Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AAI working paper examines resale price maintenance in the contact lens industry, (Dec 4, 2015)

By Michael Menzhuber, J.D., LL.M.

The American Antitrust Institute (AAI) has announced the publication of its working paper, “Resale Price Maintenance After Leegin: The Curious Case of Contact Lenses,” co-authored by Gregory T. Gundlach and Riley T. Krotz. Resale price maintenance (RPM), a controversial pricing practice for managing retail distribution channels, requires courts to weigh all the relevant circumstances of a case to assess whether a practice unreasonably restrains trade. The nearly century-old per se rule against RPM was abolished by the U.S. Supreme Court, in its decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

The Leegin decision, although it leaves many unanswered questions, 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 important “test cases” for the antitrust new vertical pricing regime following Leegin.

The working paper elaborates upon and examines important questions in the debate over the restricting pricing practices of contact lens manufacturers and for the future of RPM as a channel pricing practice. Drawing upon relevant literatures from law, economics, and business, together with publically available information, the paper reveals several insights:

• Various features of the retail distribution and consumer purchase of contact lens distort interbrand and intrabrand competition in ways that are exacerbated by the restrictive pricing practices of contact lens manufacturers.

• The long history of inter-channel conflict in the contact lens industry offers important context for understanding the antitrust implications of contact lens manufacturers’ pricing practices.

• The Supreme Court ruling in Leegin, and the relevant trends in distribution management, have resulted in significant questions as to whether the pricing practices of contact lens manufacturers will be found to: (1) be unilateral, as claimed; or (2) involve an agreement and, therefore, an RPM.

• The contact lens industry and the distribution of contact lens possess features that are consistent with factors relevant for understanding RPM’s harmful tendencies and the most historically relevant explanation of RPM’s harmful effects.

• The contact lens industry and the distribution of contact lens possess features that are inconsistent with: (1) the most historically relevant explanation (i.e., the free rider thesis); (2) a popular more recent explanation (i.e., the incentive incompatibility thesis); and (3) other relevant theories of RPM’s beneficial benefits.

• Existing literature, prior analyses, and recent trends in distribution management suggest that there may be competitively less restrictive alternatives to the pricing practices of contact lens manufacturers for inducing retail promotion of their products.

According to the paper, these insights should be helpful to both public and private assessments of the competitive implications of contact lens manufacturers’ pricing practices, and in advancing knowledge and practice of RPM following Leegin.

News: Antitrust