Resale Price Maintenance and eBay
Resale Price Maintenance (RPM) is, in a nutshell, a supplier imposing on its customers a minimum price at which they may resell goods or services acquired from the supplier. The result of RPM is to reduce or eliminate price-based competition in the retail market for the goods or services in question. This harms consumers, because they will be forced to pay higher prices than they would pay in a competitive market.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
What does this have to do with eBay? At the time, critics of Leegin argued that the decision could mean the end of finding bargains on the Internet, and would hurt consumers. Sure enough, they were right.
Companies have already begun interfering with eBay auctions, and filing
lawsuits against people who are reselling their products online for
less than the mandated minimum price -- and relying on Leegin as their authority to do so.
Makes me glad that, at least in Australia, RPM is and will remain per se illegal until such time as the TPA is amended to say otherwise. RPM is considered by Australian courts to be one of the mortal sins of competition law, and regularly attracts significant fines. In February this year, four Jurlique cosmetics companies, and the founder of Jurlique, were penalised a total of $3.4 million by the Federal Court for admitted acts of RPM -- the highest ever penalty for RPM in Australia.
Makes me glad that, at least in Australia, RPM is and will remain per se illegal until such time as the TPA is amended to say otherwise. RPM is considered by Australian courts to be one of the mortal sins of competition law, and regularly attracts significant fines. In February this year, four Jurlique cosmetics companies, and the founder of Jurlique, were penalised a total of $3.4 million by the Federal Court for admitted acts of RPM -- the highest ever penalty for RPM in Australia.
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