Resale Price Maintenance after Leegin: The Curious Case of Contact Lenses

Abstract

Resale price maintenance (RPM) is a controversial pricing practice for managing retail distribution channels. In Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), the Supreme Court abolished a nearly century-old per se rule against RPM established in Dr. Miles Medicine Co. v. John D. Park & Sons (1911). Henceforth, RPM will be judged under federal antitrust law by the rule of reason – a less restrictive standard that requires courts to weigh all the relevant circumstances of a case to assess whether a practice unreasonably restrains trade. Despite that the decision in Leegin leaves many unanswered questions, the decision has prompted an increasing number of consumer goods manufacturers to adopt RPM in the management of their retailer relationships. Recently, the widespread use of restrictive pricing practices in the retail distribution of contact lenses have drawn attention and elevated debate over the practice. Pending lawsuits in the industry have been identified as an important “test case” for antitrust’s new vertical pricing regime following Leegin. Drawing upon relevant literatures from law, economics, and business, together with publically available information, important questions in the debate and related cases that share significance for scholarship and practice are elaborated upon and examined. This examination reveals insights helpful to understanding the antitrust implications of contact lens manufacturers’ pricing practices and for advancing academic knowledge, marketing practice, and competition policy involving RPM.

AAI Working Papers are typically works in progress that will eventually be revised and published elsewhere. They do not necessarily represent the position of the American Antitrust Institute. This Working Paper represents the work of the authors and does not necessarily represent the views of the American Antitrust Institute or their affiliated institutions.

Keywords: price, distribution, distribution restraints, vertical price fixing, resale price maintenance, Leegin, contact lens