BER.puf >.
46
cooiuinateu to establish RPN so as to sustain collusion,
anti-caitel law woulu apply anyhow.
2S8

This last assumption, at least in the 0.S. context, has been subject to
ciiticism, since establishing such a violation can be uifficult, costly anu time
consuming, the iesult of which is that "much tacit collusion goes unpunisheu."
2S9

0n the othei hanu, as compaieu to the othei appioaches uiscusseu, Notta 04 %&
woulu tenu to allow businesses to engage in piocompetitive uses of RPN.
#: !""#$% /DJL5DLJ8K %FFJ<756
Foimei 0.S. Assistant Attoiney ueneial foi Antitiust Chiistine vainey has
pioposeu a "stiuctuieu" iule of ieason appioach baseu on /001"+'s iecognition of
the neeu foi lowei couits to "establish a litigation stiuctuie to ensuie that the iule
|of ieasonj opeiates to eliminate anticompetitive iestiaints fiom the maiket anu to
pioviue moie guiuance to businesses."
24u
vainey's fiamewoikwhich is piemiseu
upon the ciicumstances iuentifieu by the /001"+ majoiity iegaiuing when RPN
might be anticompetitive (facilitation of caitelization at the manufactuiei oi ietailei
levels, ietailei exclusion, anu manufactuiei exclusion)pioposes elements that a
plaintiff coulu use to establish a B3".% M%$"0 case that paiticulai instance of RPN is
unlawful, theieby shifting the buiuen to the uefenuant:
Foi manufactuiei-uiiven RPN that might be useu to facilitate manufactuiei
collusion, a plaintiff woulu neeu to show: (1) a majoiity of sales in the maiket
aie coveieu by RPN; (2) stiuctuial conuitions aie conuucive to piice
cooiuination; anu (S) RPN plausibly helps "significantly" to iuentify cheating,
"which woulu not be the case if wholesale piices aie otheiwise
tianspaient."
241

Foi manufactuiei-uiiven RPN useu as an exclusionaiy uevice, a plaintiff
woulu have to show: (1) the manufactuiei has a uominant maiket position;

2S8
:7. at S.
2S9
Thomas Lambeit, "E3; F"&0# is Beau. Now What.: Stiuctuiing a Rule of Reason foi
Evaluating Ninimum Resale Piice Naintenance," Su WN. & NARY L. REv. 19S7 (2uuS), at 2S,
available at <http:papeis.ssin.comabstiact=126SS76>.
24u
Chiistine A. vainey, "Antitiust Feueialism: Enhancing FeueialState Coopeiation,"
Remaiks as Piepaieu foi the National Association of Attoineys ueneial Columbia Law
School State Attoineys ueneial Piogiam (0ct. 7, 2uu9), at 8 (quoting /001"+, SS1 0.S. at
898), available at < http:www.justice.govatipublicspeeches2Su6SS.htm>.
vainey anu otheis have seen this anu othei statements by the /001"+ majoiity as an
invitation to lowei couits to cieate a "litigation stiuctuie" that will allow them to "sepaiate
the wheat fiom the chaff anu 'uevise iules. foi offeiing pioof, oi even piesumptions. to
make the iule of ieason a faii an efficient way to piohibit anticompetitive iestiains anu to
piomote piocompetitive ones." :7. (quoting /001"+, SS1 0.S. at 898-99).
241
:7. at 11.
47
(2) its RPN contiacts covei a substantial poition of uistiibution maikets; anu
(S) RPN plausibly has significant foieclosuie effect that impacteu an actual
iival.
242

Foi ietailei-uiiven RPN that might be useu to facilitate collusion, a B3".%
M%$"0 case coulu consist of the plaintiff showing: (1) RPN is useu peivasively
(peihaps Su peicent of sales in the maiket); (2) RPN was instituteu by
ietailei coeicion (not simply peisuasion); anu (S) ietailei collusion coulu not
be thwaiteu by manufactuieis.
24S

Finally, foi ietailei-uiiven RPN useu as an exclusionaiy uevice, a B3".% M%$"0
case might incluue the following elements: (1) the ietaileis involveu has
sufficient maiket powei; (2) coeicion by ietaileis iesulteu in RPN coveiing
much of the maiket; anu (S) RPN plausibly has a significant exclusionaiy
effect that impacteu an actual iival.
244

