Publications

26 Jan 2011

State's price fixing claims against Tempur-Pedic put to bed in New York

FranCast

Kenneth G. Starling

An effort by the State of New York to establish that the practice of prohibiting pricing discounts by retailers is per se illegal under state law – despite the determination of the United States Supreme Court that it is not under federal law – has been rejected.  

On January 14, 2011, the Supreme Court of New York (New York County) rejected the New York Attorney General’s allegations of minimum resale pricing agreements between Tempur-Pedic International and its retail dealers.  The case has been widely viewed as an effort by the NY AG to establish (or retain) the per se illegality of minimum RPM agreements under NY law. 

In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the Supreme Court abandoned the per se rule for minimum RPM under federal antitrust law, and some state attorneys general have sought to resist the change through state-law enforcement.  The New York court’s decision does not establish any rule for judging minimum RPM agreements under the state’s antitrust law, but it does provide a clear and persuasive state-law endorsement of the legality of both unilateral suggested resale pricing policies and Minimum Advertised Price (MAP) programs – both of which are alternatives to minimum RPM agreements.

Significantly, the NY AG’s challenge was not brought under the state’s general antitrust law, the Donnelly Act.  Instead, the complaint alleged violations of a state law (New York General Business Law §369-a) that specifically makes contracts that restrain purchasers from reselling products at less than stipulated prices unenforceable.   The NY AG claimed that such resale pricing contracts are per se illegal, that Tempur-Pedic had committed an illegal act and that the illegal act gave rise to an injunctive action for “fraudulent or illegal acts” under another state law (Executive Law §63(12)).  The court rejected the NY AG’s allegations on multiple grounds.

First, even assuming that RPM agreements existed, §369-a does not make such contracts illegal but only unenforceable; hence, there was no illegal act to serve as a predicate for a §63(12) action.  The court did not address the question whether §369-a should be construed consistently with either the federal Sherman Act (and therefore with the Leegin decision) or with the Donnelly Act.

Second, the court found no RPM agreement and relied on a federal antitrust precedent, Monsanto Co. v. Spray-Rite Serv. Corp., to reach that conclusion.  The court found that Tempur-Pedic had established a unilateral policy of suspending shipments to any retailer that does not adhere to its suggested retail price ranges, which is lawful under standards set forth in United States v. Colgate & Co.

Third, the court found that a contract between Tempur-Pedic and its retailers exists, but it imposes only restrictions on retailers’ advertising, including the advertising of discount pricing, and other non-price restrictions.  This properly established MAP program contract did not incorporate any pricing restrictions and therefore did not violate §369-a.

This court ruling did not yield what the NY AG apparently sought:  It is not a decision (or a consent decree) imposing a New York state standard on the use of minimum RPM agreements that deviates from the Leegin standard.  Instead, the decision makes clear that, under New York law, franchisors may establish  – without much doubt about the legality  – unilateral suggested resale pricing policies and MAP programs and may consider them as alternatives to potentially risky minimum RPM. 

For more information about the impact of this case on your business, please contact Kenneth G. Starling.