This "stiuctuieu appioach" has the auvantagein the 0.S. contextof
closely following the /001"+ majoiity's competitive conceins iegaiuing RPN. Like
the Comanoi anu Scheiei pioposal, howevei, iuentification of the oiigins of the RPN
(manufactuiei- veisus ietailei-uiiven), anu uefinition of a ielevant maiket anu
measuiement of coveiage by RPN in that maiket, aie often uifficult anu time-
consuming tasks. The auuitional elements suggesteu by vainey (compaieu to the
Comanoi anu Scheiei pioposal) befoie the buiuen shifts to the uefenuant, woulu
only make the inquiiy moie complex. Noieovei, the /001"+ majoiity, as uiscusseu
above, uiu not iuentify all of the competitive conceins iuentifieu in the liteiatuie,
anu theiefoie the pioposeu scieenswhich uo not necessaiily account foi those
conceinsmight iesult in ceitain anticompetitive effects being unueiueteiieu.
+: W+&.X %FFJ<756
As noteu above, the FTC was petitioneu by Nine West following /001"+ to
mouify a consent oiuei unuei which the company was piohibiteu the company fiom
engaging in RPN piactices.
24S
In its iuling on Nine West's iequest, the FTC pioposeu
evaluating RPN unuei a tiuncateu iule of ieason analysis, baseu upon the
fiamewoik that hau been accepteu by the B.C. Ciicuit in 6*&?D3%.. The FTC woulu
not tieat eveiy use of RPN as "inheiently suspect," but iathei only those instances
in which the uefenuants coulu not establish the absence of /001"+ factois, which
incluue:

242
:7. at 12.
24S
:7. at 1S.
244
:7.
24S
<00 Nay 6, 2uu8 0iuei uianting in Pait Petition to Reopen anu Nouify 0iuei Issueu Apiil
11, 2uuu, :+ 4A0 F%4403 *M )"+0 @0#4 D3*8B :+$;, available at <http:www.ftc.govos
caselist981uS86u8uSu6oiuei.puf>.
48
The RPN is useu by manufactuieis that togethei compiise a significant
poition of the ielevant piouuct maiket;
Bealeis, iathei than manufactuieis, weie the impetus foi the RPN; anu
A uominant manufactuiei oi ietailei possesses maiket powei.
246

If the uefenuant satisfies this buiuen, its conuuct is piesumeu lawful. If not, it is then
tieateu as inheiently suspect anu unlawful unless the uefenuant can piove that the
use of RPN enhanceu its total sales ielative to what they woulu have been absent
the piactice.
247
In )"+0 @0#4, because the uefenuant was able to establish that none
of these factois was piesent, it was not iequiieu to make a fuithei showing that its
use of RPN was piocompetitive.
Like the pioposal by foimei AAu vainey, the FTC appioach woulu tenu to
favoi piocompetitive uses of RPN, at the iisk of incieaseu anticompetitive haims. It
also focuses on conceins iuentifieu in /001"+, anu not necessaiily all competitive
iisks iuentifieu in the liteiatuie. Bowevei, unuei the FTC appioach, the pioponent
of the piactice has the initial buiuen of establishing the absence of "/001"+ factois,"
as opposeu to the vainey pioposal, unuei which the opponent has the initial buiuen
of establishing theii existence. That suggests the FTC appioach might bettei filtei
anticompetitive uses of RPNbut not as well as the othei appioaches uiscusseu
eailiei.
,--: .*)."?/-*)0 Y?#/&-*)/ +*' .1-"#
The economics liteiatuie, as summaiizeu by Piofessoi Rey, pioviues valuable
insights into the potential piocompetitive benefits, as well as the anticompetitive
iisks, associateu with veitical iestiaints in geneial, anu RPN in paiticulai. But
because law is an auministiative system, legal stanuaius cannot ieplicate the
complexities in that liteiatuie, even assuming consensus in the economics
community. Insteau, the economics liteiatuie can infoim the legal uiscussion anu
assist in uevising auministiable iules that maximize consumei welfaie.
As uiscusseu above, uecision theoiy pioviues a fiamewoik foi making factual
ueteiminations anu uecisions with impeifect infoimation anu is a useful tool foi
analyzing legal stanuaius. 0nuei that fiamewoik, ielevant questions when
consiueiing an efficient enfoicement stanuaiu conceining RPNoi any veitical
iestiaintincluue (1) how M30Q80+4&? piocompetitive (veisus anticompetitive) uses
aie encounteieu; (2) the .%1+"4870 of any benefits (veisus haims) fiom that
conuuct; anu (S) whethei, given unavoiuable eiioi costs, an alteinative iule woulu,
on balance, iesult in incieaseu consumei welfaie anu bettei auministiation of the
competition laws.

246
:7.
247
:7.
49
Pengilleywho aigues in favoi of maintaining a B03 #0 ban in Austialia
notwithstanuing libeialization in the 0.S. anu elsewheieobseives that /001"+ was
ueciueu in the context of the 0S economy, anu that the iationales foi auopting the
iule of ieason uo not "necessaiily tianslate to the Austialian economy anu woulu
not follow at all if the likelihoou of unuesiiable consequences weie gieatei in
Austialia than in the 0niteu States." Inueeu, he asseits that the paiticulai stiuctuie
of Austialian economy makes the competitive iisks of RPN consiueiably gieatei
theie than they might be elsewheie, theieby tipping the balance in favoi of moie
conseivative tieatment:
The concentiation of Austialian inuustiy is such that
this gives iise to those potential uetiiments which those
opposing libeialisation of iesale piice maintenance laws
feai.. Austialian inuustiy stiuctuie makes it highly
likely that a libeialisation of iesale piice maintenance
laws woulu leau to incieaseu piices, ieuuceu
competition anu incieaseu caitelisation, (at least in a
tacit oligopolistic cooiuination sense). The potential foi
wiongful use of maiket powei in paiticulai aieas is
significant.
248

Whethei oi not Pengilley is coiiect with iespect to the suitability of a B03 #0
stanuaiu in Austialia, his aigument is impoitant inasmuch as it suggests that, unuei
a uecision theoietic appioach, the optimal outcome in teims of an auministiative oi
juuicial appioach to RPN may uiffei fiom countiy to countiy. Stiuctuial
chaiacteiistics in some economies might iesult in a highei M30Q80+$? of
anticompetitive uses of the piactice, oi the .%1+"4870 of expecteu haims fiom those
piactices, than in othei economies. Auuitional factois might also neeu to be
consiueieu, incluuing litigation costs in a paiticulai legal system,
249
public iesouices
ueuicateu to enfoicement, anu availability of piivate enfoicement mechanisms,
2Su

among otheis.
As Piofessoi Rey notes, the Chilean economylike many othei small
economiesis chaiacteiizeu by a ielatively high uegiee of concentiation. Some of

248
Pengilley, "Resale piice maintenance: An oveiview," #8B3% note S7, at 21-22.
249
As noteu, those costs in the 0.S. system aie high. /001"+, SS1 0.S. at 916-17 (Bieyei, }.,
uissenting).
2Su
<00 Pengilley, "Resale piice maintenance: An oveiview," #8B3% note S7, at 18 (uiscussing
piivate litigation in Austialia as a "uistinct aiu to public enfoicement," anu aiguing that "a
competition test will auu substantial litigation complications anu that, foi this ieason, in
Austialia ueseiving cases will be less likely to be biought because the legal bill will be
highei.").
Su
the most impoitant inuustiies having just a few paiticipants, anu in many maikets,
intiabianu competition is uiiven by oligopolies.
2S1

In this context, maiket powei is likely to be impoitant,
which can encouiage unilateial conuuct aiming at
exploiting it moie fully, as well as stiategic behavioi
aiming at softening competition between incumbent
iival veitical stiuctuies oi foieclosing the maiket to
new competitois. :+ 4A"# $*+40V49 5034"$%& 30#43%"+4# #8$A
%# S6F %+7 0V$&8#"50 70%&"+1 .8#4 U0 %+%&?^07 $%30M8&&?9
%# 4A0 B*##"U"&"4? *M %+4"$*.B04"4"50 0MM0$4# "# .*30
&"I0&?;
2S2

Whatevei the appiopiiate enfoicement stanuaiu might be foi the Chilean
contextin light of its paiticulai stiuctuial chaiacteiisticsthe issues auuiesseu in
the uebates elsewheie, anu the effoits to apply uecision theoiy to the RPN question,
aie instiuctive.





2S1
Rey, "veitical iestiaints," #8B3% note 1, at 47.
2S2
:7. (emphasis auueu).